Investment Property in Portugal

Why Invest in Portugal?

Overseas property investors regard Portugal as a prime location with a strong real estate market and high rental yields in popular tourist resort areas. Despite slower growth rates than in previous years, Portugal has held onto its appeal as a tourist and second home or retirement destination and its safe and solid economic climate continue to draw investors looking for stable medium to long term gains.

Advantages of Investment in Portugal

• One of the lowest costs of living in the EU, though prices are slowly creeping up as Portugal regularizes its tax policies with the rest of the EU
• A highly appealing tourist location and quality of life conducive to a peaceful retirement destination
• Stunning and diverse natural beauty, from rivers, cliffs and clean sandy beaches to mountains and championship golf courses, making it popular with all kinds of visitor
• Interesting history and cultural heritage with a wealth of tourism potential throughout the country
• Well trodden property market place, with stability and transparency in buying procedures for foreign purchasers
• English is widely spoken
• Large presence of fellow British residents - some 50,000 properties are British owned in the Algarve alone.
• Over 300 days of sunshine per year
• Lowest crime rate in Europe and stable political climate
• Construction density limits in the Algarve set at 8%, guaranteeing preservation of the natural environment
• The largest area covered by golf courses in southern Europe
• Possible growth rates of around 10% per annum and rental yields of maximum 10% in key locations
• Shortage of property to supply an ongoing demand in popular resort areas
• Easy access via budget airlines (2 ½ hours flight from the UK) and an advanced road infrastructure
• Interesting new markets emerging on the Silver Coast, north of Lisbon, at lower prices than in more traditional locations
• Founding member of NATO
• Member of European Monetary Union since 2002

Off-plan purchase is very popular in certain parts of the Algarve, where some investors are enjoying relatively high returns of 10% per annum in some areas, particularly in the new luxury golf resorts. Buy-to-let options can provide reliable rental income from golf as well as beachside properties, and these serve to boost investment returns, along with eventual capital appreciation upon resale.

Portugal has excellent direct flight communications with the UK and the rest of Europe, making it a convenient holiday destination. This accessibility increases potential investment yields and reinforces the continued success of Portugal as an investment location. A relatively low cost of living, great quality of life, pleasant, warm climate, stunning sandy beaches and a safe and friendly social environment are all valuable contributing factors to Portugal's successful property market.

Investment Factors & Strategies for Property in Portugal

General Factors

Among the likes of France and Spain, Portugal is already well established as a foreign property investment location. Enjoying a year-round tourist trade, Portugal is renowned for its great leisure facilities and these are the drivers of the Portuguese property investment market. In 2006, 12.8 million tourists visited Portugal and the country's governing bodies fully recognise the importance of the ongoing contribution from the tourism sector to the boost the national economy. As a result, it has created a business-conducive climate with incentive schemes and support for investors into the tourism industry.

800 km of beautiful beaches (169 blue flag) in the summer with excellent sight seeing and golfing opportunities during the cooler months make for an ideal tourist arena in which to operate your investment strategies. The importance of golf in Portugal cannot be underestimated, particularly for British holidaymakers. Portugal's golf courses, many of which are Championship standard, cover more surface area in relation to land mass than in any other European country and over the years they have been a driving force in Portugal's tourism trade. Many property investors are tapping into both tourist markets with buy-to-let investments in locations such as the Algarve where both beach and golfing facilities are second to none. However, it is interesting to note that national statistics show the biggest hotspot tourist areas, in order of importance, are currently; Lisbon city, the Algarve, the Portuguese islands and the Green Coast of northern Portugal, near Porto. With the emergence of a newer property and tourist market along the Silver Coast, north of Lisbon, these statistics are expected to alter in the future.

Today rural tourism is becoming increasingly popular in Portugal and country homes in Portuguese getaways, along with wine tasting and cruises on the Douro River in northern Portugal are all new options for the slightly more adventurous tourist. Cultural tourism is naturally of great importance in Portugal due to its wealth of interesting archaeological and artistic heritage, including some UNESCO World Heritage sights. Properties situated near such key locations are also likely to fetch healthy returns.

Portugal offers some exciting new holiday and property destinations to contrast with the well-established market of the Algarve, and many shrewd property investors are snapping up property at lower prices along the Green Coast around Porto and the Silver Coast north of Lisbon. They are carefully selecting property in easily accessible rural locations to satisfy the growing trend for Portuguese holidays off the beaten track.

Economic Factors

EU membership in 1986 and subsequent Euro qualification have done much to raise Portugal's economy to the levels of its European partners. Portugal is still undergoing economic reforms since EU membership and growth is a relatively slow process.
With the help of strengthened private investment, structural reforms and attempts to reduce the nation's fiscal deficit by EU sanctions and tighter financial supervision, Portugal is on a slow but steady path to economic growth. Over the years, Portugal has also raised its standard of living and purchasing power is now on par with its EU partners. A more dynamic business environment is set to have a knock-on effect on both the local and holiday property markets. With increased business activity in many of the major Portuguese towns, investment is now going into regeneration and construction of property to satisfy a steadily growing need for quality accommodation to serve the local resale and rental markets

Today, exchange rate stability, reduced inflation and falling interest rates are all characteristics of the Portuguese economy and are clearly positive signs for investors. Those seeking a solid and reliable bet within the medium to long term are enjoying healthy returns on property investment of around 10% per annum, meanwhile cashing in on rental yields from their buy-to-let investments in key resort areas.

Property investors are safe in the knowledge that historically stable returns can be obtained from carefully selected properties in Portugal. Portugal's low prices and highly affordable cost of living are an added advantage for investors on a lower budget.

Important, emerging property investment markets are now gaining strength in Portugal with prices still at an average 30% lower than in better known resorts on the Algarve. An increase in modern transport and tourist infrastructures in rural Portugal make growth potential high in carefully selected areas.

Political Factors

Economically and politically, Portugal offers a modern, stable environment in which to invest and, as a member of the EU and of NATO, investor confidence is increased. Portuguese public opinion and media profiles are distinctly Europhile; according to Euro Barometer's 2004 survey, 60% of the Portuguese were found to trust in the European Union.

Portuguese politics takes place within a framework of a parliamentary representative democratic republic with a prime Minister as head of a multi-party system of government. The party system is dominated by the social democratic party and the liberal conservatives, currently under the President, Anibal Cavaco Silva.

Portugal has an active foreign policy and pursues strong ties with the United States, along with full integration with the European Union. Portuguese troops were sent to participate in the IFOR peacekeeping mission in Bosnia and Portugal also contributed aircraft and personnel to NATO's Operation Allied Force in Kosovo.

Natural Factors

Powdery white, sandy beaches on the Algarve coast along with vast stretches of luscious golfing greens have long made Portugal's Algarve many a holidaymaker's dream location. The more rugged Atlantic shores further north around Lisbon are gaining increased popularity amongst rural tourists and property purchasers alike, all seeking a more adventurous type of holiday with surfing opportunities and some magnificent rustic retreats. Much of Portugal's sightseeing is also based upon the stunning natural beauty to be found here. From the mountains and vineyards of the north, to dry rocks in southern areas, and from stunning beaches to world-class golf courses, Portugal appeals to all tastes.

Many investors tap into the golfing holiday market as it offers a long rental season, and can often be combined with summer holidaymakers also seeking the beaches of the Algarve and allowing for year-round rental potential. Portugal boasts the largest surface area of golf courses in southern Europe, many of which are of championship status, and frontline golf property in luxury resort developments are firm favourites among investors.

Due to the huge numbers of British retirees and holidaymakers in resort areas of Portugal, the language barrier is rarely a problem. Legal, financial and property professionals are all accustomed to dealing with English speakers and translations are normally readily available.

Portugal's abundance of historical interest, including a number of UNESCO world heritage sights, helps draw visitors to the country. Evidence of past Moorish and Oriental eras creates a delightfully eclectic blend of architecture and culture, particularly in cities such as Lisbon and Porto. As a result, the Portuguese are always celebrating some kind of religious festival, pilgrimage, carnival or fair, which form a major part of cultural life on the Iberian peninsular and southern Europe in general. Tourists and home-buyers in Portugal enjoy the relatively laid-back nature of the people and the numerous outdoor wining and dining opportunities, so characteristic of the Portuguese lifestyle.

Logistical Factors

Portugal's popularity as a tourist and property destination has encouraged ease of access via direct two and a half hour charter flights from the UK, including services from BA, EasyJet, Ryanair and TAP Air Portugal. For a relatively small country, Portugal is very well served by modern, international airports, allowing travellers to connect with ease to their final destinations.

Faro airport serves the highly popular Algarve region, Lisbon airport is convenient for the emerging property market developing along the Silver Coast north of the city, and Porto serves the northernmost region, also an area beginning to attract attention from property investors. With the growth of the property market in this emerging area, services are expected to be further improved and expanded in the near future.

An excellent EU standard transport infrastructure within the country makes Portugal a hassle-free option for those looking to reach their final destination in Portugal quickly and comfortably. Today 90% of Portugal's goods are transported by road and after a period of dramatic modernisation in the 1980s, the standard of road transport has in fact increased at a faster rate than rail transport.

Short Term Investment Strategy

Key Opportunity

Portugal has long been a favourite among European buyers, but its now embryonic markets along the Silver and Green Coasts stretching northwards from Lisbon to Porto, are currently representing exciting, new alternatives that are far removed from the already busy resorts of the Algarve.

With ongoing improvements to its road infrastructure and increased accessibility to all areas of the country via budget airline services, many rural parts of Portugal are now opening up to visitors and investors, offering fresh new markets for discerning buyers looking for competitive future hotspots at today's very affordable prices. It is in these areas that we expect to see the greatest short-term investment benefits, where, as demand increases, high growth figures are expected for well located properties in key emerging markets. In line with the new trend for well located rustic, rural properties, many of which are in need of some restoration, property further north along the Green Coast, beyond the beautiful city of Porto can be purchased for as little as around 30,000 GBP, representing a prime low cost investment opportunity when compared with the Algarve, where little can be found for less than 100,000 GBP.

With tourist numbers ever on the increase in Portugal and a surge of new interest for holidays off the beaten track, rural retreats in central and northern areas of Portugal's Atlantic shores are showing great investment potential. Excellent international air communications serve all areas of the country and real estate investors can be confident in a strong demand for many types of well located property.

For short-term investment, off-plan properties in Portugal offer some of the best potential. As anywhere in the world, off-plan prices must always be a good deal lower than prices in comparable completed developments. This gives full power to "flip" investment strategies in which capital investors sell on the unit prior to project completion. It's important to ensure that the reassignment of contracts is permitted in the off-plan project you are interested in and under what terms. Sometimes, though not always, investors may be charged around 1,000 EUR or a percentage of the purchase price in order to do so.

Highly beneficial finance structures are generally in place and, depending upon the development, investors need pay only around 20-40% of the purchase price in the form of a deposit, while the rest is payable when and if they complete. In the case of selling on their contract prior to completion, investors will have made a relatively small capital outlay, while receiving potentially high returns on investment, which in Portugal can amount to anything from between 15% to 60% per annum. Growth for off-plan property in Portugal is expected to be at its highest in some of Portugal's most popular emerging hotspots such as the Silver Coast.

Timescale

Investors in Portuguese off-plan developments factor in between 18 and 24 months for construction from reservation to completion stages. Short term investors normally look to profit from a carefully selected, promising market, selling on their unit to mid or long term investors approximately 14 to18 months after making their initial reservation, regardless of whether or not the project is yet completed.

Payment terms will vary; good projects will often offer terms of 20-40% deposit with the balance payable upon completion, allowing short term investors to operate their strategy with minimum capital outlay. Of course, the earlier the investment is made, the greater the investment returns. As importantly by entering the project at the earliest possible stage, investors get the best choice of units which will always be first to attract buyers in the future.

Level of Complexity

Short term strategies offer the lowest level of complexity as the purchase has not yet been officially made; therefore, no property taxes or maintenance or management charges are due. This is a simple capital investment, often with no need to proceed to Purchase Contract, or make any mortgage finance arrangements. Remember to check with the developer if there are any charges made to "flip", or reassign your contract, and at what stage you are permitted to do so, before you proceed

Risk Assessment

All investors must carefully assess the particular project and units in which they wish to invest. In many cases a wide range of other projects will be under construction and a choice will need to be made. A decision will need to be based on how a particular development or project will outshine its competitors in terms of appearance, location, on-site facilities and the unit itself. Investors will also need to consider issues such as the number of other units available within the particular development, predicted demand as well as competition for the type of property they wish to invest in.

To curb risk, a short-term investor should normally seek to buy the best possible unit, i.e. a corner unit, a penthouse or ground floor unit with a private garden, which will always sell in preference to a standard first floor unit.

Investors need to be clear how their exit strategy is to run. How will the unit be marketed and by whom? How much will the selling agents charge in commission? Should a buyer not be found prior to completion of the property, investors must be confident they can cover payment to completion of the unit and adapt their strategy if necessary.

Short term "flip" investments are undoubtedly more risky than longer term strategies, but, with careful research and planning in place, off-plan purchase in well located Portuguese projects offers a sound investment with lucrative returns.

Return

Portuguese property offers the highest capital appreciation in its newer emerging markets. More established property markets on the Algarve and Lisbon environs are also viable but these appeal to buyers with a longer term investment angle. At an estimated 20-60% per annum, capital growth is high in emerging markets of Portugal. Shrewd investors have the opportunity to reach the highest figures by selecting prime resorts at pre-release pricing levels, allowing them to invest at below market value.

By reserving at pre-release stage, investors profit from discounted prices and, in many cases, these are subject to successful planning applications, allowing for additional pricing uplift. Reservations on this type of project allow for full refunds if necessary and secure escrow accounts are in place to protect investors' funds. An earlier than normal reservation of course affords the maximum possible returns on investment on any given project.

Financing

The short term investment strategy is purely based on capital outlay as mortgages cannot generally be raised against property that is not yet built. In order to cover all eventualities, investors MUST be confident they can complete the purchase if necessary, even if using a buy to flip strategy.

Taxation

Purchasing a property and then re-selling prior to completion is a tax-efficient way to invest as it allows buyers in Portugal to avoid any property transfer taxes and side-steps capital gains tax, should they choose to sell on the contract prior to project completion.

Medium to Long Term Investment Strategy

Key Opportunity

Due to huge international appeal, Portugal's real estate and tourism markets are booming. Traditional resorts such as those located on the Algarve are offering stable mid to long term investment returns, while Portugal's newer emerging markets on the Silver and Green Coasts are gaining popularity amongst investors seeking a fresh arena in which to employ their strategies. Depending on the area and property in which you choose to invest, growth figures will vary from 15-60%. The lower figures are currently being received by mid to long term investors willing to hold onto their properties in the more established regions such as the Algarve.

Over recent years popular golf and seaside resorts on the well-established Algarve have been attracting tourists and second homebuyers in their droves. A thriving expatriate community, golf, beaches, warm sunshine, relaxed lifestyle, lower costs, all within easy reach of "back home" are but some of the attractions enticing property buyers to the Algarve. Investors are assured ease of renting out their buy-to-let investments in carefully chosen locations, while, due to great climate, many properties allow investors to tap into the golfing holiday market during winter months as well as the beach holiday tourism during the hottest summer months. A long rental season of course maximises rental returns to complement capital appreciation upon eventual re-sale.

Off-plan prices are at their lowest in the emerging markets north of Lisbon and onwards to Porto, and compare favourably with those of the better established Algarve. With an improved infrastructure in these areas, wise investors are now identifying promising real estate opportunities in these emerging locations that will offer them stronger returns on investment once the property market has gathered steam. With capital growth at around 10% per annum in more established property locations, it's clear to see why so many investors are opting for the lower prices of Portugal's emerging Silver and Green Coasts that now potentially offer in excess of 20% growth rate on their investments.

Timescale

Average construction time on Portuguese off-plan developments, from project sales release to completion of construction, is approximately one year. Mid to long term investors look to hold onto their units after construction, normally for at least 18 months from initial reservation, either to rent it out and/or benefit from capital appreciation upon eventual resale. Many long term investors use hotspot locations on Portugal's Algarve to generate significant and reliable rental income over a period of time as sustained rental returns are their main focus, followed by capital appreciation over time.

Capital appreciation is expected to perform exceptionally well over the next 5 years, notably in the newer emerging Portuguese markets, and the longer investors are able to leave capital in their purchase, the higher their potential long term returns will be. High tourist numbers and the resulting strength in the buy-to-let market allows investors to reap in solid capital growth from their properties, all the while supplementing this income with high rental yields in many key tourist locations.

Level of Complexity

In the case of off-plan purchase, full payment for the property needs to be completed at various stages of construction, prior to final completion of the purchase.

For mid to long term investors, all costs will be applicable, of around 15% of the purchase price while ongoing costs such as maintenance, community fees and utility bills will also need to be factored into the strategy finance plan. Bear in mind it's advisable to open a Euro bank account in Portugal in order to pay for the property's utilities and other ongoing expenses.

Beneficial arrangements are often to be made with local property management and rental companies that are usually conveniently based on or near the site. These ensure that such ongoing costs are covered and that your unit is rented out regularly. Managed properly, maintaining a property abroad can become no more complex than an investment closer to home.

Key Risks

A medium to long term investment strategy entails much lower financial risk than a short term plan which relies on finding a buyer within a very short time frame. Provided the right investment is made on a quality, well located project with multiple facilities, establishing a rental market and eventually a buyer for your investment should not be difficult. However, as with any investment, patience and money is sometimes required until the end user is found.

Portugal's ongoing popularity as a top European holiday destination bodes well for buy-to-let investors. In 2006 12.8 million tourists visited Portugal and the government recognises the importance of an ongoing contribution from the tourism sector to the boost its economy. On the one hand, this of course translates to a stable environment in which to buy or rent, but brings with it intensified competition on the other.

Bank Guarantees are commonly given by developers in Portugal and approved projects will always be protected by local or overseas bank guarantees.

Property ownership in Portugal is mostly sold Freehold, leaving no room for ownership disputes.

Return

Historically stable returns can be obtained from carefully selected properties in Portugal. Generally speaking, in line with the country's economic growth (GDP 1.3% in 2006), Portugal's property investment growth process is relatively slow. It requires concentration on generating maximum profit from your property and keeping it for at least five years before reaping truly worthwhile returns on investment which renders it ideal for mid to long term investors. With the increase in rural property and new resorts in Portugal's emerging property regions, shorter term capital growth figures can sometimes be higher, while property prices are an average 30% lower than in the better known resorts of the Algarve.

In popular resorts many investors seeking a solid and reliable bet for the medium to long term are enjoying healthy returns on investment of around 10% per annum, meanwhile cashing in on similar levels of rental yields from renting out their properties as buy-to-let investments.

Off Plan Property in Portugal

Many developers in Portugal offer beneficial payment schemes. Off-plan property allows you to purchase at the lowest possible price, before the development’s construction begins. By the time the property is finished, prices rise due to market forces and the greater general appeal of a completely finished property that is ready to move into. Investors then sell the property on to another property purchaser and, in so doing, enjoy some excellent returns of between 15% to 60%, whilst never having paid the full purchase price. Depending upon the down-payment and speed of construction, profits from off-plan deals can range from a staggering 40% to 100% per annum.

Investors should however exercise due diligence and choose wisely, making sure that the property is located in an area where they will resell quickly and easily or where there is a high rental demand for their buy-to-let option. With an off-plan investment, even in the “worst case” scenario if the property cannot be sold upon completion, the final balance due can often be financed by the developer himself, typically over 4 years or more. Furthermore, the rental income may pay off the finance of this loan and yield further eventual return on investment.

How can property be cheaper if bought off-plan - How does it work?

In order to limit financial risk and debts, the developers of any project will wish to sell units off-plan. They understand that if buyers cannot see a physical property at the beginning, they will demand a lower price, while relying purely on the developer’s reputation, the property location, artistic impressions and computer simulations on which to base their decision to purchase.

In addition to the excellent off-plan price, some highly beneficial finance structures are in place. You sometimes need to pay only around 20-40% of the purchase price in the form of a deposit, while the rest is payable upon completion. This may be financed by a mortgage if necessary.

If you decide to invest in off-plan property, you will need to decide which strategy you will adopt to achieve your return on investment. Our experts will help you to choose the most appropriate plan, creating an investment programme suitable to your needs, whether this is "pure investment" or a "buy-to-let" strategy. We will also assist you in finding the most appropriate location to suit your investment needs.

Maximizing Profit From Off-Plan Investment in Portugal

The Process of Price Increase

1. Purchasing early
   Prices never remain low for long and, as construction progresses, prices begin to rise steadily. It is important to buy as soon as possible during the early stages of development when prices remain very competitive but are already beginning to rise. Early investors will invariably see the greatest returns.
2. Purchasing the best units
   Early purchase allows investors to choose the most sought after properties on any given development. The best units always offer higher capital appreciation in the shortest time frame and can often demand the greatest rental incomes. Penthouses are always firm favourites.
3. Price increases as development matures
   As the construction commences, the value of the units begins to rise. A completed show home is normally available for viewing at this stage, while buyers are taking less of a risk as they now do not need to rely 100% on plans.
4. Price appreciates as more units sell
   As more units are sold, the price of the remaining units rises. Units sell faster when buyers are able to physically see them. There is often a phase payment structure in place which mirrors the increasing value of the properties. To the early investor this means that, should you decide to sell your property, it will be worth considerably more at this stage than when you made your initial purchase and paid the 30% deposit.

Portugal Investment Financing

Property purchase in Portugal could be funded by personal cash resources but, as most investors prefer, mortgage or equity release schemes are widely available.

Mortgages

As part of a modern finance system running in accordance with EU regulations, banks in Portugal offer a wide range of well developed banking services. We will gladly point you in the right direction of Portuguese financial institutions to fund your investment and we have access to mortgages from many Portuguese and offshore banks to suit your individual circumstances.

Foreigners can obtain mortgages from Portuguese banks to fund between 60 and 80% of the property price, with a minimum loan value set at 20,000 GBP. The amount of funding will vary according to your financial background and the bank involved. Both repayment and interest only mortgages are widely available with fixed and variable rate options.

Banks will not normally take into account rental income when calculating an applicant’s level of borrowing.

Typical characteristics of Portuguese mortgages

Loan purpose

Residential

Maximum loan

Max. 80% of valuation

Term

Up to 30 years

Repayment

Capital and interest only

Currency

Euros

Interest rate

3.4% (2007)

Banking in Portugal

Even if you are not obtaining finance in Portugal for your property purchase, you will probably wish to open a local bank account to pay utility bills, taxes and other expenses while staying in Portugal and internet banking will enable you to watch over account transactions from your country of origin.

ATM machines are widely available in Portugal, even in small towns and they are the simplest way of obtaining cash. Credit and debit cards are also commonplace, allowing easy access to over the counter advances in banks and they are generally accepted in most Portuguese hotels, restaurants, petrol stations and shops

You will usually, though not always, pay a small commission when you exchange money using travelers cheques - around 1% of the amount changed. It is worth knowing that Thomas Cook offices do not charge for cashing their own cheques, while American Express offices do not make any charge for cheques.

If you open a local bank account, you are well advised to compare commission rates for money transfer to and from Portugal. It is common practice for banks to charge 0.5% commission for currency exchange, with a minimum charge of approximately 6 GBP/10 EUR. However, some banks do not charge any commission on transactions of less than 24.94 EUR so it is worth checking with banks for details on their rates.

You will be required to present a passport or valid ID card when making any kind of banking transaction, from opening an account to withdrawing or exchanging money. If you anticipate the need to exchange a large amount of currency, it is highly advisable to notify the bank in advance to avoid inconvenience and unnecessary disappointment. Many employees in Portuguese banks speak English, particularly at the foreign exchange counter.

Banking Hours

Banking hours in Portugal are from 08:30 am to 3:00 pm, Monday to Friday. Most banks are closed on weekends and public holidays.

Links to Major Banks in Portugal

Banco 7

Banco de Portugal

Banco Espirito Santo

Banco Nacional Ultramarino

Banco Santander Portugal

Caixa Geral de Depositos

Credito Agricola

Montepio Geral

Sociedade Interbancaria de Servicos, S.A.

Off-Plan Financing

Some developers of off-plan developments operate installment plans over a period of years, while charges applicable vary according to developer. Many investors find these are highly competitive and beneficial, but it is always advisable to shop around for all types of mortgage or other finance arrangements to best suit your needs, before making your final decision.

As always, before making a commitment, we also recommend you discuss your investment strategy with a lawyer, a reputable property agent with experience in the area and even a financial advisor.

Equity Release

If you own property in any country and would like to borrow against this in an equity release plan, we can introduce you to an independent financial advisor to assist you in raising the necessary finance.
For homeowners aged in their mid-50s or older, a cash lump sum, a regular income, or both can be generated by using an equity release scheme based on the property value. Equity release schemes can be very helpful to raise funds to finance a mortgage for a property investment in Portugal.

Alternative Finance

In this day and age, not everyone falls into a category and some investors need to raise finance using other options. For this reason, there are other borrowing facilities available to investors of Portuguese property.

Taxation

Stamp Duty

Since 2003, this municipal tax has been known as IMT, replacing the old SISA system of transfer taxes in Portugal. This has led to a reduction to 6% in “stamp duty” and is applied to the declared value of your property. Evidence of payment of this tax must be presented prior to signing the deed of sale. On a property priced 150,000 EUR, a payment of 5% would be due (7,500 EUR), minus a fixed allowable deduction of 4,900 EUR, making a total duty of 2,600 EUR.

Capital Gains Tax

Gains achieved on capital are treated as income tax in Portugal, with no special rate for capital gains.

Tax at a flat rate of 25% is payable by non-residents based upon the difference between the declared purchase price and the declared selling price. As a resident you will be liable to pay income tax of 50% of the gain, payable over five years. However, exemption is given if your capital gain is from a property in which you have lived as a permanent home and have re-invested the gain into another property within two financial years from the date of sale. You will be considered as a permanent resident in Portugal if you are in the country for 183 or more days per year.

Portugal has recently taken drastic steps to prevent the avoidance of Capital Gains using Offshore Companies. For this reason, it has raised transfer taxes and transfers by Offshore Companies which are now subject to a 16% transfer tax.

Inheritance Tax

This is not a tax applied to inheritance from the direct members of your family, while other beneficiaries including unmarried partners will have to pay tax at anything from 0 – 50% on their inheritance. Rates vary widely, depending upon the value of the property and on the relationship between the parties concerned.

VAT

Value Added Tax (VAT) is payable on property purchase in Portugal and is usually around 17%, with lower rates applicable on the islands of Madeira and the Azores.

VAT registration is compulsory, irrespective of your tax residency, whenever you acquire any taxable product in Portugal. Services relating to Portuguese real estate, such as estate agency, brokering and related professional services, are all subject to the standard rate of VAT, currently set at 21%.

Tax on Rental Income

If you let out and receive an income from your property, income tax will be charged on your gains. Portugal has many double taxation agreements in place that prevent you having to pay tax twice, but you are advised to check this out with a tax adviser before you submit your tax returns.

In Portugal income tax for rental revenue is calculated on a sliding scale, with 40% as the top rate of tax that could be incurred.

Local Taxes

IMI (Imposto municipal sobre imóveis) is a form of council tax and is based upon the property value. It ranges from 0.2 to 0.5% of the value for new builds and 0.4 to 0.8% for older properties.

Income Tax

All Portuguese residents are liable for payment of income tax in Portugal. If you own a main residence in Portugal and/or live in it for at least 183 days, the tax authorities will consider you to be a resident. The tax year in Portugal is the year ending on December 31st.
If you are employed in Portugal, your employer will deduct tax at source each month from your salary.

Tax %	Tax Base (Euros)
10.5%	up to 4,544
13%	4,545 - 6,873
23.5%	6,874 - 17,043
34%	17,044 - 39,197
36.5%	39,198 - 56,807
40%	56,808 -61,260
42%	61,261 and over

You are obliged to submit your own tax returns in Portugal

• between 1st February and 15th March for earnings from employment and/or pensions and
• between 16th March and 30th April for all other income.

Summary

Investment property in Portugal offers solid investment potential and lower prices than in many other European tourist destinations. With a well developed tourist infrastructure, investors are safe in the knowledge that Portugal offers a solid EU market in which to gain reliable returns on their investment.