One of the main advantages of Portugal is its geo-strategic position. It is located between three continents - Europe, Africa and North America. This makes it geographically well positioned, suitable for easy travel and short visits. Brand new road infrastructure and international air connections make Portugal increasingly attractive to residents and international buyers.
However, the biggest comparative advantage of Portugal lies in the specially composed programs towards attracting foreign direct investment, immigration rules and tax breaks with all categories of foreigners. The programs were created just after the financial crisis in 2009, with the aim of recovering the economy in the shortest period of time. They succeeded very quickly in this, and cleverly continued to remodel programs, the most important of which is the "Golden Visa" program, with its major changes and features since the beginning of 2022.
| Country profile | |
|---|---|
| Land area | 92,090 km² |
| Population | 10,310.000 |
| Population density | 112 |
| Tourist arrivals | 17,174.00 (2019, before Covid measures) |
| Number of transactions | 171,800 of properties (2020) |
Pros and cons of buying real estate in Portugal
Pros
- Portugal is well known for the "Golden Visa" program, under which the Portuguese government encourages foreigners to invest in real estate or entrepreneurial activities in Portugal. If you are not an EU citizen and you are investing in property of a certain value, you can qualify for a Golden Visa residence permit in Portugal. This permit allows you to live and work in Portugal, and travel freely in the Schengen area.
- A person holding a gold visa for more than five years has the right to apply for full Portuguese citizenship, which is very attractive.
- Favoring investment in real estate over other assets for significantly higher returns has a historical character in Portugal, as well as throughout the Mediterranean. And in the case of this jurisdiction, this is certainly supported by historically low interest rates, which according to the final reports from December 2020 stands at an average of only 0.8% for housing loans.
Cons
- Since Portugal has been one of the TOP 3 locations in the European Union for real estate investment by foreign buyers for the last 5 years, it has had a huge impact on prices, which have jumped significantly across the country.
- Thus, Portugal has recorded an increase in house prices of 86.5% over the last decade, which ranks this destination among the 8th countries with the largest increase in prices in the world. To illustrate the situation, take for example house prices, which rose from € 1,431.83 in 2010 to € 2,670.11 in 2020 per square meter.
- Furthermore, one of the major limitations of Portuguese jurisdiction is the difficulty of finding and interpreting legal provisions regarding the acquisition of real estate. Numerous tax reliefs and exemptions are classified according to residents and non-residents, as well as according to local governing (horizontal and vertical tax treatment), so one can have a pretty hard time in clarifying legal aspects related to personal experience.
Suggestions for purchase proceedings
The main suggestion is to buy real estate through the Golden Visa program, because this way you secure a direct residence permit, where also after 5 years can qualify for permanent residence and Portuguese citizenship.
Unlike other countries, you do not actually have to live in Portugal during this period to acquire citizenship through a Golden Visa. You only need to spend seven to fourteen days a year in the country.
Also, the Portuguese Special Tax Regime for Non-Habitual Residents (NHR) allows qualified entrepreneurs, professionals, retirees and individuals to enjoy reduced rates of income tax from a Portuguese source, while most foreign income is exempt from Portuguese taxation, for a period of the first 10 years of residence.
Portugal ranks 8th in the countries with the highest price increases in the world, so if you are a customer who seeks properties based only on pricing, this is not the right destination for you.
Real estate proceedings for foreign legal and natural persons
Any foreign natural or legal person, whether a citizen of the European Union or third country or a stateless person, may purchase real estate in Portugal without any restrictions. The only difference when buying real estate is between domestic and foreign citizens is within taxation and fees.
Taxes related with purchase of real estate - short overview
The largest tax expense is the Municipal property transfer tax (“Imposto Municipal sobre Transmissoes” – IMT), which can vary from rate of 10% for non-residents, up to possible various tax exemptions among first time home buyers.
When the property a person buys is for primary residence, they will not have to pay IMT on the first € 92,407 of the purchase price. After that, the tax rate is projected according to the following property values:
- Up to 92,407 €: 0%
- 92,407 - 126,403: 2%
- 126,403 - 172,348: 5%
- 172,348–287,213: 7%
- 287,213–574,323: 8%
- 574,323 - 1,000,000: 6%
- 1,000,000 and more: 7.5%
When the property you are buying is used for vacation and rent, you will have to pay an additional 1% on the first € 92,407.
Property tax (Imposto Municipal Sobre Imóveis - IMI) is an annual tax paid by a property owner in Portugal. The tax burden varies from municipality to municipality, and tax rates range from 0.3% to 0.45%.
Real estate owned by companies based in blacklisted areas, the so-called tax havens (e.g. British Virgin Islands, Gibraltar, etc.) will be taxed at a tax rate of 7.5%, while some properties will be exempt from property tax (IMI). Those properties worth up to € 125,000, owned by individuals who earned taxable income in the year before the acquisition of up to € 153,300, enjoy a “grace period” of 3 years to pay this tax form.
The Addition to the Municipal Property Tax (Adicional ao Imposto Municipal de Imóveis - AIMI), the so-called wealth tax.
There are currently 3 levels of AIMI for individuals:
1 - Tax of 0.7% of the value of property for those who own real estate worth between 600,000 euros and 1 million €.
2 - A rate of 1% for assets valued between € 1 million and € 2 million.
3 - Rate of 1.5% if the total value exceeds € 2 million.
When land purchased in Portugal is sold again for a price higher than the one previously paid, capital gain tax (Imposto Sobre O Rendimento De Pessoas Singulares - Mais Valias) is paid in the amount of 28% for non-residents; and for residents that particular income enters the taxation of full personal income according to a progressive scale, on only 50% of the base of the realized profit from the sale of real estate.
There is an exception to the payment of capital gains tax in Portugal in situations:
1. If the real estate in question is before January 1989.
2. If the sale relates to primary residence in Portugal, and the amount of the sale is invested directly in other property to be used as primary residence, anywhere within the EU or in Portugal itself.
In addition to taxes, the following fees must be paid when buying real estate in Portugal:
1. Fees for land registers and notaries shall be pmaid together, generally ranging from 0.2% to 1.2% of the value of the property
2. Stamp Duty (Imposto De Selo - IS) - it is necessary to pay fees on contracts, bank mortgages and loans, and other necessary documents. The fee is about 0.8% of the value of the property.
A big advantage of investing in the Portuguese property sector is the ease of regulating foreign pensions of residents, which has been attracting buyers who have already enjoyed retirement status for years. In addition, you can easily qualify for Portuguese citizenship, which in turn brings you EU citizenship.
