The Great Migration Hedge and the Position of Portugal
An ironic legacy of Covid crisis has been the growth of wealth mobility and there are jurisdictions ready to take a piece of such migration of wealth.
Wealth migration is all about diversifying residence as the ultimate hedge against local, regional or global volatility, either happening now or in the future.
Henley & Partners Private Wealth Migration Report has been reviewing the migration trends of the world’s wealthiest people and it is worth noting that the number of high net wealth individuals (HNWI) moving across borders has almost tripled in the last 10 years.
It would be impossible to pinpoint completely the actual reasons fuelling wealth migration worldwide, but we could attempt to group those, as:
Major legal changes (for example the Brexit effect);
Major tax changes (for example the rumours around the end of the UK Non-Dom regime);
Major political turmoil’s (for example some recent crisis in LATAM countries)
Major geostrategic changes (for example the impact of the Russian–Ukrainian war);
Major economic changes (for example the surging inflation, rising interest rates or falling of the financial markets);
Restrictions to personal freedoms or flexibility (for example China or Russia); and
Negativity towards wealth accumulation (for example the recent case of Brazil).
That is why political stability is perhaps the key metric for HNWI selecting where they want to reside. Wealth migration is also about chasing an opportunity, while protecting wealth from any local instability.
After that, other aspects such as the availability of investment migration pathways, favourable income tax regimes, no wealth or inheritance taxes, personal freedoms, safety and healthcare come into play. Tax is indeed a factor, but experience indicates that lifestyle and education are also increasingly important.
The next question is where these HNWI are exiting from and going to?
According to Private Wealth Migration Report, the five loser jurisdictions in 2023 (with net outflow movements) are China (net loss of 13,500) and India (net loss of 6,500), UK (net loss of 3,200), Russia (net loss of 3,000) and Brazil (net loss of 2,000). The five winner jurisdictions in 2023 with net inflow movements) are Australia (net inflow of 5,200), UAE (net inflow of 4,500), Singapore (net inflow of 3,200), US (net inflow of 2,100) and Switzerland (net inflow of 1,800).
What is also very interesting to highlight is the appearance of new players attracting significant number of HNWI, such as Greece, France, New Zealand, Portugal and Italy.
Naturally, the flexibility to seek a new country to reside requires significant financial means, but the spectrum of wealth mobility has also dramatically changed in the last years. Today it includes a growing number of internationally mobile entrepreneurs that joined the wave of digital nomads.
For this new breed of mobile entrepreneurs, the ease of doing business and availability of investment opportunities locally is also a key relevant factor. This also explains why beyond Europe, we see Singapore and UAE as becoming global magnets for wealth and for family offices competing with more traditional financial hubs.
This is important also because the global financial landscape is also changing. According to recent projections from UBS Global Wealth Report 2023, global wealth is expected to rise by 38% over the next five years, reaching USD 629 trillion by 2027, with the number of HNWIs to grow markedly over the next five years to reach 86 million, whilst the number of Ultra-HNWI will rise to 372,000. On top of this, the world is expected to undergo a monumental transformation called "Great Wealth Transition", where an unprecedented USD 84 trillion is expected to change hands over the next two decades.
With this background, it is undoubtedly that wealth migration is of critical importance for countries that are well positioned geographically and structurally to benefit.
One can even argue that those countries that may be recipients of this wealth have an opportunity to reinforce their economic health, because wealth ultimately gravitates towards countries that welcome inward investment, that are politically stable, that are safe and economically trending and that offer excellent services.
In this context, one may ask itself why Portugal should be on this exclusive list, and why we strongly believe it should continue and reinforce its position as an alternative location in these times of wealth migration hedge.
With a long history of being an open economy welcoming to inward investment, Portugal was put definitely on the map of the wealth migration in the past 10 years by a confluence of many aspects.
The truth is that Portugal benefited from several aspects that likely the policy experts did not fully anticipate, when they designed the non-habitual tax resident regime and later the golden visa regime (immigration route).
A first factor was the instability that followed the 2008 financial crisis in many countries, which resulted in a first wave of relocations of HNWI that were looking for safer havens after 2010. Portugal quickly set itself for an alternative to UK or Switzerland for European nationals seeking a reset. Scandinavian, French, and Spanish were the first wave of beneficiaries of the favourable tax regimes, which saw in Portugal a non-expensive location with many opportunities and great lifestyle coupled with an exemption (at that time) on pension income.
The second factor was the Portuguese laissez-faire attitude and political stability, that helped flourish to create the necessary confidence on HNWI from other jurisdictions to also consider Portugal as a possible residence location. The opening as from 2012 onwards of investment migration pathways, mainly through the Golden Visa programme, helped also associate immigration with tax for third country nationals outside the EU. This opened the pathway to a second wave of Brazilians and many other Latam countries to seek Portugal as an alternative to reside, taking advantage of the exemption on significant portions of foreign passive income for 10 years.
The third factor, we would say is linked to the fact that Portuguese generally under-estimate themselves, and the truth is that the warm hospitality, exceptional quality of life, high-quality healthcare system, safety and security really captivated many foreigners. This also opened the pathway to a third wave of more diverse digital nomads and mobile entrepreneurs that in post-covid have learned that work-life-balance can be implemented from anywhere, specially if coupled with flat tax rates for active income.
Anybody arriving to Portugal 10 years later identifies that the migration of wealth has had a significant impact in the country. But this migration (as everywhere in the world) is in some spheres politically contentious due to effects on pressures on real estate, wages or health services. The risk is being victim of its own success. The threat is if any politically motivated backlash spills over to a revision of the regimes, just as the real estate crisis impacted on the discussion around the Golden Visa regime.
Portugal is today on an excellent position due to many factors that go well beyond its attractive tax regime, but this position is always fragile and very easy to shatter.
The country is doing many things right, but it is important to also visualize the long term and re-design some aspects of regime to transform this policy as a structural pillar, designed to forge a more modern, open and technologically advanced Portugal with the help of this wealth migration.
The country needs to be aware that merely whispering in the corridors of politics the need to close the NHR regime (as they did with the Golden Visa) may create the instability that may have unexpected consequences.
When traveling to Switzerland, Singapore, Dubai, London and other private wealth hubs one realizes that Portugal has a glimpse of opportunity to transform some of good fortune we have had in the last years into a structural benefit for the long term.
As Winston Churchill once said, “To build may have to be the slow and laborious task of years. To destroy can be the thoughtless act of a single day. This is no time for ease and comfort.”
Portugal may well have a small part on the great migration hedge, if it does the right choices.
© Kore Partners, 2023
This briefing provides for general information and is not intended to be an exhaustive statement of the law. Although we have taken care to provide accurate information, this should not replace legal advice tailored to your specific circumstances. This briefing is intended for the use of clients and selected recipients. Queries or comments regarding this can be directed to kore@korepartners.com