Since the Brexit transition period ended just over a month ago, and the UK ceased to be a part of the EU, there has been all manner of confusion, question marks, concerns and queries about investment and travel between the EU27 and Britain. It is, undoubtedly, a complicated and confusing state of affairs, with everyone still coming to terms with what Brexit means for visas, residency, overseas investment, taxes and a whole host of other issues. These things would be complex enough at the best of times, but they are made even more complex by the presence of a global pandemic – currently undergoing a devastating second wave across much of the world – which has introduced travel bans and various other restrictions between countries.The thirst for knowledge with regards to Portugal, Spain and France – three hotbeds of British investment for decades – has been intense, with people keen on clarity on a range of matters.
Since Brexit happened, it has suddenly become much more difficult for Brits to live and work freely in Portugal without worrying about visas or residency.
But is there likely to be a special arrangement between the UK and Portugal to make moving between the two countries, post-pandemic, much easier? “We will do our best to facilitate travel between our two countries,” Manuel Lobo Antunes, ambassador to Portugal, says.“Short-term visits for tourism purposes, for instance, will not be affected. In relation to other situations, such as living or working in Portugal, some rules may change as a consequence of Brexit but what I wish to highlight is that, from a political point of view, we will work to make things as simple as possible, with as little red tape as possible, in the hope that our British friends continue to enjoy our hospitality and working atmosphere.”
So, Brexit won’t harm the centuries-long alliance between Portugal and the UK? “Of course Brexit won’t harm the centuries-long alliance between Portugal and the UK. We have been EU members together for 40 years or so, whereas our alliance has been in force for centuries. Throughout the Brexit process we have always said that we would fight for a future relationship with the UK as close as possible to the one we currently enjoy,” Antunes insists.“Inevitably things will change in some areas, but this will be the case for both sides, as the UK will be a third country vis-a-vis the EU. However, we remain confident that the new agreement between the UK and the EU offers many opportunities for a close and fruitful relationship.
”What is the most tax-efficient way for Brits to invest in property in Portugal?Geoffrey Graham, senior partner at EDGE International Lawyers, says the above question depends upon the profile of the investor and whether the investor is a Portuguese or UK resident.“A number of issues will come into play and for the purposes of this question I will focus on the Portuguese tax issues only. With regards to non-residents, British tax residents can freely invest in Portuguese property and can even secure mortgages. Property income is taxed at a flat rate of 28% and capital gains on sale will be taxed at 28% of the gain.”He adds: “British owners will also be exempt from succession tax if the heirs of their Portuguese estate are the surviving spouse, any ascendant or descendant.”For those British nationals resident in Portugal, in addition to being able to elect for the flat rate of property income tax of 28% and benefit under the Portuguese succession rules described above, they can also benefit from a primary residency exemption on capital gains tax, provided that the net sale proceeds are reinvested in another primary residence, Graham explains.“Resident or non-resident corporate vehicles can also be used to invest in property in Portugal to eliminate, postpone or reduce purchase taxes, property income tax and capital gains tax. In this context, residency – i.e. a resident’s permit – must be distinguished from tax residency. The best residency option will obviously also be driven by the profile of the investor. Should the investor wish to benefit from minimum stay periods (effectively 14 days in any two-year renewal period), the Golden Visa would be the preferable option.”“This would imply a real estate investment of €500,000, or €350,000 for refurbishment property.
The other main option is a D7 residency visa (or investment/retirement visa) which requires that the applicant actually lives in Portugal.”What are the pros of the NHR schemeIn brief, Graham says, the benefits of becoming an NHR (Non-Habitual Resident) tax resident include the possibility of receiving qualifying non-Portuguese personal income either tax-free, or at a preferential rate of tax, for 10 years.“Qualifying income includes, under certain conditions, pension (10%), dividend, royalty, interest income (all exempt), as well as some types of salary consulting (both exempt or 20%), and property income (exempt),” Graham states.“Acceptance to the programme is straightforward: the applicant only needs to register as a Portuguese tax resident, satisfy the residency test by being habitually resident in Portugal and not have been resident in Portugal in the previous five years.
”What about the Golden Visa?“First of all, British nationals are now eligible to apply for the Golden Visa, therefore they can apply for either the real estate investment option outlined above, the capital investment option starting at €1 million or one of the other options involving research or venture capital, arts and culture or employment,” Graham says.“Secondly, the Golden Visa will allow access to Portuguese nationality/permanent residency after five years; and freedom of travel in the Schengen area. Finally, to address the question of any current lack of clarity in terms of the programme: changes to the programme have been tabled for the beginning of July, but it is as yet unclear what these will be in the context of the restrictions to be applied to purchases of Lisbon, Porto and coastal properties. As a result, interested applicants should move quickly if they are focused on these areas.”
Do British buyers face stamp duty and other taxes when purchasing Portuguese property?“Yes, buyers should pay Transfer Tax with a top rate of 7.5% (for properties over €1 million), a smaller stamp duty of 0.8%, as well as notary and registration fees. These have not changed post-Brexit,” Graham says.A commitment to foreign direct investmentAs a country which still relies heavily on direct outside investment – with a smaller economy that is less resilient to the shocks caused by major events like Brexit, the coronavirus crisis and the 2007-9 global financial crisis – Portugal is unsurprisingly keen to maintain good relations with its oldest ally, and to encourage Brits to continue owning second homes in the country.“The government is highly ambitious in driving foreign direct investment into the country through a number of investment initiatives and incentives. These have attracted both human and financial capital worth billions of euros,” Chitra Stern says. “In addition to new procedures that simplify processes and reduce ‘red tape’ for venture capital and private equity companies wanting a base in Portugal, other ways the government is attracting investment include: residency via the Golden Visa, green visas, start-up visas and tax incentives such as the flat tax of 20%.”She adds: “There are also subsidies for film production and government co-investment schemes for start-ups (Beta-I and Startup Lisboa being a couple of successful incubator schemes).”