Portugal’s new government is set to reintroduce tax incentives aimed at attracting highly skilled foreigners, part of a comprehensive strategy involving 60 measures to stimulate economic growth.

The tax incentives will offer a 20% flat rate of income tax specifically on salaries and professional income, explained Joaquim Miranda Sarmento, the Finance Minister, emphasizing that “dividends, capital gains, and pensions” will not be eligible for this tax break.

“We need skilled workers and economic growth. We will have to balance that with more affordable houses. Obviously, if we have just one side of the policy, there will be more affordable houses but less economic growth. So we have to balance these two parts.” Sarmento said.

This adjustment comes after criticism during the previous administration, which initially exempted pensions from taxation but later implemented a 10% flat rate, drawing objections from Nordic countries concerned about tax avoidance.

The inclusion of retirees in the previous regime was odd remarked Nuno Cunha Barnabé, a tax partner at Lisbon law firm Abreu Advogados, reflecting on the policy shift.

Barbabe emphasised “It was against demographics. It didn’t make sense,” he said. “We already have an old population. Attracting pensioners puts more burden on our health system. We need to attract young people.”

Portuguese companies, especially in sectors facing shortages of skilled labour like engineering, research, and management, have welcomed these measures enthusiastically.

They anticipate that the tax incentives will enhance Portugal’s appeal as a destination for professionals seeking favourable tax conditions and employment opportunities.

“This will attract some people. It’s not sufficient, but it’s something the government can do”.