Portugal rode the remote work wave like few other nations in the aftermath of the pandemic. As soon as the government lifted restrictions, it launched a series of fiscal measures to attract highly skilled digital nomads and stimulate consumption, which it aimed to use to drive local growth.
On paper, it was a good plan. The problem is that the local market adapted to the economic capacity of these new residents, forgetting the meager salaries and purchasing power of the Portuguese themselves, who couldn’t even afford to rent a home. And what was bound to happen is happening: Young Portuguese citizens are leaving Portugal.
Digital nomads and their tax benefits. In 2022, Portugal introduced a “digital nomad visa,” which allows remote workers from places with larger economies to work legally from the Southern European country. One of the few requirements to obtain this visa was to have an income of at least four times Portugal’s minimum wage. According to Portugal News, as of January 2024, the minimum wage was €820, about $890, so digital nomads who want to qualify for a visa in Portugal must have a monthly income starting at €3,280, or roughly $3,550.
Portugal has implemented some tax incentives to encourage the arrival of digital nomads with deep pockets. However, the measure has only widened the gap between newcomers and locals, who earn less, pay more for goods, and have to pay more in taxes. Like other European countries, Portugal froze these tax incentives at the beginning of 2024.
Portuguese talent drain. Efforts to attract foreigners to Portugal have caused significant collateral damage: Portugal is now facing a severe talent drain among its young people. According to data from the Lisbon Emigration Observatory published by Schengen News, 25% of the Portuguese population lives outside Portugal.
As Business Roundtable Portugal states, nearly 40% of young Portuguese graduates emigrate yearly for better job opportunities. Vítor Ribeirinho, CEO of KMPG in Portugal, told the media outlet: “We are reducing the capacity to retain the best. The government and indeed anyone need to understand that something needs to be done with regard to young people. If we don’t, we run the risk of them starting their careers overseas.” Ribeirinho pointed to wages as a key factor in curbing the situation.
The reason: low wages and expensive housing. Portugal’s minimum wage is €820, but as Euronews reports, 50% of the population earns less than €1,000 (about $1,080) monthly. These numbers confirm the estimate of average wages in Europe, which places Portugal at the bottom of the European salary scale, only ahead of Greece, Slovakia, and Hungary. As 2021 data from the National Statistics Institute (INE) states, the average monthly salary in Portugal was €1,289.50 (roughly $1,400). However, Portugal News reports that provisional data for 2024 point to an average wage increase of 4.3% compared to 2023, with the average wage increasing to €1,463 (about $1,580).
According to INE data, rents in Portugal have risen by an average of 10.5% in the last year. This increase in the cost of living is seriously impacting residents who don't have access to a reasonably priced housing market. This issue intensifies the emigration of young people in search of better living conditions.
Squaring the nomadic circle. The Portuguese government is trying to balance attracting foreign investment and improving local living conditions. Fortune reported that Portugal’s Prime Minister Joaquim Miranda Sarmento announced reintroducing tax breaks for foreigners. Among the measures was reinstating the reduced 20% tax rate on salaries and income for specific “high value-added” jobs without exempting dividends, capital gains, and pensions.
The reinstatement of this exemption aims to make Portugal an attractive destination for digital nomads, striking a delicate balance between attracting skilled foreigners and looking after the welfare of the local population.
This article was written by Rubén Andrés and originally published in Spanish on Xataka.
Image | Pexels (Ketut Subiyanto, Carolina Matos)
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