LISBON Europe's Best Kept Tax Secret

Tax advantages prompt the French to over-take the British as the lead investors in Portuguese Real-Estate for the first time.


Europe's Best Kept Tax Secret

Tax advantages prompt the French to over-take the British as the lead investors in Portuguese Real-Estate for the first time.

Tax advantages, Lisbon - Athena Journal

For decades, it was the British who topped the polls for property investment in Portugal, drawn to the beaches and bougainvillea strewn villas of the Algarve as their premier bolt-hole for second home property investment and winter sun. Yet in the first trimester of 2016, the French over-took them for the first-time as the number one nationality investing in Portugal.  While year-round sunshine, a prime property resurgence and a high-quality-low cost lifestyle play their part, it’s the country’s competitive tax programs that are driving the shift for a new demographic. 

They key draw for Europeans is Portugal’s Non-Habitual Residence program, described in a recent PWC report as ‘Europe’s Best Kept Tax Secret.  Introduced by the government in 2009 in the wake of the global crisis as an incentive to draw foreign residents and investment, the criteria for interested applicants are simple: First, you need to prove that Portugal is your primary residence by spending 183 days in the country or proving on the 31st of December of each year that you are renting or purchasing a property. Secondly, it needs to be the first time you have declared yourself a tax resident of Portugal for the previous 5 consecutive years.  Proved you meet these points, the tax advantages are significant, with tax exemption on:

  • inheritance tax
  • pensions
  • rental income
  • returns on dividends and bonds. 
  • tax exemption on salaries from foreign earned income, provided that they are taxed in the country of source under the Double Taxation Agreement.

Yet it’s not just the uber-wealthy with assets to protect, or retirees looking after their pensions, that are attracted to the program. According to Patrick Dewerbe, head tax adviser at leading global law firm CMS, the demographic is different to what you might expect . ‘We assist a range of middle to upper class Europeans, everyone from entrepreneurs to young families aged between 35-65, moving to Portugal to take advantage of the program”. An added draw is the income tax, set at a flat-rate of 20% for foreign residents for Portuguese earned income for a long list of professions encompassing doctors, architects, marketers and journalists.  ‘When you compare this to a 50% income tax in the UK and up to 75% in France, it really makes the difference. 25,000 French people alone have applied for the NHR program in the past year’

While it took a few years for the NHR program to catch on, the last few years has seen CMS’s business grow at a dynamic rate of 50% year-upon-year.  “One growing trend in 2016 is Europeans, and in particular French, moving to Lisbon from London as the next step when their Non-Dom residence programs come to an end’

Dewerbe also highlights Lisbon’s property resurgence, its dynamic business culture, politic and economic stability and its fantastic quality of lifestyle as contributing factors to the taxation system.  “An increasing line of our business comes from referrals from previous clients who have encouraged their friends to make the move.  The French school is no longer accepting new students, in fact, all the international schools are over-whelmed. Lisbon is the new cosmopolitan capital of Europe.." 

Facts to Know

  • The NHR regime is a separate programme to the Golden Visa program. The Golden Visa provides a path to European citizenship and free movement within the Schengen Zone upon a property investment of €500,000 for all foreigners.  The NHR is the associated tax program offered to all foreign residents (both Europeans and Golden Visa applicants)
  • 95 % of NHR applicants are European citizens, in comparison to the Golden Visa program, which is dominated by the Chinese, Brazilians and South Africans.
  • The NHR’s tax benefits offered are available for a ten-year period.
  • To qualify for the NHR’s tax incentives, applicants need to register as a non-resident in their previous country of residence and prove that Portugal is their primary residence, usually done through property purchase or rental. While they don’t need to prove they reside 183 days in Portugal, they cannot spend this amount of time in another country.
  • A full-service application with CMS’s experts costs from approximately 3,000 EUR and includes declaration of non-residency in your previous country, appraisal of income sources to ensure they meet the criteria and full document completion and submission.

For more information, see our Buying Guide to Portugal.

If you would like to discuss how these tax benefits could work for you, please contact us to speak to one of our experts.