Is Portugal still worthwhile without the Golden Visa for Real Estate and Non-Habitual Resident Regime?

On October 7, 2023, changes to the Residence Permits for Investment Activities (Golden Visa) came into force, revoking the possibility of investments through the acquisition of real estate and capital deposits, as well as a profound change to the regime for other investments. In addition, the Parliament is discussing approving the 2024 State Budget Proposal, which foresees for the termination of the Non-Habitual Resident (NHR) regime.

These legal instruments - the Golden Visa from the immigration perspective and the NHR concerning the taxation of individuals - have been important programs to attract foreign investment to the country, essentially over the last 12 years, and the Socialist Party government has decided to completely abolish the NHR and substantially limit the Golden Visa.

So what now? Is Portugal still interesting for foreign investment, having lost two of its most interesting programs to attract investors?

With the recent changes to the Golden Visa regime, which no longer allow new applications through the real estate investments and capital deposits, the possibility of accessing the program through other investment modalities remains in force, provided that they are not directly or non-directly aimed to the real estate investment.

Among the current investment options for obtaining a Golden Visa, there is a huge interest of the market in the transfer of capital in the amount of at least € 500,000, intended for the acquisition of shares in non-real estate Collective Investment Organizations (OIC), whose maturity is at least 5 years and at least 60% of the value of the investments is made in commercial companies based in Portugal.

If Portugal manages to redirect half of the average foreign investment that has been made in the country through real estate investments in recent years, for investment in commercial companies through OIC, approximately 5 billion will be invested in the country over the next 10 years, which is certainly a number to be considered.

This is an investment that is directly injected into the economy in a format with very different characteristics from real estate investment, since it is an investment made within Portuguese companies, which is intended to be more sustainable and structural, and which will help the Portuguese economy on the road to capitalization, innovation and development, with the leverage associated to the fact that it is carried out through an OIC, which assures an additional guaranty of rigor and security of such investments.

On the other hand, in addition to the possibility of access to the Golden Visa regime, the investment in OIC is one of the most attractive options from a tax and financial return perspective, according to the legal regime in force.

In fact, OIC - investment funds, investment companies and venture capital funds - and their participants benefit from a special tax regime in Portugal that provides for several incentives and exemptions.

In the case of non-resident investors, they even benefit, in certain situations, from an exemption from withholding tax on income when distributed by venture capital funds and, when this is not the case, they are covered by a regime which provides has a reduced withholding tax rate.

Regarding the NHR, and despite the proposal to eliminate the program as we know it, the current proposal under discussion includes a new configuration of tax benefits – which conditions are more difficult to meet and will only apply to activities of a scientific and academic nature.

Even so, the law under discussion provides for a transitional provision under which the regime will continue to be applicable under the current terms to all those applicants who, on January 1, 2024, are already registered as NHR before the Portuguese Tax Authority; and/or on December 31, 2023, meet the conditions for registration as NHR, or hold a valid residence visa on December 31, 2023.

In order to meet the conditions for registration as a NHR, applicants i) must not have been resident in Portuguese territory for the last 5 years; ii) must have stayed in Portuguese territory for more than 183 days, consecutive or interpolated, or iii) even if they have not stayed in Portuguese territory for more than 183 days, have a house, on any day of the year, in conditions that demonstrate the intention to maintain occupancy as a habitual residence.

In short, both the Golden Visa and the NHR have not been completely abolished, although their scope of application has been substantially changed and reduced, which translates into a strong disincentive to invest in Portugal. In our opinion, and although our country remains extremely attractive to foreign investment for a wide variety of reasons, it will certainly become less competitive as a result of these legislative changes, especially considering the existence of some similar programs in other European jurisdictions, which will remain without limitations. However, these are recent changes to the regimes and there are not enough elements to determine the direct impact on the market, which so far is reacting positively.

Biographies:

Joana Cunha d’Almeida

Partner and Head of the Tax Department at Antas da Cunha Ecija & Associados, Sociedade de Advogados RL.

Bruna Casagrande

Senior Associate and coordinator of the Immigration Department at Antas da Cunha Ecija & Associados, Sociedade de Advogados RL.