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Americans Flock to Portugal in Anticipation of Changes to Expat Tax Benefits

Americans are flocking to Portugal in anticipation of changes to tax policies that will eliminate financial benefits for expatriates who relocate to the country. The decision to end tax breaks for so-called “non-habitual residents” in Portugal, announced by the prime minister in October as part of a broader effort to address the country’s housing crisis, has triggered a surge of Americans applying for tax residency.

Portugal became a magnet for expatriates during the pandemic, luring them with affordable property prices, a pleasant climate, and advantageous tax and visa programs. However, mounting political pressure driven by rising housing costs has prompted a recent crackdown on incentives for foreigners. The impending termination of tax breaks has prompted many to rush to complete paperwork to ensure their eligibility for the program, which can result in substantial savings of hundreds of thousands of euros over a decade.

“People are in a panic, rushing to figure out how they can secure their spot before it’s too late,” said Daniela Lopes Costa, a tax attorney based in Lisbon.

While Americans living abroad are still subject to US taxes, the non-habitual resident tax system in Portugal allows expatriates relocating to the country to benefit from a flat 20% tax rate on income and a 10% levy on pensions for a duration of 10 years. This is significantly lower than the progressive tax rates imposed on locals, with residents earning annual incomes exceeding approximately €79,000 being subject to a 48% tax rate.

Introduced in 2009 to attract foreign investment, the generous tax system for non-residents has proven to be successful, benefiting a total of 89,000 individuals by July of last year and contributing €1.4 billion in taxes from expatriates enrolled in the program.

In recent years, however, the program has faced criticism, with some politicians and locals attributing it, along with the “golden visa” scheme, to exacerbating the country’s housing issues by driving up property prices. Consequently, the golden visa program was restricted in July, and the special tax benefits are being phased out.

Although Portugal’s Prime Minister, Antonio Costa, resigned amid a corruption scandal, his government remains in power, and the tax changes were included in a budget passed on November 29th. Initially, Costa had announced that people would no longer be able to apply for tax breaks after the current year. While this deadline has been extended, individuals seeking eligibility must demonstrate their intentions to relocate by 2023.

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