Below, we speak with a number of experts on Portugal for their viewpoints, and also chat with Chitra Stern – the owner and director of Elegant Group, the developer behind a major project on the outskirts of Lisbon – for her thoughts on the marketplace.
Living and working freely in Portugal
Since Brexit happened, it has suddenly become much more difficult for Brits to live and work freely in Portugal without worrying about visas or residency. But is there likely to be a special arrangement between the UK and Portugal to make moving between the two countries, post-pandemic, much easier?
“We will do our best to facilitate travel between our two countries,” Manuel Lobo Antunes, ambassador to Portugal, says.
“Short-term visits for tourism purposes, for instance, will not be affected. In relation to other situations, such as living or working in Portugal, some rules may change as a consequence of Brexit but what I wish to highlight is that, from a political point of view, we will work to make things as simple as possible, with as little red tape as possible, in the hope that our British friends continue to enjoy our hospitality and working atmosphere.”
So, Brexit won’t harm the centuries-long alliance between Portugal and the UK? “Of course Brexit won’t harm the centuries-long alliance between Portugal and the UK. We have been EU members together for 40 years or so, whereas our alliance has been in force for centuries. Throughout the Brexit process we have always said that we would fight for a future relationship with the UK as close as possible to the one we currently enjoy,” Antunes insists.
“Inevitably things will change in some areas, but this will be the case for both sides, as the UK will be a third country vis-a-vis the EU. However, we remain confident that the new agreement between the UK and the EU offers many opportunities for a close and fruitful relationship.”
What is the most tax-efficient way for Brits to invest in property in Portugal?
Geoffrey Graham, senior partner at EDGE International Lawyers, says the above question depends upon the profile of the investor and whether the investor is a Portuguese or UK resident.
“A number of issues will come into play and for the purposes of this question I will focus on the Portuguese tax issues only. With regards to non-residents, British tax residents can freely invest in Portuguese property and can even secure mortgages. Property income is taxed at a flat rate of 28% and capital gains on sale will be taxed at 28% of the gain.”
He adds: “British owners will also be exempt from succession tax if the heirs of their Portuguese estate are the surviving spouse, any ascendant or descendant.”
For those British nationals resident in Portugal, in addition to being able to elect for the flat rate of property income tax of 28% and benefit under the Portuguese succession rules described above, they can also benefit from a primary residency exemption on capital gains tax, provided that the net sale proceeds are reinvested in another primary residence, Graham explains.
“Resident or non-resident corporate vehicles can also be used to invest in property in Portugal to eliminate, postpone or reduce purchase taxes, property income tax and capital gains tax. In this context, residency - i.e. a resident’s permit - must be distinguished from tax residency. The best residency option will obviously also be driven by the profile of the investor. Should the investor wish to benefit from minimum stay periods (effectively 14 days in any two-year renewal period), the Golden Visa would be the preferable option.”
“This would imply a real estate investment of €500,000, or €350,000 for refurbishment property. The other main option is a D7 residency visa (or investment/retirement visa) which requires that the applicant actually lives in Portugal.”
What are the pros of the NHR scheme
In brief, Graham says, the benefits of becoming an NHR (Non-Habitual Resident) tax resident include the possibility of receiving qualifying non-Portuguese personal income either tax-free, or at a preferential rate of tax, for 10 years.
“Qualifying income includes, under certain conditions, pension (10%), dividend, royalty, interest income (all exempt), as well as some types of salary consulting (both exempt or 20%), and property income (exempt),” Graham states.
“Acceptance to the programme is straightforward: the applicant only needs to register as a Portuguese tax resident, satisfy the residency test by being habitually resident in Portugal and not have been resident in Portugal in the previous five years.”
What about the Golden Visa?
“First of all, British nationals are now eligible to apply for the Golden Visa, therefore they can apply for either the real estate investment option outlined above, the capital investment option starting at €1 million or one of the other options involving research or venture capital, arts and culture or employment,” Graham says.
“Secondly, the Golden Visa will allow access to Portuguese nationality/permanent residency after five years; and freedom of travel in the Schengen area. Finally, to address the question of any current lack of clarity in terms of the programme: changes to the programme have been tabled for the beginning of July, but it is as yet unclear what these will be in the context of the restrictions to be applied to purchases of Lisbon, Porto and coastal properties. As a result, interested applicants should move quickly if they are focused on these areas.”
Do British buyers face stamp duty and other taxes when purchasing Portuguese property?
“Yes, buyers should pay Transfer Tax with a top rate of 7.5% (for properties over €1 million), a smaller stamp duty of 0.8%, as well as notary and registration fees. These have not changed post-Brexit,” Graham says.
A commitment to foreign direct investment
As a country which still relies heavily on direct outside investment – with a smaller economy that is less resilient to the shocks caused by major events like Brexit, the coronavirus crisis and the 2007-9 global financial crisis – Portugal is unsurprisingly keen to maintain good relations with its oldest ally, and to encourage Brits to continue owning second homes in the country.
“The government is highly ambitious in driving foreign direct investment into the country through a number of investment initiatives and incentives. These have attracted both human and financial capital worth billions of euros,” Chitra Stern says.
“In addition to new procedures that simplify processes and reduce ‘red tape’ for venture capital and private equity companies wanting a base in Portugal, other ways the government is attracting investment include: residency via the Golden Visa, green visas, start-up visas and tax incentives such as the flat tax of 20%.”
She adds: “There are also subsidies for film production and government co-investment schemes for start-ups (Beta-I and Startup Lisboa being a couple of successful incubator schemes).”
Stern’s company, Elegant Group, is the developer behind Martinhal Family Hotels & Resorts and Martinhal Residences, Park of Nations, which is the developer’s fifth project and first fully residential building.
British enquiries for Martinhal increased between 2019 and 2020, propelled by the arrival of Brexit and the Golden Visa ending for Lisbon. It expects to see further increases in enquiries from Britons this year given Martinhal’s ‘one-stop-shop’ offering, organising everything from short-term rentals in Martinhal’s other properties until the Park of Nations apartments are finished, to schooling for the children and office space for those working from anywhere.
Although there are more than 20 nationalities who have purchased homes in the project, the biggest nationality so far is actually Portuguese – both for investment as well as residential.
This, Stern argues, demonstrates a high degree of trust, confidence in capital appreciation and in the price point itself for the local wealthy Portuguese.
“This is a strong endorsement for those wanting to live in a cosmopolitan environment with a strong local flair,” she adds. “Local Portuguese, not only foreigners, will be living in the building. This fact also sends positive signals for re-sales.”
The Golden Visa has been important, too, with 73% of the total number of properties sold to Golden visa buyers.
“Residence visas are generally Plan B for real estate purchasers. However, when it becomes Plan A, there is no doubt that Lisbon wins hand over fist against other destinations. Lisbon perfectly fits the Goldilocks principle of capital cities: not too big, not too small, just right,” Stern says.
“Lisbon offers a higher quality of life for a lower cost of living compared with other European capitals. The city is also attractive for young and old alike, trendy and authentic with an excellent private health service, the insurance costs for which are very low compared with a city such as London.”
A couple of years ago Stern did a TedX talk on her story and why Portugal is currently trending.
How is Portugal’s tourism sector bouncing back?
Portugal’s economy is heavily reliant on the tourism sector, especially in the Algarve. But with travel badly affected by Covid-19, and likely to remain that way for some time, how is the country covering the losses in this vital sector?
João Fernandes, president of the Algarve Tourism Board, says Portugal is currently working on several front lines to fight the effects of the pandemic.
“One aspect that I find of relevance in terms of priorities on the control and prevention of the pandemic is the ongoing vaccination program. It started on December 27 2020 and, with Portugal being one of the most advanced countries in this process, the forecast is that about 30% of the resident population of Portugal (that is to say 100% of the risk groups) will be vaccinated by May,” he says.
Another fundamental goal is saving companies and jobs, and keeping productivity high, with an aim of keeping the rate of unemployment as low as possible. He points to the tourism sector, specifically in the Algarve, as one where the unintended effects of the pandemic have been particularly visible.
“In this field, I believe there has been a great effort in adopting specific measures to aid in the mitigation of the economic consequences of the new coronavirus in the region. The Algarve Tourism Board presented propositions for the creation of specific measures for both the region and the sector during low season,” Fernandes says.
There has also been an effort by the local counties in implementing measures (lowering and exempting taxes, investing in requalifying public spaces and supporting companies and workers).
More promisingly, Fernandes points to studies from Skyscanner and Forwardkeys which have identified Faro International Airport as one of the most researched destinations for flights by European and UK holidaymakers thinking ahead to Easter and summer this year.
“These studies highlight that Southern European destinations will be the first to recover in terms of demand, which is promising for the Algarve.”
He believes the region’s good image – as a place of safety, world-class golf courses and beaches, good weather and good food – will help its fightback when travel is allowed again.