Your Portugal tax break could be on the chopping block

The tax breaks that brought many of you to Portugal are under review. The Court of Auditors flagged €21 billion in annual tax expenditure and wants to know which ones are worth keeping. It's Monday, 6 July. Twenty-nine degrees. Here's what you need to know.

🌬️ AIR QUALITY: 22 (Good).

🗞️ TOP STORY

THE TAX BREAKS THAT ATTRACTED FOREIGN RESIDENTS TO PORTUGAL ARE UNDER REVIEW. THE COURT OF AUDITORS IS ASKING WHETHER THEY'RE WORTH KEEPING.

The tax incentives that Portugal introduced to attract foreign residents, returning emigrants, and young workers are under formal review. The Tribunal de Contas (Court of Auditors) flagged €21 billion in annual tax expenditure in its latest assessment, representing 6.8% of GDP and an 18% increase on previous calculations. The auditors are demanding that every special regime justify its cost with the same rigour applied to standard public spending.

If you moved to Portugal partly because of a tax break, this is the audit that determines whether it survives.

Portugal spent the last 15 years building one of Europe's most aggressive tax incentive frameworks for foreign residents. The Non-Habitual Resident regime (NHR), launched in 2009, offered a flat 20% income tax rate and a 10% rate on foreign pensions. Over 74,000 people benefited. The cost reached €1.7 billion in 2024 alone, the highest since the regime's creation. The government closed NHR to new applicants in January 2024 and replaced it with IFICI, a narrower regime targeting scientists, tech workers, and startup founders.

But the NHR legacy is still running. Anyone who secured status before the cutoff keeps their benefits for the full 10-year term. Tens of thousands of foreign residents are still drawing on a regime the government has formally abandoned.

The other programmes under review are equally personal for readers. The Programa Regressar offers returning Portuguese emigrants a 50% income tax reduction capped at €250,000 for up to five years. The Jovem IRS provides reduced rates for under-35s in their first years of employment. Both were designed to reverse brain drain and attract young talent. Both have fiscal costs the Court of Auditors now wants quantified.

The auditors noted that over 100 tax incentives currently lack proper financial quantification. The largest single driver of the €21 billion total is reduced VAT rates (roughly 60% of the figure), but the personal income tax breaks that shaped Portugal's reputation as an expat destination are explicitly part of the review.

For residents on IFICI, the regime is newer and politically more defensible (it targets innovation and economic contribution). But the broader audit environment means no special tax arrangement in Portugal is guaranteed to remain unchanged for its full term. The government reintroduced tax breaks for foreign residents because it needed the people. The Court of Auditors is now asking whether the people justify the price.

Bottom line: Portugal spent €21 billion on tax breaks last year. The Court of Auditors is demanding accountability. If you benefit from NHR, IFICI, Programa Regressar, or Jovem IRS, this is the review to watch.

⚡ QUICK HITS

Portugal faces a €13-14 billion annual defence bill by 2035 as NATO raises spending stakes. The alliance's rising expectations will push Portugal's defence budget significantly higher over the next decade. The military expansion (25% personnel increase), the UN Security Council seat, and the Sines corridor all add strategic weight. The cost of being taken seriously at NATO is becoming clearer.

367 additional police officers have been deployed to Portuguese airports to manage border queues. The Interior Ministry confirmed the reinforcement at Lisbon, Porto, and Faro airports. The deployment is specifically for passport control, where the European Entry/Exit System (EES) has created longer processing times. If you've noticed slower queues at Humberto Delgado this summer, this is why.

Almada's water crisis is getting worse, not better. Over 3,000 residents have signed a petition demanding action. SMAS Almada imposed emergency rotational rationing across Costa da Caparica, Feijó, Sobreda, Vale Flores, Laranjeiro, and Capuchos after admitting that peak demand is exceeding what the system can extract from its boreholes. Cuts lasting over seven hours are now routine, often arriving without warning. The national water regulator (ERSAR) has demanded explanations. A protest is planned at SMAS offices this morning. If you live, work, or holiday on the south bank, this is not resolved.

Remember when the news was about what happened, not how to feel about it? 1440's Daily Digest is bringing that back. Every morning, they sift through 100+ sources to deliver a concise, unbiased briefing — no pundits, no paywalls, no politics. Just the facts, all in five minutes. For free.

Read the newsletter trusted by 4.5 million fact-seekers.

A quick note: Today's ad is from our network partner 1440 Media. If it catches your eye, consider giving it a click. Those clicks directly support The Lisbon Letter and help us keep delivering free daily news, recommendations, and local discoveries to our community every morning. It takes a second, and it goes a surprisingly long way. Thanks for being part of this.

🍽️ SPOT OF THE DAY

HOT COLD CLUB (PRÍNCIPE REAL)

Two Finnish saunas at 88°C. Four ice baths ranging from 14°C down to 4°C. A sun terrace. A mushroom-focused brunch café. And a community of people who start their morning by voluntarily sitting in freezing water, then eating granola made with fungi.

Hot Cold Club opened in February 2025 on Rua da Palmeira 33A in Príncipe Real. The concept is contrast therapy: alternate between the sauna and the ice baths in 3-4 rounds, resting on the terrace between plunges, and finish with brunch. A session costs around €30. The whole experience takes a morning.

The saunas are proper Finnish builds. The ice baths are separated by temperature so you can start at 14°C and work down to 4°C as your tolerance grows. Regulars do the full range. First-timers get coached through their opening plunge by whoever happens to be in the water next to them. The community aspect is deliberate: chess socials, crochet workshops, longevity talks, and pop-up markets happen regularly on the terrace.

The café runs a mushroom-forward menu in partnership with NÃM, a Portuguese project that grows mushrooms from coffee waste between Lisbon and Cascais. Mushroom toast with beans. Chicken laksa. Focaccia sandwiches made with bread from Marquise bakery. The café is open daily 8:30am-5:30pm, and you don't need to book a sauna session to eat there.

Around €30 for a sauna session is a commitment. Book ahead, especially weekends. Bring swimwear. The 4°C bath is not for beginners. Pet-friendly, which means someone's dog may be watching you shout as you sink into ice water.

→ Saunas, ice baths, and mushroom brunch in Príncipe Real. Find them here ←

Insider tip: Book a morning session. Do three rounds of hot-cold, starting at 14°C and working down. Finish on the terrace with a mushroom toast and an espresso. The combination of extreme heat followed by extreme cold followed by sunshine and coffee is the kind of morning that might just change how you think about the rest of the week.

📅 WHAT'S ON

See you tomorrow morning.

Reaching Lisbon's English-speaking community, every morning. Request our media kit.