Digital nomads around the world raised their eyebrows on Tuesday when Portugal announced it would be scrapping its special tax regime for non-habitual residents from 2024. The U-turn comes after an influx of remote workers and digital nomads inflated the rental market, caused prices to spiral, and priced many local Portuguese out of their own neighbourhoods.
And now, following news that Spain's Iberian neighbour is adopting a less welcoming stance to affluent and mobile foreigners, some are wondering if Spain could soon follow suit as there are similarities between what's happening in both countries.
READ ALSO: Spain's rent freezes and housing law fail to prevent price rises
The Portuguese model, which attracted 16,000 digital nomads to the capital Lisbon alone, offered tax incentives to people who moved to the country, with foreign income largely tax-free and any income earned in Portugal taxed at just 20 percent.
Spain has a similar special tax regime for foreign remote workers called the 'Beckham Law' and recently passed a Startups Law with other fiscal and residency benefits for newcomers from overseas.
For some perspective, Portuguese citizens, who generally earn far less than these wealthier, remote workers on foreign salaries, can be taxed up to 48 percent on their income. Meanwhile, the cost of housing has gone up by a staggering 78 percent in a decade, according to a study by the Francisco Manuel dos Santos foundation cited by Le Monde.
After studying the impact such a large influx of foreign workers has had on locals and the local rental market, the Portuguese government announced this week that it will not continue with the tax-incentivised regime.
Portuguese Prime Minister António Costa told CNN Portugal that the system had produced “fiscal injustice”.
“It is no longer justified and is a biased way of inflating the housing market, which has reached unsustainable prices," the Prime Minister said.
This follows the decision in February 2023 by the Portuguese government to scrap its golden visa, and to regulate Airbnb properties, a popular option for digital nomads and one that has played a big role in pricing out locals who cannot compete with the foreign purchasing power.
How similar are Portugal and Spain's tax and residency perks for foreigners?
Portugal introduced numerous incentives to attract foreign money and talent in the early 2010s, and Spain did so soon after.
For example, the Golden Visa was introduced in Portugal in 2012; Spain did so in 2013.
Similarly, Portugal's digital nomad visa was brought out in October 2022 and Spain rolled out its own a few months later in early 2023.
However, Portugal cancelled its Golden Visa in February 2023 and there is no signs yet Spain will do the same, though the Spanish government is considering toughening up the visa conditions by increasing the €500,000 property price threshold which grants non-EU foreigners residency and other perks in Spain.
READ ALSO: How Spain plans to toughen conditions for its golden visa
There is no indication either that Spain will scrap its Beckham Law - the equivalent of the now cancelled tax break for non-habitual residents in Portugal. This tax regime introduced in 2004 and named after the English footballer because he took advantage of it when he joined Real Madrid, essentially allows some foreign remote workers to pay tax in Spain as if they were non-residents at 24 percent up to €600,000, for a total of six years.
READ ALSO: Beckham Law: What foreigners need to know about Spain's special tax regime
Interestingly, both Spain and Portugal are keeping their non-lucrative visas (Portugal's passive income visa is known as the D7.)
A look into the future?
It seems unlikely that the Spanish government is going to start a crackdown on digital nomads anytime soon, as has started in neighbouring Portugal. The digital nomad visa and Startups Law were only launched in early-2023, so the medium to long-term consequences remain unseen.
READ MORE: What are the pros and cons of Spain's digital nomad visa?
Yet Portugal generally has tended to be slightly ahead of Spain when it comes to introducing these foreign-focused visa schemes, and with rental costs already skyrocketing in Spain, it seems plausible that a further influx of wealthy, mobile foreign workers settling in Spain could worsen the problem.
In the short to medium-term, Spain remains an incredibly attractive destination for not only remote workers and digital nomads, but also foreign retirees, second home owners and wealthy investors from overseas.
But in recent months, similar feelings have been simmering among locals in major cities, and the beginnings of a backlash against the concentration of short-term tourist rental accommodation have begun in some parts of the country, although there haven't been protests in the streets as has been the case in Portugal.
Although mortgages signed by Spaniards have dropped drastically due to sky-high interest rates, property prices are still up, in part because wealthy foreigners are buying Spanish homes more than ever, and thus propping up the market.
Spain's rental market is also very strained despite a new housing law brought in last May aimed at tackling this. The year-on-year increases in major cities around Spain have been stark: in Valencia rents have gone up by 22.1 percent in a year, in Alicante 18.6 percent, in Barcelona 18.1 percent, 17.9 percent in Málaga and in Madrid 10. 7 percent.
Short-term holiday lets are being partly blamed for this and in the Canary Islands and other parts of the country there are impending or existing limits to Airbnb units in place.
If rental costs continue to soar across Spain discontent among locals will rise and the government may be forced to step in and intervene as has been the case in Portugal.
The Spanish government has already given a nod in this direction by introducing a so-called 'solidarity tax' in an attempt to help people in Spain weather the economic storm of the cost-of-living crisis, targeting people with large net fortunes.
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