Survey: Portugal’s Nationality Law Amendments Could Cost €2 Billion a Year

With the proposed changes to Portugal’s Nationality Law, is the ruling center-right Social Democratic Party (PSD) about to score a massive own goal?

The answer is a resounding yes, according to a large survey conducted by Nomad Gate.

First, let’s clarify what I mean by an own goal in this context. Historically, PSD has been the biggest supporter of the Golden Visa (ARI) program in particular, and of making Portugal attractive to foreign investment in general.

And while the ruling government hinted at improving the Golden Visa program earlier this year, the announced changes to the Nationality Law point to a significant lack of understanding of what makes the program popular in the first place.

To quantify the impact the proposed changes would have on the Golden Visa program, we collected responses from about 450 Golden Visa investors. Most of the respondents (~85%) have already made their Golden Visa investment. The rest are either considering investing or already in the process of doing so.

In this article, we’ll first look at some of the most interesting results, then we’ll wrap up with an analysis of what the economic impact on Portugal may be if the Nationality Law is amended as proposed.

What is the true attraction of the Golden Visa program?

Let’s start off by exploring what makes the Portuguese ARI program so successful.

Respondents were asked to select up to ten commonly cited benefits of the Portuguese Golden Visa program that mattered to them, and then rank them in order of attractiveness. The most attractive benefit was given the value 1, the next 2, and so on. Any benefit not selected was given the value of 10.

Since it’s natural that those who don’t already have visa-free access to the Schengen Area value other aspects than those who already enjoy such access based on their nationality, we’ve further sliced the data:

1. Those who already enjoy visa-free access to the Schengen Area (with an eTA), for example UK and US nationals
2. Those who require a visa to travel to the Schengen Area, for example Indian and Chinese nationals

This chart shows the results, with lower values meaning more attractive:

Looking at the results, there are two (indirect) benefits of the program that stand out:

1. Qualifying for citizenship after five years of ARI
2. Qualifying for citizenship without needing to live full-time in Portugal

From there, it’s quite a way down to the next two features that investors appreciate:

1. Live in Portugal without needing to spend an average of 8–10 months in the country per year (which is required to renew non-ARI residence permits)
2. Travel to the Schengen Area without a visa

The latter is in third place if you only ask those with no Schengen access based on their current passport, which makes sense.

The rest of the benefits are almost too insignificant to consistently have an impact, except perhaps Portugal having a stable and trustworthy legal environment.

But it’s clearly the five-year path to qualify for citizenship without spending more than seven days per year in the country that’s the big draw.

The impact of the Nationality Law amendments

When asked to rate its attractiveness on a scale of 1 to 5, the current program received a very respectable average rating of 4.42—and that’s despite the massive delays in issuing residence permits (now averaging four years).

However, when asked to rate the attractiveness of the program if the Nationality Law is amended as proposed, this rating fell sharply to just 1.70. Nearly a full reversal!

The reason why the current version of the program scores as well as it does, despite the massive backlog, is probably due in large part to the early-2024 amendment from the previous Socialist Party government that still counts the time waiting for the first residence permit toward the citizenship qualification requirement.

PSD was never a fan of this amendment and never issued the formal regulations for it. And while I can understand why they would want to revert this rule at some point, it would only make sense to do so once the problem of the massive backlog has been solved—and then only for new residency applications going forward.

We find support for this view when we look at which specific parts of the proposed amendments Golden Visa investors are most upset with:

A whopping 98.4% of investors found the increased residency requirement for naturalization to be a negative change, with 78.4% stating it would be extremely negative.

In a close second place, 97.7% of investors found the reversion to counting the time to citizenship from the issuance of the first card a negative change. What’s interesting is that more respondents found this change extremely negative, at 80%.

This clearly taps into what, to any reasonable person, would seem like a grave unfairness, where the bureaucratic dysfunction leads to clearly unjustifiable outcomes—something the “father” of Portugal’s constitution, Jorge Miranda, has characterized as clearly unconstitutional.

While still mostly seen as negative developments, many more respondents were either neutral or even positive about the remaining three nationality law amendments.

If the government were to back down on the first two amendments, or at least significantly moderate them, it’s clear that the negative impact on the Golden Visa program would be greatly reduced.

With an increase to six or maybe even seven years to qualify for nationality, counting from the application—or at worst from the expiration of the legally prescribed deadline for AIMA to process the application—the government would end up with a much less significant self-inflicted wound.

This is especially true if they choose to respect the original citizenship timeline for existing permit holders and applicants.

Impact on future investments and applications

Next, let’s try to quantify what a much less attractive ARI program would mean for future application numbers.

When investors were asked how likely it is that they would still have applied for the Golden Visa today (assuming that the proposed amendments were adopted), the results could barely be more stark.

More than 92% responded that they were unlikely or very unlikely to have invested today, assuming the Nationality Law were amended as proposed.

This makes it clear that these changes would absolutely decimate the attractiveness of the program.

And not only are the changes likely to attract far fewer investments in the future, but they are also likely to lead to various actions taken by existing investors in the short term.

While about a third would liquidate and withdraw their investments as soon as possible—even if it means losing the residency status or any path to permanent residency or citizenship—not everyone can or will pursue that path. About 40–45% are likely to stick it out until they qualify for permanent residency or even citizenship.

But just because some people are likely to not call it quits immediately, it still doesn’t mean they are happy or will not try to rock the boat. In fact, more than 83% are likely or very likely to warn others against investing—not just in Golden Visas specifically, but in Portugal in general.

And 61% are likely or very likely to sue the Portuguese state for breach of legitimate expectations. That’ll give the courts enough to do for years to come.

How big a deal is this for Portugal?

As of September 2023, 12,718 main applicants had made approximately €7.3 billion in Golden Visa investments. These numbers come from the final report made by SEF, the precursor to today’s AIMA.

However, this only includes the amounts invested by those who had their residence permit issued. And based on numbers shared by AIMA, there’s currently a backlog of around 55,000 ARI requests (including family members) still waiting for their initial residence permits. Based on the historical ratio between main investors and dependents, this translates into about 21,000 primary applications.

If you also add an estimate of the approvals that have come out over the past two years since SEF stopped publishing statistics, the total reaches about 23,500 Golden Visa investments unaccounted for in those €7.3 billion. This also makes it clear that the program saw a surge of popularity from around 2021 onward, greatly contributing to the unsustainable backlog of applications we currently see.

But how much investment do these unreported applications represent?

The average Golden Visa investment amounted to €575,000 from inception until SEF’s last statistics were published. The average likely decreased until the fall of 2023 with the increased popularity of fund investments (which only required a €350,000 investment until the end of 2021) and lower-cost real estate options requiring investments ranging from €280,000 to €400,000. Since then, real estate investments have been banned and fund investments have reigned supreme. Since 2022 those investments have required a minimum of €500,000—again pushing the average back up.

If we use a conservative number of €425,000 per investment (which corresponds to the lowest ever reported average in a single month), we end up with approximately €10 billion in unreported Golden Visa investments, for a total of more than €17 billion so far in the program’s existence.

What’s interesting is that those €10 billion largely represent investments made in the past four to five years, meaning the Golden Visa attracted about €2–2.5 billion in foreign direct investment (FDI) into Portugal annually in this period.

Extrapolating from our survey results, a reduction of about 90% of this investment inflow would represent about €2 billion per year.

In other words, if the government follows through with the proposed Nationality Law amendments, they are likely to cut investments into Portugal by over €2 billion per year. That represents about 15–20% of all FDI into Portugal, or more than half of what Portugal receives from the EU as part of the often-discussed Recovery & Resilience Plan (PRR).

And these are only the direct investments used to qualify for the program. Many ARI holders invest much larger sums into other endeavors in Portugal—whether startups or other businesses, or renovating/constructing much-needed real estate.

If you also factor in the indirect costs of a tarnished reputation among international investors, the actual impact is likely to be much, much larger.

While I have sympathy for PSD’s attempt at taking the wind out of Chega’s sails, this is a very expensive way of doing so.