Background: Different sentiments to expats in Portugal
Between 2010 and 2014, Portugal’s economy was on the brink of oblivion after a lost decade. Hoping to bolster it’s then collapsing economy, Portugal opened its doors to wealth from “better-off” countries. It is within those years that much of Portugal’s “open door” VISA policy and tax benefits for foreigners have been shaped.
Fast-forward to today, Portugal is still a relatively poor country, but its economy has grown significantly. Recent years have seen a budget surplus and Portugal became a trendy place for many foreigners.
The rapid movement of wealth from countries such as the UK, Germany and increasingly the US, has led to a dual approach of the Portuguese to “wealthy expats”.
On one hand, the immigration policy remains one of the most inviting in Europe and tax benefits to expats have been significant until recent changes. People in Portugal are generally kind and welcoming.
On the other hand, whilst Portugal’s economy undoubtedly improved, many have been left behind. For the locals, salaries remain low, taxes remain painfully high and many of Portugal’s most talented young people leave Portugal to seek a future in other countries. Portugal’s safety, weather and most importantly, worldwide recognition have led to inflation and particularly high inflation of house prices. Expats with high income and well-paying overseas jobs can afford the higher prices, but locals often cannot and are therefore feeling squeezed out of their homes and their communities.
On the extreme end of the spectrum, there is anger and frustration. Our social media accounts have regular comments, normally by young Portuguese people, inviting us, politely or not so politely to stop inviting foreigners into Portugal. This wide public opinion had led the previous government to decide to end the NHR program, end the residential Golden Visa and severely restrict licenses for short term accommodation.
Expats who have chosen Portugal as their home are often unsure how to react to this frustration.
At FRESH Portugal, we support thousands of expats that are moving to Portugal. Most of our client are “wealthy" by Portuguese standards. So, we find ourselves in the heart of this sentiment. We, too, have been asking ourselves what should a business that works with expats do, if anything at all.
We would now like to share our perspective about the path that we believe expats and Portuguese should be taking together.
Is Expat immigration a blessing or a curse?
Before we move to our practical proposals, we would like to start by examining the merits. It is important not to dismiss the feelings of people, but it is also important to consider the real effect of expats in Portugal, without fear.
A good place to start would be to consider whether we want to live in a world where people can move to another country or a world where people are confined to their home country. The answer is clear and Portugal already made the choice by joining the EU. The world is a better place when people can move to other countries. Nearly every country in the world that is considered “successful”, the US, Canada, the UK, Australia, Germany – owes much of its success to the energy, passion and attitude of migrants and the more educated and competent the migrants are, the more they contribute. The migrants we discuss in this article are the most competent and educated one can think of. Equally to the relationship between successful countries and immigration, there is almost complete correlation between failing countries and immigration. Show me a country that nobody moves to or wants to move to, and I’ll show you a poor, failing country.
Portugal has not been a successful country before expats from wealthy countries started coming. In fact, it was on the verge of financial collapse. Today, it continues to suffer from aging population, low birth rates, high divorce rate, a healthcare system that hardly copes with the needs of modern life. It does not have a well-developed and well-versed economy. It’s economy is highly dependent on tourism and construction, two fields that are subsequently dependent on foreigners. Portugal needs young working people, both locals and foreigners and any government, regardless of political affiliation, comes to acknowledge this simple fact. Young people work and contribute and support the older population.
“We don’t oppose them coming, but we oppose tax benefits” is a position taken by some people who acknowledge the need for foreigners but refuse to accept that in trying to attract the “brightest and the best”, Portugal competes with the rest of the world and not with itself. The tax system in Portugal is designed around its own economic conditions. Since the system is progressive, nearly every "wealthy" expat would get caught, unlike the majority of the Portuguese, in the highest tax band. On a practical level, the highest levels of tax in Portugal make it unattractive to people who have a choice. On a moral level, it is reasonable of the Portuguese to expect people in a similar job in Portugal to pay similar tax rates. After all, Portugal contributed to their education, healthcare and well-being. However, the overwhelming majority of foreigners keep their remote jobs and earn salaries using expertise and education that were created in another country. Portugal does not stand to apply full Portuguese tax rates as alternative to the lowered tax rate.The choice is between taxing income that is not generated in Portugal at a reasonable rate that is equivalent to those paid by most Portuguese (because the Portuguese have lower salaries), or not tax it at all. Receiving a tax intake from people whose education and healthcare have been paid elsewhere is net gain for Portugal and the “unfairness” argument can be much better made by the country that sponsors the salaries.
People who talk about the “unfairness” of tax rates are also rarely aware that the typical tax paid by a Non-Habitual Resident (i.e. an expat with tax benefits) is at least 10 times more than the average Portuguese, after applying all tax benefits. Said expat, however, normally uses private healthcare and does not have elderly relatives to support. The elderly that are supported by the tax intake are Portuguese.
Saying "don't come" is easy, but the money is needed and supports hard-working Portuguese people and their family members.
Furthermore, expats are often blamed exclusively for the rise in housing prices. There is no doubt that expats have some contribution to the price pressure, but it is greatly exaggerated. Expats purchase only approximately 10% of properties in Portugal so their contribution to the prices is only partial.
More importantly, Lisbon alone has over 40,000 abandoned properties (!!) and the same is true for other cities. These properties do not belong to expats. A primary reason for the existence of abandoned properties is bureaucracy and inheritance disputes within Portuguese families. Had even a fraction of the abandoned properties been released to the market, it would have more than compensated for expat demand, yet wealthy Portuguese families who “sit” on the properties or the dysfunctional and convoluted legal system in Portugal rarely takes remotely as much of the blame as expats do for inflation.
A similar point can be brought up with relation to short term rental properties used as AirBNBs. Yes, AirBNB means transitional people, noise and less of a neighborhood feel, but it also means jobs for local businesses, invigorated areas and support for the largest sector of Portuguese economy. Many tourists are loud teenagers with no respect to local culture, but many others are fascinated by Portugal and are a blessing.
That all said, there is no doubt that expat demand is responsible, particularly in areas where it is concentrated - Lisbon, Porto and the Algarve, to some of the rise in housing prices, as well as other prices and there is also no doubt that the local population suffers from it, at least partially.
And perhaps more important than logic alone, one must understand that there are emotions involved. Sure, expats are contributing to the economy, but still, for a young person with a small salary and high tax rate whose parents have just left the city after not being able to afford the prices, the presence of young people earning high salaries paying lower taxes and drinking flat whites is a painful one – a constant reminder of one’s struggles. At the same time, emotions are not confined to the Portuguese. Expats, too, are human beings and have emotions. Expats who left the US due to fear of gun violence or the UK due to Brexit deserve better than reading “go home” graffitis. Indeed, many expats are wealthier but they are also more lonely. The Portuguese have large families and circles of friends who support them. They may not have as much money but they have more meaningful relationships, such that expats left behind.
It is therefore important to acknowledge the complexity of the expat situation in Portugal. On one hand, expats make an enormous contribution to Portugal. On the other hand, from an economical point of view, this contribution is not without side effects. Both Portuguese and expats can see the other group as painful. A mature approach to the story of expats in Portugal would be one that acknowledges the contribution of expats as long as the mutual feelings created by the injection of a group that is economically strong but socially disconnected into an existing society that is still relatively new and is finding its way. The reality is complex and the solution, like the problem, is not simple or straight forward.
The root issue: No jobs
This leads us to looking for the root cause of the real problem – Portugal has almost no quality jobs.
Salaries are low not only because taxes are high but because the economy is based on low output industries such as tourism and construction and not high output economy like the technology sector. To have higher output, Portugal needs more advanced industries and more than any other industry, it needs a thriving tech industry. There has been a lot of discussion about the growth of Portugal as a tech hub, but from our experience, it is mostly hype. The industry is at its infancy and the ecosystem is lacking - there are few jobs, few real companies building real products, not enough talent and not enough capital.
Sadly, the tax benefits system that has done so well to attract quality talent, did absolutely nothing to encourage the people coming to Portugal to create wealth within Portugal. Very few "wealthy" expats come to Portugal to work in or create Portuguese companies. They keep their jobs overseas and only "live" in Portugal. Interestingly, this is true for Portuguese in the tech sector as well. Due to the pay gap between the tech sectors of Portugal and other countries, the most talented Portuguese who live in Portugal may well be freelancing for overseas companies.
In fact, the tax system in Portugal punished entrepreneurs and investors for trying to set up businesses in Portugal. There are nearly no tax benefits for investors. Labour law encourages businesses not to hire, the system is slow, bureaucratic, distrusting.
The lack of quality jobs is one of the primary reasons that expats are an almost separate society. Expats almost never work in Portuguese companies. Instead, they wake up, work in their remote job and do not engage deeply with colleagues who live next to them. In most countries that have large migrant population, people integrate by joining the workplace. In Portugal, in the absence of workplaces to join, people do not integrate. Having remote workers doing well and contributing to the tax intake may be better than not having them, but it is not remotely as good as having bold entrepreneurs creating new Portuguese companies that hire Portuguese, Brazilian, British, American and other talent on scale.
The FRESH Way: Introducing FRESH Ventures and our investment activity
At FRESH Portugal, we don’t believe in complaining.
We have identified the problem (lack of quality jobs) a while back. In the beginning of our existence, we were focused on achieving this goal internally. FRESH isn’t just a trusted firm that supports thousands of expats in their journey to Portugal. It is also a small business where foreigners and Portuguese are working together in harmony, having a fun work environment and earning proper salaries.
However, although every little helps, as a small business, we are not going to alone solve the job crisis in Portugal. So we decided to take it to the next level.
At the end of August, we decided to create FRESH Ventures, a commercial arm that would be focused on supporting startups in Portugal and encourage them to achieve sustainable growth and create many jobs in Portugal.
At the end of the summer of 2024, we made our first investment into CORE Angels Lisbon, the most prominent angel group in Lisbon. Our intention in this investment is to support startups in Lisbon, but more importantly, become part of the ecosystem and obtain access to the best startups in Lisbon, so that we can encourage our clients to support them as well.
We have a few thousands of clients now, and between them, we estimate that there are billions of Euros in wealth. This wealth is currently mostly invested overseas, with some of it invested in Portuguese real estate. It is our hope to encourage our clients to join us and invest a small fraction of their wealth into the Portuguese tech ecosystem. This will lead to the creation of quality jobs in Portugal, but more importantly, it will lead to a real integration and healthy cooperation between expats and locals.
FRESH Ventures is not a charitable initiative. Our intention is to identify the best opportunities in Portugal and help our clients make even yet more money, but in a way that will support the local economy in a more sustainable way and also in a way that would help the Portuguese see the value in having friends and partners from other countries.
