From the Cayman Islands to the United Arab Emirates, various nations are competing to entice international professionals and investors with appealing tax regimes. Portugal and Spain had been two of the most favorite Mediterranean regions for this reason. But now, the landscape is changing.
The tax advantages in Portugal are fading away. The government has called off its tax break scheme for non-habitual residents (NHRs) amid a housing affordability crisis. On the contrary, Spain is offering lucrative tax benefits for foreigners.
Let's dive into what’s happening where and explore tax-free destinations to move to. If Spain is your go-to destination, My Spain Visa can help with the nitty gritty stuff.
The Changing Landscape of Tax Advantages in Portugal
For years, Portugal has been a haven for those looking to minimize their tax burdens. Created in 2009, its Non-Habitual Resident (NHR) program granted foreigners a significant tax break.
The scheme allowed total exemption from taxes for foreigners living in the country for half a year till 2020. Later, it offered a reduced tax rate of 20% on the income generated in Portugal through high-value-added activities (doctors, teachers, etc.). For comparison, Portuguese citizens are taxed at a progressive rate of up to 48%.
Additionally, foreign-sourced income while living in Portugal was tax-free if taxed elsewhere. Per the finance ministry of Portugal, about 89,000 people have benefited from the Non-Habitual Residents Scheme.
But the tide is turning! The Portuguese government is pulling the plug on these benefits from 2024, as a result of growing housing inflation. The tax regime has resulted in a 78% price hike for housing from 2012 to 2021.
The Portuguese Prime Minister, Antonio Costa, labeled the regime “fiscal injustice” and announced its closing from 2024 in an interview with CNN in early October. The decision came as a means to push up the price of housing, following a country-wide protest against soaring housing unaffordability.
The government had also discontinued its Golden Visa scheme for foreign investors earlier this year to cope with financial crises.
Spain's Attractive Tax Regimes
Spain is one of the most visited countries in the world. As Portugal reevaluates its tax advantages, Spain is emerging as an attractive alternative. Two key programs have been turning heads: the Beckham Law and Spain's Digital Nomad Visa.
The Beckham Law in Spain
Spain’s Beckham Law allows foreigners to pay taxes as a non-resident for the first six years of their stay in the country. It is named after the legendary English footballer David Beckham, who was the first to benefit from the scheme.
Under this law, eligible individuals can lock in a flat tax rate of 24% on Spanish income of €600,000 (47% on income above it), compared to a progressive tax rate of 19%-45%. You also don’t have to pay tax on income generated outside of Spain, making it incredibly appealing to high-earning expatriates.
Beckham law has undergone a few changes this year. According to Beckham Law Spain 2023,
- The non-residence period is reduced to 5 years from 10.
- Physical relocation due to an employment contract is not necessary. Freelancers and remote workers are eligible to apply now.
- Spouses and children (under 25 years of age) of the applicant are also exempted from the tax.
- Less than 25% of share capital holding for administrators of local companies allowed.
Spain's Digital Nomad Visa
In an era where remote work is more prevalent than ever, Spain has introduced a Digital Nomad Visa as part of Spain’s Startup Act. This visa is a game-changer for those who work online and wish to combine their career with a Mediterranean lifestyle.
The Digital Nomad visa offers a straightforward process with no prior connection to Spain required. It allows non-EU/ non-EEA remote workers and freelancers to live and work in Spain for up to five years.
The only requirement is the minimum wage of around €1260 with an additional 75% if you are bringing your family. Spain taxes digital nomad visa holders according to the Beckham Law tax regime, which means:
- You will be paying taxes as a non-resident for the year of relocation and the next five years.
- Favorable tax rate of 24% for income up to €600,000 and $47% on income exceeding it.
- Non-employment income earned outside Spain is exempted from tax.
- Only Spanish assets are liable for wealth or solidarity tax.
Spain's Digital Nomad Visa is perfect for you if you are looking for a location-independent lifestyle. It offers flexibility and freedom while enabling remote workers to legally reside in a European Union country. Plus, who can resist the allure of Spanish culture, cuisine, and scenic landscapes?
Summing It Up!
With Portugal phasing out its tax advantages for NHRs, Spain's attractive tax regimes and new initiatives offer an alternative for foreign workers and investors seeking favorable tax conditions in the European Union.
If you are looking for a change of scenery with some monetary benefits, Spanish Beckham Law or Digital Nomad Visa might just be the golden ticket to a new and exciting chapter in your life!
