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Monday, Jan 30, 2023

Portugal’s digital nomad bubble poised to pop

Portugal’s digital nomad bubble poised to pop

Tech entrepreneurs cool on the country as locals protest against rising costs and gentrification.

Portugal has placed a huge bet on attracting “digital nomads” — and their money — to the country, but when it comes to keeping them, its hand may come up short. 

Belgian entrepreneur Jan Deruyck, who moved to Portugal in 2021 with his wife Morgane to build feminine health startup Guud in “full isolation” during the pandemic, is one of them. But a year and a half later, he’s out: “[They have] huge ambitions, but there’s little execution.”

As COVID-19 spurred on wealthy tech workers and entrepreneurs to work from anywhere — the nomadism in question — Portugal sought to lure them with tax breaks, dedicated visas and the promise of year-round sun.

Now the country’s scheme faces trouble from both ends, as local residents’ resistance grows amid soaring house prices and gentrification, and nomads themselves point to an administrative headache in setting up shop. 

Protests against the digital nomad project made it to the gates of November’s Web Summit, an annual Lisbon-based tech fair that last year attracted 71,000 attendees at peak capacity. 

“They put too much money in these things, and at the same time we can’t live in the city anymore,” said Ana, a teacher protesting on the opening night, as a parade of startup entrepreneurs walked by.


Laying out the welcome mat


At first glance, Portugal — and more specifically, Lisbon — looks like the perfect outpost for digital nomads, a happy accident of scenic vistas, affordable living and flexible regulations. The global pandemic further pushed restless techies into the country’s arms.

The country’s so-called golden visa scheme, which goes back to 2012, gives foreigners Portuguese residence in exchange for investment in the country — for example, buying old or dilapidated real estate worth at least €350,000. More recently, it’s served as a draw for tech investment and the workers who come with it.

According to Nomad List, a web platform for hypermobile workers, as of December, Lisbon was home to 15,800 digital nomads. The city also appears among the top destinations for nomads, especially women, in the website’s latest “State of Digital Nomads” annual report. 

While the policy’s initial beneficiaries hailed more from China and Latin America, in 2020 Americans started to pour in: By September 2022, the United States was on course to become the country with the most golden visa holders.

Thank the Web Summit for the visas' shift toward tech workers: It’s “one of the reasons why Lisbon got on the map of Silicon Valley entrepreneurs,” said Armand Arton, founder of the Global Citizen Forum, a members’ club for well-heeled cosmopolites. “Then COVID happened and we started getting calls from wealthy American families saying they wanted a residence permit to enter Europe at any time [regardless of travel restriction]. They got golden visas by investing in technology companies.”

Not to be left out, EU citizens also flocked into Portugal to work remotely during the pandemic, taking advantage of a “non-habitual resident” tax regime that exempts foreign income from taxation and charges a flat 20 percent rate on Portugal-generated revenue from high-value professional activities. Managing a company or working in the technology field can qualify for such activities, making the scheme attractive to digital nomads.

The other wild card: cryptocurrency. As bitcoin’s price soared throughout the pandemic (before plummeting down in the spring and summer of last year), crypto’s arrivistes were on the hunt for a friendly jurisdiction where their gains wouldn’t be taxed down to a pittance. Portugal, then with no taxes on crypto-derived capital gains, fit the bill. 

“The funny thing is that people say, ‘Not to have taxes [on crypto] was a super smart move,’” Portuguese venture capitalist Stephan Morais told POLITICO. “It’s not super smart: Nobody in government realized that there was something to tax.” 

Crypto conference soon popped up in Lisbon, which “consolidated” the city’s status as a crypto haven, according to Hugo Volz Oliveira, general secretary of crypto-friendly think tank Instituto New Economy.  


Execution …


It’s one thing to lure in promising entrepreneurs. It’s another to keep them — and to ensure their presence doesn’t chafe with the locals, something with which Portugal is struggling to reconcile. 

Deruyck, the Guud cofounder, first liked the “big vision” touted by Lisbon's Social Democratic Mayor Carlos Moedas, who’s also a former European innovation commissioner.

Now, though, Deruyck said the country has made a classic startup error: It promised a vision it never fully executed. Entrepreneurs expect a certain level of service in their day-to-day lives — administration, childcare, health care — and Portugal is struggling to deliver, Deruyck said. 

“There’s a lot of red tape; the government acts very slowly and doesn’t make it easy to even register yourself as an entrepreneur,” he said, adding that he and his wife have also struggled to find help with daycare and cleaning. 

Deruyck lived in Sintra, 30 kilometers from Lisbon, which also could impact the availability of administration and services, he said.

Local residents also say that Portugal’s infrastructure and housing stock are struggling to cope with the influx of newcomers. Some blame short-term rental platform Airbnb, which is popular among digital nomads, for turfing out locals. 

“We have neighborhoods now that are mainly Airbnb,” said Ana, the Portuguese teacher, at a protest on Web Summit’s opening night. “We don’t have our homes anymore.” Nearby, activists from housing advocacy group Habita held placards reading, “1 digital nomad = many forced nomads.”

The protest was inconvenient for Moedas, who appeared on stage at Web Summit two days later alongside Airbnb co-founder Nathan Blecharczyk, touting the “remote work revolution.”

Speaking to POLITICO after his appearance, Lisbon’s mayor defended his goal of making Lisbon “the capital of innovation in Europe,” and said that Portuguese institutions must deal with “both sides of the coin” when it comes to attracting talent.

“I'm building 1,000 homes for people that don't have homes or cannot pay rent. I put in a major plan to renew neighborhoods that were very old,” Moedas said. Critics “have to understand there is not a dichotomy” between drawing in outsiders and caring for locals. 


… and excesses


Portugal is now showing signs of reining in some of the excesses that have made it a hit with the digital nomad crowd. 

Portuguese Socialist Prime Minister Antonio Costa at Web Summit hinted at plans to scrap the golden visa scheme, saying it had “fulfilled its function.” Later in November, however, Portuguese MPs — including those from Costa's governing Socialist Party—rejected a Communist Party proposal to do away with the scheme in 2023. In comments to the press, a government spokesperson said that the matter was still being assessed and that the vote in parliament was premature.

A new “digital nomad” visa, launched in October and allowing non-EU remote workers earning four times Portugal’s average salary to live in the country for up to one year, might provide an alternative if golden visas are eventually abolished — but that will be cold comfort for the global wealthy used to just swanning in and staying put.

Change is already coming for crypto enthusiasts: With the EU’s Markets in Crypto-assets rulebook set to come into force soon, Portugal decided to bring itself in line with the rest of the bloc, plugging regulatory gaps.

“We made a study comparing crypto legislation through the European Union. And we were the single country with a lack of legislation on that,” António Mendonça Mendes, Portugal’s secretary of state for tax affairs, told POLITICO in October. 

In November, Portugal's 2023 budget law introduced taxation on capital gains from crypto-assets at 28 percent — unless the assets are have been held for longer than a year. The policy also created new tax rules for crypto companies and organizations minting cryptocurrency via the energy-intensive “mining” process.

Volz Oliveira, of the Instituto New Economy, said the changes are broadly acceptable for Portugal’s crypto industry, which had furiously lobbied the government on the legislation and managed to get some parts of it, such as the taxation of peer-to-peer crypto transactions, removed.

Nonetheless, changes to how crypto is taxed are pushing some toward the door: “A few people are either canceling their plans to move here, or starting plans to move out,” Volz Oliveira said. 

The center-right Moedas, for his part, said that while clarity on crypto and taxes is welcome, “when you start taxing innovation too soon, you can kill innovation. And so I'm not aligned with the government on this.”

His caution isn’t without merit — competitors, sensing an opening, are ready to take advantage of Portugal’s cooling-off. On December 22, Spain’s “Startup Law” was published in the country’s official journal, with a range of measures to attract digital nomads, like lower income tax rates and a special visa for five years.   

Nomads with options and means can always vote with their feet, moving elsewhere if it suits them. For Deruyck, his time in Portugal is over. His new destination? Brussels, closer to traditional European startup hubs like Paris and London.

He doesn't feel tricked by Portugal's digital nomad promises, though: "For us, it was a good experience. But, as with many countries, they have established an interesting scheme to attract people, but they forget to think about retention."

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