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Portugal just became a bit less friendly to digital nomads as country plans to end foreign tax breaks

Alexander Spatari—Getty Images

Since the financial crisis of the late 2000s, Portugal has embraced its role as a haven for foreign workers and investors in the hopes of kickstarting the country's stuttering economy.

But now the country’s prime minister has taken the first steps to rein in the number of digital nomads coming to Portugal, as native workers grow increasingly frustrated by schemes that have helped create a major housing crisis.

In an interview with CNN Portugal, Prime Minister António Costa said he planned to put an end to the country’s non-habitual resident (NHR) regime next year.

Deloitte explains that under laws aimed at welcoming foreign workers, people who become tax-resident in Portugal are subject to a special tax regime for a period of 10 years under the NHR scheme.

Most individuals working in “high value-added” jobs — like doctors, tech workers, and journalists — pay a flat 20% rate of tax on income earned in Portugal.

That compares to Portuguese residents, who pay anywhere between 14.5% and 48% income tax on a sliding scale, according to PwC. Costa has now acknowledged this unequal policy is creating more harm than good within Portugal.

“Maintaining this measure for the future is prolonging a measure of fiscal injustice that is not justified, in addition to being a biased way of continuing to inflate the housing market", Costa told CNN. He said the regime would remain in place for those coming to the country prior to the cut-off date in 2024.

It’s unclear what will come in its place, including new avenues to becoming tax-resident in Portugal and their new income tax bands once they do so.

A representative for the Prime Minister’s office didn’t immediately respond to Fortune’s request to outline how the new rules would impact digital nomads. It’s also unclear how the rule change will impact the digital nomad visa brought in last year.

Under the D8 visa, foreign nationals from outside the EU or EEA earning €2,800 a month (about $2,930) a month can obtain a 12-month visa to work in the country. These residents tend to pay taxes back home, but new laws on non-habitual residents may also shift the dial for short-term workers.

Portugal clamping down on digital nomads?

The move makes the prospect of becoming an expat in Portugal less attractive to emigrating high-income workers. Thousands of digital nomads have flocked to the country since the onset of the COVID-19 pandemic to take advantage of new remote working options.

As of December last year, there were 15,800 digital nomads living in Lisbon, according to Nomad List data reported by Politico. Data from the Portuguese Immigration and Border Service (SEF) shows the number of foreigners living in the country jumped by around 45% between 2018 and 2021.

Nearly half of digital nomads hail from the U.S., according to Nomad List’s latest annual report. Lisbon, Portugal’s capital, is the most popular global destination among women and the second most popular for men.

But recent policies suggest a sea change that appears to be aimed at deterring some groups of future visitors, who for years have been regarded as enjoying a leg-up over native Portuguese workers.

The country announced earlier this year it would also end its golden visa program, which since 2012 has allowed foreigners to obtain Portuguese citizenship in exchange for investment in the country. This could include buying a home for at least €350,000 (about $367,000).

That drove an investment boom in Portugal, which generated €7.3 billion (around $7.6 billion) from the scheme between 2012 and 2023, according to data from the Portuguese Immigration and Border Service (SEF). Nearly 90% of that investment came through real estate.

While offering an evident boost to the country’s coffers, the unequal nature of the tax regime has created inevitable social issues for Portuguese residents, who have found themselves increasingly priced out of the housing market by wealthy visitors.

Digital nomads have caused a swell in the number of Airbnb properties in cities like Lisbon, cutting the supply of affordable housing for other residents, the Guardian reported in July. Margarida Custódio, a Lisbon resident, told the paper she was spending 90% of her salary to rent in Lisbon.

Politico reported how digital nomad protestors made it to the gates of a Lisbon web summit in November last year, decrying rising house prices and gentrification as a result of Portugal’s foreign investment-friendly policies.

This story was originally featured on Fortune.com

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