Investing in Portugal

Environment

• Mediterranean climate and its exceptional brightness (300 sunny days per year)
• Always near the ocean
• Biological and ecological diversity (surprisingly varied landscapes considering the size of the country)
• Important historical heritage. Thirteen of the sites on UNESCO’s World Heritage List are in Portugal. Lisbon, was considered the second best European destination in 2015

Real Estate in Portugal

• A property equivalent to a property located in southern France, but at Portuguese prices. Luxury real estate programs at very competitive prices
• A property equivalent to a house in Spain which, besides the quality of landscapes and of the Portuguese coast, has the building density controlled by the State (which prevented uncontrolled construction and safeguarded the quality of the environment around the properties)
• Recognized construction quality;
• Excellent opportunities due to lack of market liquidity
• Low risk of asset devaluation at medium and long term, because Portugal has not suffered from a financial bubble
• Legislation which protects buyers and regulates the market.
• Portugal is not only a country to invest, but also to live in.
• If the investment is to buy a property, the acquisition of property in Portugal may seem very simple, because it is a procedure that can be completed in a short time. Very different from the procedure in France, for example. Therefore we advise our customers to be well informed, because, otherwise, their projects can end in financial disasters.

Safety

• A stable country with one of the lowest crime rates in Europe
• Welcomes people who speak English and French fluently
• Stable political system at short, medium and long term
• One of the EU countries with lower cost of living, allowing for a comfortable standard of living.
• Health system and European currency)
• No significant financial risk (exchange rate, inflation, interest rates controlled by the European Central Bank)
• Streamlined procedures and full transparency in the purchasing process for foreign buyers
• Advantageous tax system: no tax on inheritances and donations for residents in Portugal, special exemption or reduced rate of income tax for non-habitual residents
• An investment which is still today considered the best and safe by many French and British residents
• Interesting real estate opportunities to enjoy
• Highly attractive holiday tourist destination and hence an active second residence rental and sale market
• Excellent tourist investment, potential waterfront and capital. All these assets contribute to a very pleasant quality of life when choosing Portugal for permanent residence or vacation

Accessibility

• Good accessibility to countries in the European Union (daily flights from major airports at competitive prices)
• State-of-the-art infrastructure (very good road connections)

The purchase of a house is subject to the payment of taxes, the acquisition of real estate in Portugal requires registration with the tax authorities in order to obtain a tax identification number (NIF). In other words, residents abroad as well as those who, although domiciled in Portuguese territory, are absent for a period longer than six months, must, for tax purposes, appoint a representative domiciled in Portugal. If you reside or are in the process of moving to a Member State of the European Union or the European Economic Area, the appointment of this representative is optional. The tax domicile is the place of the habitual residence or, in the case of foreigners, the tax domicile is that of your tax representative. To carry out the purchase of your property, you must present documents that identify the property and confirm legitimacy of the owner and buyer, namely:

I. EXTRACT FROM THE LAND REGISTER (OR SUMMARY OF PROPERTY TITLES)

This document may be requested at any tax office, where you can ascertain the fiscal situation of the property and check who is responsible for compliance with the respective tax.

II. PROPERTY TAX DOCUMENT

Information contained in the land register indicating what comprises a certain property, the legitimacy of the person who wants to sell it and the type of charges to which it is subject (mortgages, seizures, etc.)

III. USER LICENSE

The purpose of the user license is to certify the use to which the property is designed and validate that the property can be used for its intended purpose. This authorization must be requested at the parish council where the property is located.

IV. TECHNICAL DATA SHEET

The building’s data sheet is a document that describes the main technical and functional characteristics of the property. It must be requested directly at the parish council where the building is located.

V. ENERGY CERTIFICATE

It must be submitted by the owner of the property at the time of sale and during the signing of the deed of sale.

VI. RECEIPT OF PRIOR PAYMENT OF THE MUNICIPAL TAX ON FINANCIAL TRANSACTIONS RELATED TO THE REAL PROPERTY.

VII. PHOTOCOPY OF IDENTITY CARDS (OR EQUIVALENT) AND TAXPAYER CARDS OF THE CONTRACTING PARTIES

VIII. PRESENTATION OF A PROXY IN THE CASE OF A REPRESENTATION

The acquisition of a property is completed with the signing of the deed of sale and with Registration of the Property. After registration a proof of ownership of the property is issued..

Above all, it should be noted that in Portugal, the concept of property includes the “full ownership” which is based on the full and exclusive right to use, enjoy and dispose of the property. This law confers a significant competitive advantage to the Portuguese real estate market. The acquisition of real estate is subject to the municipal tax on financial transactions involving real estate and stamp duty. These taxes must be paid at a Tax Office by the person buying the property before signing the deed of sale of the property..

I. IMT – Municipal Real Estate Transfer Tax

This is a tax that relates to the transfer of property rights over real estate or parts thereof (use and housing, surface rights, usufruct, etc.). This tax refers to the sales contract value or the value of the real estate property tax, whichever is higher. This tax results from the application of variable rates, which in the case of buildings exclusively used for housing, may vary between 0% and 6%.

II. Stamp duty

It is a tax that applies to all acts, contracts, documents, titles, shares and other legal situations or processes, including free transfers of real estate. In the case of property acquisition, it is payable on the value of the purchase and sale agreement or on the taxable value of the property, whichever is higher, and results from the application of the rate of 0.8%.

III. IMI – Municipal Property Tax

Value entered in the land register on the settlement date. This register mentions the description of the building, its location, the value of tax assets and the identity of the owners. The registers are updated every year on December 31. After buying a property if you do not reside in it throughout the year, you can capitalize on your real estate investment by renting seasonally, for example.

Here is a summary of the main issues related to the existing tax burden on income, whether resident or not, when a building or apartment is rented under a rental agreement (furnished or not) or you need to rent furnished housing to tourists (short term occupancy). This information does not replace the case by case analysis of each transaction, to properly determine the tax consequences of such operations.

(a) Taxation on income from a property owned by a non resident individual

Property rented under rental agreement (whether or not it is provided).

• Tax rate: 25%
• Tax basis: the rent charged, deducted from the property tax and documented maintenance costs (interest and nondeductible amortization)
• Formalities: Income statement Mod 3 – Annex F, in May of the following year

(b) Taxation on furnished accommodation rental for tourists by a non resident private individual:

Activity subject to VAT (6%) if the turnover exceeds € 10,000.00. Possibility of adopting a simplified scheme for the calculation of income tax, for a turnover of up to € 200,000.00 / year.

• Tax basis: 15% of turnover
• Tax rate for a nonresident: 25% (thus 25% x 15%: effective rate of 3.75% of turnover)
• Formalities: Tax statement of commencement of the activity of renting furnished housing to tourists (before starting the activity), statement Mod. 3 – Annex B, in May of the following year

Note: it is up to the property owner to declare their income in their country of residence, if applicable, if the tax paid in Portugal, can be considered for deduction.

(c) Taxation on income from property owned by a resident

Property rented under rental agreement (whether or not it is provided).

• Tax rate: 28% (proportional rate does not vary according to the overall income of tax residence)
• Tax basis: rentals collected, deducted from real estate taxes and maintenance costs (nondeductible interest and depreciation).
• Formalities: Income statement Mod 3 – Annex F, in May of the following year

d) Taxation on furnished accommodation rental for tourists previously managed by a resident private individual:

Activity subject to VAT (6%) if the turnover exceeds 10,000 , 00 €. Possibility of adopting a simplified scheme for the calculation of income tax, for a turnover of up to € 200,000.00 / year.

• Tax basis: 15% of turnover
• Tax rate for a resident: 14.5% to 48%, to which returns can be added.

Note: the taxpayer has the option of being taxed on the actual results, option which can be chosen at the beginning of the year.

• Formalities: Tax statement of commencement of the activity of renting furnished housing to tourists (before starting the activity), statement Mod. 3 – Annex B, in May of the following year

e) Taxation on income from a property belonging to a non resident legal person (company) without permanent establishment in Portugal:

Property rented under rental agreement (whether or not it is provided).

• Tax rate: 35%
• Tax basis: rentals collected, deducted from real estate taxes and documented joint ownership taxes (interest and depreciation not deductible).
• Formalities: Income statement Mod. 22 in May of the following year.

(f) Taxation on the activity of providing tourist accommodation by a non resident legal person (company) with permanent establishment in Portugal:

For the exercise of this activity by a non resident company, the creation of a permanent establishment or branch is mandatory. Subject to VAT activity rate 6%.

• Tax rate: 21%
• Tax basis: net accounting results (deductible interest and depreciation).
• Formalities: Tax statement of commencement of the tourist accommodation activity (before starting the activity), statement Mod. 22, in May of the following year.

(g) Taxation on the income from a property owned by a resident company

Property rented under rental agreement (whether or not it is provided).

• Tax rate: 21% (plus possible municipal tax of 1.5% maximum)
• Taxable Basis: net accounting results (deductible financial participation and depreciation)
• Formalities:Tax statement of commencement of the activity (before starting the activity), statement Mod. 22 in May of the following year.

(h) Taxation on income from accommodation rented to tourists by a resident company

Activity subject to VAT rate of 6%. Possibility of adopting a simplified scheme for calculating the income tax, with a turnover of up to € 200,000.00 / year and total maximum assets of 500,000.00.

• Simplified regime tax basis: 4% of turnover for the hotel business
• Tax rate: 21% (plus possible municipal tax of 1.5%)

Notes:

• The taxpayer can choose to be taxed on the actual result, option to be made at the beginning of the year;
• A chartered accountant (TOC) should be appointed in the case of a participation by a company under Portuguese law or a non resident company permanently established in Portugal.
• Formalities: Tax statement of commencement of the touristo accommodation activity (before starting the activity), statement Mod. 22, in May of the following year..

There is a tax agreement between France and Portugal, with regard to income tax . This convention allows for the obtaining the of the Non-Habitual Resident status (the famous RNH regime).

Key benefits of choosing Portugal as non-habitual residence.

I – WHAT ARE THE COMPETITIVE BENEFITS?

A fixed tax rate on personal income for a period of 10 years (IRS taxes – on income) of 20% over profits in Portugal. The absence of double taxation in the case of pensions and income from employment or self perceived abroad.

II – HOW TO OBTAIN THE STATUS OF NON-HABITUAL RESIDENT?

• Not having resided in Portugal for the past five years;
• Register as tax resident in Portugal with the local tax office (for this, you must have been in Portugal for more than 183 consecutive days, or, if you stayed for less time, have by December 31st of the same year, a dwelling in such conditions that indicate you intend to keep it and return to it as your habitual residence);
• Apply for the status of non-habitual resident, when you are registered as tax resident in Portugal or before March 31 of the year after you became resident in Portugal.

If you are employed or self-employed, the tax rate is 20% on the income received in the country (plus from 2014, a surcharge of 3.5%). The tax applies to income derived from high value-added activities that are of a scientific, artistic or technical nature. For more information on these or other areas, feel free to contact us.