INVESTING IN PORTUGAL

In 2012, Portugal introduced measures to simplify the tax regime for so-called Non-Habitual Residents, with a view to attracting non-resident foreigners to the country. These measures have led to a boom in the country’s economy, making it the most attractive destination on the continent for investment

What are these measures?

The Non-Habitual Resident (NHR) scheme applies to individuals who have not been tax residents in Portugal for the past five years and who stay in Portugal for more than 183 days a year, either continuously or in separate periods, or who, as at 31 December, have a property under conditions that suggest an intention to retain and occupy it as their habitual residence.

Among the tax benefits, the following are particularly noteworthy:

• RNH: no tax for private sector pensioners for 10 years
• Golden Visa: ‘Schengen’ residence permit in exchange for a property investment of €500,000
• No inheritance tax for immediate family
• No wealth tax
• Taxation at a rate of 20% on income of Portuguese origin, derived from value-added activities.

Porto

But why invest in Portugal?

Portugal has grown in recent years.

And it continues to grow.

In response to the severe economic crisis that marked the early years of the decade, which hit the Portuguese economy particularly hard, the country was able to make the necessary sacrifices initially, but above all was able to adapt and streamline itself, becoming more efficient.

It has been able to focus on strategic areas and key aspects of its economy’s competitiveness to become a more coherent and mature market.

Portugal is more mature

And the results are clear to see. Socio-economic indicators, recognition from international financial markets, and its increasingly frequent top rankings in various international indices (covering the most diverse aspects of social, economic and administrative life) clearly show that Portugal is an increasingly dynamic, accessible and, as a result, more attractive market for foreign investment.

In early 2018, the French edition of Forbes magazine ran the headline: “Portugal, the new destination for investment” in an article highlighting aspects such as the young and skilled workforce, the competitive values of the property market, culture, quality of life and, inevitably, the favourable climate

But other factors are often cited, such as social stability, labour costs, a business-friendly environment, and telecommunications, transport and logistics infrastructure.

Portugal is more organised

With no restrictions on the inflow of foreign capital and applying the principle of non-discrimination on grounds of nationality, Portugal does not require the involvement of national partners and imposes no restrictions on the distribution of profits or dividends abroad.

Regulated under the same rules as domestic investment, foreign investment does not require special registration or notification.

Furthermore, it is now extremely easy to set up a business (this can be done in under an hour) and the government provides a suite of online tools that have simplified life for businesses and citizens by automating an increasingly wide range of procedures.

Also worth noting is the Simplex programme, which in recent years has been tasked with simplifying and digitising hundreds of administrative and tax procedures.

From automatic IRS filings to access to the Social Security portal and monthly payroll reporting, through to more specific areas such as the Single Environmental Title (where all environmental licensing procedures can be found), the Electronic Waste Tracking Guide or the registration and management of animals in livestock facilities) are just a few examples illustrating the many simplified processes now available online.

Improvements have also been implemented in the tax sphere. The Investment Tax Code, as amended by the 2019 State Budget, provided for a general increase in the measures envisaged, particularly regarding the maximum amounts or percentages of investment values accepted for tax deduction purposes or in the increase of certain surcharges on amounts invested for tax benefit purposes.

Portugal is better prepared

Ranked as the 13th country with the best infrastructure in the world (World Economic Forum (WEF) Global Competitiveness Report 2017–2018), Portugal has another particularly useful asset for attracting foreign investment. One need only look at:

Road infrastructure:

the quality of Portuguese roads is considered the 4th best in the world and the country ranks 6th in terms of motorway network density, well above the OECD average.
Maritime infrastructure:

Ranked as the 25th best country in the world, it includes, in addition to the major ports of Lisbon and Leixões (Porto), the deep-water port of Sines.

The latter has the capacity to accommodate post-Panamax class vessels, having recorded record growth in its activity in recent years. There are also several smaller ports capable of handling local maritime traffic.

Air transport:

The four international airports (Porto, Lisbon, Beja and Faro), which are well distributed geographically, enable visitors to the country to reach any part of the national territory by road in under three hours. In addition, Funchal (Madeira), Terceira and S. Miguel (Azores) also have international-standard airports.

Rail infrastructure:

Ranked as the 25th best in the world, this network comprises not only a comprehensive system running along the more densely populated coastline, but also several cross-country links into the interior.

The Atlantic Corridor:

A railway line connecting Portugal, Spain, France and Germany has recently been inaugurated.

Thanks to centralised management of capacity allocation, traffic management and customer relations, it significantly improves the competitiveness of this mode of transport, particularly with regard to freight transport.
Telecommunications infrastructure:

Portugal has one of the best telecommunications networks in Europe, with full GSM network coverage across the country and extensive fibre-optic network coverage. Wi-Fi access is widely available in urban areas, particularly in the vast majority of commercial premises, even in small towns.

Portugal is well connected

With direct flights to major European cities and less than two and a half hours’ flight time from most of them, Portugal is close to Europe. The presence of numerous low-cost airlines now offers affordable connections and a wide range of flight options and timetables. Portugal is also the ideal link between Europe, Africa and the Americas.

An increasingly popular destination for business meetings and major international events across fields as diverse as culture, sport and technology, Portugal is now a frequent choice for large multinationals setting up shared service centres and European centres of expertise. Today, there are over 100 such centres, generating more than 50,000 jobs.

Portugal is a safe country

Portugal ranked 4th in the 2018 Global Peace Index, out of 163 countries surveyed, considered the global benchmark for assessing global peace and security (source: Institute for Economics & Peace).

We could also mention the quality of life, the rich cultural heritage, the magnificent landscapes and white sandy beaches, the cuisine and national confectionery, the exceptional climate, or even the international influence fostered by the Portuguese language, spoken by over 250 million people across almost every continent: Europe, Africa, the Americas and Asia.

It is also clear that the Portuguese market now offers a prime environment for attracting foreign investment, boasting undeniable competitive advantages and providing an extremely welcoming overall ‘environment’.

Portugal aims for a historically low deficit in 2019

The Portuguese Socialist government pledged on Tuesday to achieve the lowest budget deficit in its history in 2019, whilst increasing civil servants’ salaries and providing transport subsidies for families.

In its draft budget, the government has set a target deficit of 0.2% of gross domestic product (GDP), compared with the 0.7% expected this year, and hopes to achieve economic growth of 2.2%, just slightly less than this year.

It also forecasts an unemployment rate of 6.3% next year, compared with 6.9% in 2018.

“This is a good budget that follows the path we have charted so far, towards more growth, more jobs and greater equality,” Prime Minister António Costa said on Twitter.

The Portuguese economy has rebounded strongly over the last three years and since the Socialists came to power following the debt crisis in 2011, driven by a recovery in exports, a rise in foreign investment and a surge in tourism and the property market.

The government’s draft budget for 2019 plans to provide transport subsidies for families living in the Lisbon and Porto regions, which account for nearly half of Portugal’s population.

The draft also plans to unblock career progression for civil servants for the first time since 2009, with pay rises and promotions to follow. Pensions are also expected to rise by more than inflation in 2019.

Portugal’s debt-to-GDP ratio is expected to fall to 118.5% next year, down from 121.2% in 2018, according to the government’s draft budget.

Finance Minister Mario Centeno presented this draft budget to Parliament just before midnight on Monday. He is due to hold a press conference on Tuesday morning to provide further details.

Moody’s announced on Friday that it was raising Portugal’s credit rating to ‘Baa3’ with a stable outlook.

The rating agency highlights that the drivers of growth are strengthening and the structure of external debt is improving, making Portugal’s economy more resilient.

Albufeira

Now is the time to invest, but what are the key points to bear in mind?

1: Define your investment project in Portugal

Would you like to buy a property to use at weekends and during your holidays, and rent it out on a short-term basis the rest of the time?

In that case, it is advisable to invest in an easily accessible location such as Lisbon, the Algarve or Porto, each of which has an airport and a thriving tourist industry.

Are you looking for a supplementary income for your retirement?

Seasonal rentals currently offer good rates of return, but your income will inevitably be unstable.

Traditional letting (tenancies of more than 6 months, with the maximum duration agreed freely).

In Lisbon or the Algarve, demand for apartments in good condition is currently very high and such properties are in short supply.

Would you like to buy a flat or a house in Portugal to settle there later in retirement?

An excellent investment that will appreciate in value over the years and which you can pass on as an inheritance without direct inheritance tax.

2: Set the budget for this investment

First, determine your personal contribution, which must be at least 30% of the property’s value.

If you are taking out a bank loan to buy a property in Portugal, it is essential to know your borrowing capacity before taking any steps to purchase the property.

Indeed, there are no cooling-off periods or suspensive clauses in the event of a loan being refused.

3: Choose the type of property to rent

Depending on your objectives, the property may be commercial, residential or tourist-oriented.

All three scenarios exist in Portugal.

4: Search for the property

If you are not in Portugal or are unfamiliar with the property market in the selected area, it is best to consult a recognised and accredited specialist.

5: Purchase the property

Again, if you are not buying a new-build or from a reputable developer on the Portuguese market, it is best to engage a solicitor who can help you avoid the pitfalls.

6: Choosing a property manager

Self-management or through an agency?

If you live far away, short-term letting is not very realistic without partners.

7: Overall strategy

Choose dynamic cities or established tourist destinations that guarantee the liquidity of your investment and are likely to appreciate in value.

Portugal is a small country, but economic dynamics vary greatly between regions.

Lisbon is the economic heart of Portugal, and Porto is still home to many export-oriented businesses.

The Algarve is the ultimate seaside destination, but don’t forget that Portugal has 1,230 km of coastline.

Opt for new-build or refurbished properties, which are of very high quality in terms of both finishes and amenities and come with builder’s guarantees to avoid headaches and the need for repairs.

Energy efficiency labelling legislation has been in place since 2008, and legislation on sound insulation since 2009 (previously, sound insulation was largely neglected). However, if you are prepared to put in the effort and take risks, there are also excellent opportunities in older properties.

Opt for a rental investment that will gradually pay off the property’s purchase price and cover annual service charges and miscellaneous costs.

Companies offering comprehensive rental management services to save you the hassle will be an invaluable help

Try to ensure that the rent covers the mortgage repayments, so that in a few years your property will be paid off and you can enjoy it in your retirement!

Opt for well-established agencies with a presence in Portugal to guide you. Some operators on the French market still offer properties at prices higher than their market value in Portugal.

Property is a less volatile investment than others and offers greater security when it comes to investing.

In conclusion.

Investing in Portugal allows you to combine a pleasure purchase with an investment without breaking the bank, unlike in a country where the price per square metre is higher.

However, you need to know who to trust so as not to turn this dream into a nightmare, and you must carefully consider your investment location.

Managing property remotely can be complicated, so it is best to delegate to a trusted service provider.

Sources:

the-forest-time.com

investir.lesechos.fr