Why investing in Portugal
"Where else could I have all this? In February?" asked the retired Swiss investment banker sitting inside a coffee shop in Vilamoura, gesturing towards the sunny street outside.
In 2018, he and his wife joined a steadily increasing trend of expatriates taking up Portuguese residency and bought a villa in the Algarve. Over coffee and pasteis nata, he described winters spent sailing and playing tennis, wining and dining, enjoying music, art and shopping and golf on the championship courses at Vitoria golf course in Vilamoura and Amendoeira Golf course in Alcantarilha. And, he added, almost as an afterthought, it helped that Portugal's tax regime was so attractive.
So attractive, in fact, that pwc published a report on why Portugal is a top choice for foreign investors, Europe's Best Kept Secret. In 2009, Portugal introduced a range of tax benefits for both EU and non-EU citizens, which made attaining residency quick, easy, and financially lucrative. The aim was to encourage direct foreign investment and help get the economy back on its feet after the Global Financial Crisis. It's worked, and investors are coming from all over the world, with the Chinese the most significant.
New residents from the EU/EEA/Switzerland or holders of Portuguese residence permit are eligible for the Non-Habitual Residence regime (NHR) for the first ten years they are in Portugal. After that, they are subject to Portuguese rates of taxes, which at a top tiered rate of 48%, tend to be lower than elsewhere in Europe.
According to Edge International Lawyers, residence means having a habitual residence in Portugal or spending more than 183 days in Portugal over the tax year from January 1 and 31 December.
“Interest in Portugal has increased significantly, coinciding with the emergence from recession worldwide and word getting out about those tax incentives," says Gavin Scott, Senior Partner, Portugal, at Blevins Franks, the specialist financial advisors for expatriates. For retirees, this means that pensions that may have been taxed in the countries in which they arise, will not suffer tax in Portugal. Many British pensions, for instance, can be paid gross, i.e. without deducting UK tax in the UK and with no tax due in Portugal over the ten years of the NHR scheme. The Brits, the Swedes and the French have led the way in making the most of Portugal's benevolent tax climate, to the chagrin of their respective governments.
Portugal is also becoming more and more popular with residents from further afield - Brazil, the U.S. and Middle East, particularly expats retiring from the oil business in the Middle East. The Portuguese government’s Golden Visa (a fast-track for foreign investors from non-EU countries) and other schemes like urban renewal projects have helped establish Portugal as an attractive destination for foreign research and development companies, entrepreneurs and investors. Lisbon is fast becoming something of a creative and tech startup hub while Portugal is perceived as a stable place to do business and is ranked 29th out of 190 in the World Bank's Doing Business ranking.
Finding a place in the sun
The NHR regime requires home ownership, and consequently there has been a knock-on effect on property prices, with residential prices climbing gently but steadily each year. Estate agents say that properties around Lisbon and the nearby Silva Coast, the Algarve and Porto, all popular with foreigners, tend to sell in a matter of two months. Prices in these areas have risen by 4.84% (3.26% in real terms) over the year to November 2017, according to Statistics Portugal.
RICS Chief Economist says, “While tax reform has helped, on its own, this wouldn’t have been enough to trigger a wave of buying. However, added to a decent economy underpinning the real estate market, with economic growth just shy of 3% last year, we’ve seen more British, French and other European and Asian buyers active, and encouraged by the tax changes. Prices will remain elevated because there is not much property on the market. "
Propriété General Portugal has Lisbon flats starting at around 300,000 euros and going up to 1.5m at the luxury end, although the sky really is the limit in Portugal - for less than 20m euros, a palace around Sintra could be yours. Further south, AlfazemaRelax currently has a modern 8 rooms Bed & Breakfast on the market at just above 1m euros.
The latest RICS/ci housing market survey is a good barometer of confidence in the local property market. This shows property prices expected to rise by around 4.5% over the next twelve months. As the supply of properties coming to the market slows further, house prices are expected to rise by around 5.5% on average a year for the next five years. Rubinsohn observes that there is a degree of consistency about the response from estate agents, who expect that the current trends will be maintained.
According to Scott, Brexit has had relatively little impact because there was already a strong demand for properties from British residents. "The local tax situation for British residents in Portugal has nothing to do with the EU."