Costa's NHR Decision: A Risk to Foreign Investment

Opinion

On Monday, October 2nd, Portuguese Prime Minister Antonio Costa took the country by surprise with his announcement to end the special tax rate for new non-habitual residents (NHR) in 2024. This decision followed the contentious passage of the Mais Habitação bill and was part of the preparations for the 2024 State Budget. In the wake of nationwide protests over the country's housing crisis the previous Saturday, the Socialist PM justified this move by characterising the existing tax measure as unfair and biased towards inflating the housing market, which has seen unsustainable price increases. While the Prime Minister did not provide further details, the real estate sector, including investors and developers, reacted promptly with concerns that this decision might endanger the sector's stability without addressing the housing access problem.

Unsurprisingly, Costa's decision to terminate the Non-Habitual Resident (NHR) regime in Portugal has raised legitimate concerns about its potential repercussions on foreign investment, which has undeniably played a pivotal role in the nation's economic development hitherto.

Needless to say, the decision could potentially send a negative signal to foreign investors and skilled professionals who have been drawn to Portugal by the attractive tax incentives offered by the NHR program. The abrupt termination of the NHR program has not only unsettled the real estate market but has also prompted inquiries and concerns from international stakeholders, particularly in Spain.

Surprise move by the Portuguese Prime Minister risks deterring foreign investors and poses a grave threat to the country’s economic future.

Moreover, the skepticism expressed by the Governor of the Bank of Portugal (BdP) regarding the impact of programs like NHR on the housing market adds weight to the argument that this decision might be more politically motivated than rooted in economic necessity. The NHR regime has been in place since 2009 and was designed to attract skilled non-resident professionals and pension recipients from abroad. Its sudden discontinuation raises questions about the government's long-term economic strategy and its commitment to maintaining a competitive fiscal environment.

While addressing the housing crisis is unquestionably a pressing concern, it is crucial to weigh the broader economic implications of this move. Portugal competes with numerous other nations for foreign investment and talent, and any measures that introduce uncertainty or reduce the country's fiscal appeal may have lasting adverse consequences on its economic well-being and growth.

While it is imperative that decisions of this nature are made with a full understanding of their potential impact on the economy, as highlighted by experts and industry stakeholders, regrettably, the decision seems to be driven more by political considerations than genuine economic imperatives. Although tackling pressing issues is crucial, it should not be done at the cost of jeopardising the nation's long-term economic stability and growth prospects.

About the Author:

Ivo de Noronha is a Researcher , Freelance writer and MD of Strategic Solutions (Int) Limited.

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