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Prime minister António Costa says incentive no longer makes sense and will be eliminated next year

Portugal plans to ditch a controversial tax break for foreigners that helped attract a wave of wealthy arrivals to the country but stoked a housing crisis by driving up property prices.

Prime minister António Costa described the special tax regime, introduced to help Portugal’s recovery from the 2008 financial crisis, as a “fiscal injustice” that no longer “made sense”. It is set to be eliminated in 2024.

His announcement is the latest example of Portugal’s diminishing enthusiasm for high-income new residents, following a decision this year to abolish a “golden visa” programme for wealthy non-Europeans.

The moves have been driven by angst over the impact of foreign money in the real estate market, where a surge in house prices has left many local residents struggling to find adequate accommodation, particularly in the cities of Lisbon and Porto and in the Algarve.

Costa, head of a Socialist government facing widespread public discontent over the issue, told CNN Portugal: “To maintain this measure in the future would prolong a fiscal injustice that is not justified, and would continue to inflate the housing market in a skewed way.”

The tax breaks, available to people who become resident in Portugal by spending more than 183 days a year there, include a special tax rate of 20 per cent for work income from “high-value added” activities, which covers professors, doctors and architects among other professional roles.

Another element is a flat tax rate of 10 per cent on pensions from a foreign source. Originally a full exemption from tax on pensions, Portugal introduced the low rate to quell complaints from EU countries, including Sweden and Finland whose retirees were moving to the country.

A third benefit under the special regime is a tax exemption on foreign-source income, including rental payments from tenants, if it is taxed in the country of origin.

The benefits have also been available to Portuguese citizens who have lived abroad for at least five years.

Costa said the tax breaks would remain in place for those who have already qualified for it. More than 50,000 people had already benefited from the regime by 2020. The government said that the amount of income that went untaxed due to its provisions in 2022 was €1.5bn.

Bruno Andrade Alves, a tax partner at accounting firm PwC, said the announcement was “quite surprising” but that its full significance would not be clear until Costa unveils details in a new national budget on Tuesday next week.

“We have to wait to understand what he’s actually saying. It is not clear if he is referring to all or only parts of the regime,” said Andrade Alves.

Portugal is in a relatively strong fiscal position and recorded a budget surplus in the first half of this year equal to 1.1 per cent of gross domestic product.

But its fiscal success has drawn criticism from some voters who ask why it is not using the surplus to do more to resolve the housing crisis, invest in health and education or lower taxes. Costa is expected to try to appease them by announcing new measures in next week’s budget announcement.

Tougher rules may be held back amid increasing hostility to climate regulation

Brussels is weighing a further delay to proposals to limit harmful chemicals and microplastics amid growing hostility to climate regulation from industry and right-wing politicians.

The European Commission’s tabling of proposals for the new version of the Reach regulation on the sale and use of chemicals, which will affect substances used in semiconductors and a range of other products, could now be shelved until after EU-wide elections next June, said people briefed on the situation.

The timetable for announcing the proposals had already been shifted from last year to this. The plans would mark the first step in changing rules that would then have to be negotiated by member states and the European parliament. The current rules are vastly complex and took seven years to negotiate.

In a hearing on Tuesday morning, Maroš Šefčovič, the Slovak commissioner nominated to oversee the EU’s Green Deal climate package following the departure of its previous chief Frans Timmermans, failed to guarantee that the chemicals proposal would be brought forward on time.

He listed proposals that Brussels hoped to present, including on transport conditions for animals, before the election but said only that “work continues on Reach”.

“Reach is at a standstill,” said a senior EU diplomat. “There has been a huge growth in the administrative burden. Leaders feel there is too much red tape, too much regulation, and that is suffocating our competitiveness.”

Commission president Ursula von der Leyen has not decided whether to present the proposal on December 20, the last chance to keep her pledge to hit the 2023 deadline, two EU officials said.

If the proposal is pushed until after the EU elections, it may be scrapped altogether as a new commission will take charge.

Another EU official said that changes to the rules, which would restrict or phase out particularly harmful substances, were “highly political” because of the impact on industry.

Many of the chemicals that could be curbed are substances that are crucial to the green transition and the production of semiconductors. An outstanding question is how to regulate polymers, which can be hazardous but are ubiquitous in products from clothing to plastic bags.

“We have to find a balance to achieve all the objectives,” the official said.

Von der Leyen is under pressure from the centre-right EPP group, her own political grouping, to cut the burden of environmental regulations on businesses as they battle steep costs and geopolitical trade tensions.

She has yet to say whether she will run again for commission president, but a successful run would need the backing of both the pro-industry EPP and the French government, which has publicly backed tightening rules on hazardous chemicals.

The debate over the regulation comes amid a wider backlash against the costs of the green transition and its impact on voters ahead of the EU elections.

A proposal on microplastic pollution is also awaiting von der Leyen’s decision, one EU official said.

In written answers to the parliament’s environment committee, Šefčovič said the commission was carrying out “careful analysis” to “reduce health hazards and environmental damage from chemical pollution” while “avoiding too high an administrative burden on European businesses”.

The chemical industry has backed an update of the far-ranging Reach regulation, which currently runs to 849 pages, as long as it is “targeted and efficient”, according to industry body Cefic.

But it has said that the chemicals regulation should not be “driven by judgment instead of scientific evidence” amid fears that the revision would slow approvals for key substances. Several member states led by Denmark are, meanwhile, pushing for a tough Reach proposal.

The commission declined to comment.

European venture capital firm Atomico raises $1.1bn to defy tech slowdown

London-based group founded by Niklas Zennström nears fundraising goal despite tough economic conditions

European venture capital firm Atomico has raised $1.1bn worth of new funding to invest in start-ups, defying a broader slowdown in the tech industry.

The London-based group has raised the fresh money across its new venture and growth funds, according to US regulatory filings, nearing its goal of $1.35bn for both vehicles.

The new capital comes at a time when VCs have found it harder to raise funding as higher interest rates and falling public valuations for start-ups have led investors to retrench.

European venture capital funding for start-ups slowed in the first half of this year, with the total value of such deals down more than 60 per cent compared with the same period in the year prior, according to research from PitchBook.

In the second quarter, the amount invested by European VCs was down 40 per cent year on year to around $20bn. In North America, investment nearly halved over the same period to $42bn.

Atomico was set up in 2006 by Skype founder Niklas Zennström and has established itself as one of Europe’s most prolific tech investors, having backed more than 130 start-ups.

It has invested in companies including Klarna, the buy-now-pay-later financial technology group, and Lilium, an electric flying car start-up. Atomico, which has $5bn under management, previously raised $820mn for its fifth fund in 2020.

“I thought there was such potential in Europe for more companies like Skype to be created. Let’s break the [Silicon Valley] monopoly. We could build the same thing or even better in Europe,” Zennström recently said in a Lunch with the FT interview.

Atomico’s new funding ranks among the largest such hauls this year in Europe. In January, the VC firm Highland Europe closed its new €1bn fund, while last month the London-based software investor Dawn Capital raised $700mn.

Venture capitalists have had to navigate a number of challenges over the past 18 months, including rising inflation. Private market valuations on several prominent start-ups, such as Turkish delivery company Getir, have been dramatically marked down to reflect tough macroeconomic conditions.

Hampering the fundraising market for venture capitalists has also been a dearth of initial public offerings, which are a key route for such managers to exit their investments and generate returns for their institutional backers.

Choppy IPOs last month for a few prominent technology companies in the US, including the online grocery delivery company Instacart, have damped hopes for a rebound and led venture capitalists to advise start-ups to postpone listings until interest rates in the US begin to plateau.

Atomico declined to comment.

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The cash machine of TikTok’s owner is getting bigger.

ByteDance’s revenue rose 34% to $24.5 billion in the first quarter of 2023, a slight slowdown from its 38% revenue growth in the 2022 calendar year, according to detailed financial results viewed by The Information. But the company generated $6.8 billion in cash from operations in the period, an improvement from $5.8 billion in cash flows from operations in the same period a year earlier.

• ByteDance swung to a profit as revenue rose 34%

• Revenue is nearly on par with Facebook-owner Meta’s

• Cash holdings give it more ammo for shopping expansion

The padded cash holdings give ByteDance plenty of firepower as it expands aggressively into live shopping in the U.S. The company expects TikTok Shop, its online shopping service, to lose more than $500 million in the U.S. this year as it spends on hiring, developing a fulfillment network and providing incentives to merchants, The Information has reported. Growth in social shopping should help offset a slowdown in the growth rate of TikTok’s main business of advertising.

In terms of revenue, ByteDance is getting closer to Facebook owner Meta Platforms, which generated $28.6 billion in the first quarter. It isn’t possible to compare the companies when it comes to free cash flow because ByteDance’s cash flow statement doesn’t disclose what it spent on capital expenditures. Meta generated $7.2 billion in free cash flow in the first quarter.

ByteDance’s cash holdings grew to $30.4 billion as of March 31, up from $22.3 billion at the end of 2022. The company, which owns TikTok but generates most of its revenue from a TikTok-like service in China, generated a $2.7 billion profit in the March quarter, an improvement from a $4.7 billion loss in the first quarter of 2022, but that loss was mainly due to a change in value of its preferred shares, documents showed.

The figures provide a unique glimpse at one of the world’s biggest privately held companies that has been at the center of a political maelstrom in the U.S. and elsewhere, due to TikTok’s growing influence and the Chinese government’s closeness to ByteDance. The new financial data have emerged as The Information reported the company is planning to buy back $300 million worth of shares from employees at an implied valuation of $223.5 billion.

The company’s cash production has grown even as expenses creep higher. In the first quarter, ByteDance’s marketing, research and other expenses rose 10% to $8.1 billion, the documents show. In contrast, such expenses fell 33% last year from 2021.

The Information previously reported in detail about ByteDance’s 2022 financial results, including its slowing growth in China. The Wall Street Journal earlier reported the company's operating profit in the first quarter.

ByteDance has raised $8 billion in financing from firms including Sequoia Capital China, Susquehanna International Group, Coatue Management and Tiger Global Management.