A “a sort of economic miracle”, it is in these terms that a few weeks ago, the American economist Paul Krugman, winner of the Nobel Prize in 2008, spoke of Portugal. In ten years, the country has achieved a feat.
It went from being a moribund country to one of the most thriving European economies, with a growth rate of 6.8% in 2022 and 2.2% in 2023, while the European average was around 0 .6%. Behind this “miracle”, an increase in attractiveness due to a range of tax statuses intended to win over individuals.
“Using the personal income tax lever”
Some personalities were not mistaken: Florent Pagny, Isabelle Adjani, Philippe Starck and even the heirs of Claude François took up residence in Portugal to benefit from a tax exemption on their royalties.
In their wake, many artists or startupers have done the same. But this is also the case for retirees and workers described as having “high added value”. They all benefit from specific statuses allowing them to considerably reduce their tax bill. “The idea, rather than competing as some other countries do, with low corporate tax rates, was to use the leverage of personal income taxexplains researcher Rita de la Feria, specialist in tax law at the University of Leeds in the United Kingdom. This created a snowball effect. When people came to live in Portugal, they realized how good life was, and that acted as a trigger for a whole series of actors to become interested in Portugal.”
At the origin of the development of this range of tax exemptions, the 2008 crisis which left the country on the ground. Consumption stops, borrowers are no longer able to repay the banks, unemployment reaches a record rate of 16% in 2013. But above all, “in 2010, Portuguese banks found themselves with a stock of six billion euros of real estate”, explains Carlos Vinhas Pereira, president of the Franco-Portuguese Chamber of Commerce. It was therefore necessary to find a way to sell this stock. The country, taken in charge by the “Troika” (the International Monetary Fund, the European Commission and the European Central Bank), then implemented 130 drastic measures to revive the economy. And at the same time, the socialist government chooses to attract foreign capital by targeting individuals, in the hope of selling off, among other things, this enormous stock of real estate.
RNH for Europeans and “Golden Visa” for others
The first to answer the call will be retirees. And for good reason: a non-habitual resident status (RNH) allows all former European private sector employees to be completely exempt from taxes for 10 years, provided they live at least half the year in the country. A boon which is coupled with a lower cost of living in Portugal than in France. Result: a first wave of French people arrived from 2013.
They are quickly followed by another category of expatriates: workers whose profession is also eligible for NHR status. These are higher intellectual professions, artists, researchers, doctors, engineers, etc. They benefit from an income tax rate capped at 20% for ten years. Added to this are total exemptions for artists on their royalties as well as for entrepreneurs paid in dividends. Jean-Luc Paulhe, head of the Envie de Lisbonne company intended to help French people settle in Portugal, was able to see the effect of these measures: “Among my clients, I have had many thirty-somethings, entrepreneurs who had just sold their company, which offered them dividends over several years. We have had many families with this profile.”
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A different status is offered to non-European individuals wishing to invest in Portugal. Until recently, a “Golden Visa” offered them a residence permit for five years, renewable, on the condition of investing in real estate worth at least 250,000 euros or creating a business in the country. It was enough to stay in Portugal seven days a year to benefit from this status. Given the success of the operation, which brought in 5.5 billion euros for the Portuguese state during the first eight years, the cost of the investment was finally increased to 500,000 euros. Brazilians, Asians and North Americans were the main beneficiaries of this program, finally suspended since 2023.
A wealth subtracted from that of the countries of origin
In a decade, Portugal has attracted a new population. The number of French residents is estimated to have increased from around 15,000 in 2010, to more than 80,000 currently. The latest wave of arrivals followed the health crisis. The massive development of teleworking in certain professions has led some households to move, including to Portugal.
The phenomenon is beginning to alert researchers who have looked into the impact of these departures on a state’s budget. At the University of Leeds, Rita de la Feria was surprised by the results of the study she conducted with her colleague Giorgia Maffini.
“As the people who emigrate are those with the highest incomes, their departure affects the resources of their country of origin. With significant consequences, even if there is a low number of departures, because these people are part of those that bring in the most in terms of taxes.”
Rita de la Feria, researcher at the University of Leedsat franceinfo
“For the United Kingdom, for example, we calculated that 140,000 departures would be enough for the country to lose billions of euros”, further details the researcher. A calculation that would also be valid for other European countries. According to the researcher, this “dumping” taxation of individuals could have consequences as devastating for public finances as that practiced in other European countries, such as Luxembourg or the Netherlands, for corporate tax. However, this aggressive tax policy is implemented in Portugal, but also in other countries such as Greece, Croatia and Spain.
After individuals, companies followed, notably those of the CAC40
By attracting individuals, Portugal has however won its bet. Not only did individuals arrive in numbers, but companies followed, and not the least: 38 of the 40 CAC40 companies are now established in the country. This is particularly the case for BNP Paribas, which went from a thousand employees before 2010 to 9,000 today.
Portuguese tax conditions are relatively similar to those in France for a company, but the country has another advantage: low remuneration. “The minimum wage amounts to a little less than 900 euros gross per month, with lower contributions than in France”, notes Laurent Marionnet, of the Luso-French Chamber of Commerce in Lisbon. Portugal therefore provides an educated workforce, often trilingual French-English, and all at low cost. Enough to appeal to large groups. “This is what we call ‘near-shoring’sighs a union representative from BNP Paribas, in other words, a local relocation. The majority of employees in Portugal do not work for the domestic market but for the European region. On the other hand, we see certain professions disappearing or diminishing in countries like France or Germany.”
After years of dazzling economic recovery, Portuguese workers are facing a new problem. The arrival of wealthy classes has doubled the price of real estate in the regions of Lisbon, Porto and the Algarve. With current salaries, it is therefore becoming impossible to find accommodation, which BNP Paribas is aware of, according to an internal memo that the Radio France investigation unit obtained.
“Most employees receive between 800 and 1,200 euros net monthly. Currently, with this salary, it is only possible to rent a room in Lisbon.”
An internal note from BNP Paribasconsulted by the Radio France investigation unit
“And even outside the capitalwe also read in this note, the rent for modest accommodation costs around 800 euros.” This situation pushes employees to demand better salaries, and leads large companies to hire young people out of school, who generally only stay for a maximum of three years before looking for a better paid position.
A step backwards suspended from the results of the next elections
But the situation is changing. While Portugal had a debt ratio in relation to GDP of more than 130%, it should fall below 100% in 2024. With economic success there, the government is in the process of reducing its taxation. advantageous. THE Golden Visa does not exist anymore. Non-habitual resident status (NHR) has ended for retirees. As for assets “high added value”, the list of its contenders is now reduced to only teachers and researchers. A new status will allow you to be taxed only on half of your income up to a limit of 250,000 euros per year in the event of settling or returning to Portugal.
These measures, currently being prepared, will however have to wait for the outcome of the political crisis currently going through the country to be adopted. After the involvement of ministers in cases of favoritism, the government actually resigned. The next one will be elected in March 2024. Only then will we know if the country is really changing its direction in terms of taxation.
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