CategoriesInvestment Property Tax Regime

Economic Implications

The rise and fall of Portugal’s real estate market are not distributed uniformly across the country and its islands. Starting in the ever-popular Algarve, 2021 saw a massive 16.5% increase in bank valuations across the board.

In March of 2022, the inflation rate in Portugal hit 5.3%, a level not seen in Portugal for nearly three decades. Medium-term, this escalation will affect home prices, which have been steadily rising since the troika left the country.

Some foreign buyers are willing to pay twice as much as a Portuguese for a property in Portugal. No signs indicate that the rising cost of buying a home in Portugal will slow down anytime soon. 

With 1,355 euros per square meter (euros/m2) in the fourth quarter of 2021, the median price of a Portuguese family home reached a new all-time high. This is an annual growth rate of 14.1% and a quarterly growth rate of 12.2%, as the Portuguese National Statistics Institute (INE) reported. 

The data also shows that in many urban centres, like the Greater Lisbon and Algarve areas, foreign buyers spent over twice as much as Portuguese buyers on a home. Let’s delve deeper into what 2022 holds for the Portuguese real estate market. 

Even though the Russian invasion of Ukraine has created a lot of uncertainty, the Portuguese economy is still expected to grow shortly. 

The Bank of Portugal predicts that the country’s GDP will expand by 4.9% in 2022 (up from 4.9% in 2021) before slowing to 2.9% in 2023 and 2.0% in 2024, closer to the estimated long-term growth rate. 

As economic activity rises, more people can find jobs, and the unemployment rate falls. Over the long term, these effects will fade, but they will be partially counteracted by rising wage and price pressures as the Portuguese economy makes greater use of its resources.

CategoriesInvestment Property Tax Regime

The Non Habitual Tax Regime (NHR)

The non-habitual resident (NHR) regime is open to anyone who has the right to reside in Portugal (an EU/EEA/Swiss citizen or a holder of a residents permit who has not been a tax resident of the country during the previous 5 years. 

Under this regime, the following taxation rules apply:
    • Foreign-source self-employment or sole trader income derived from an eligible occupation (see below), royalties, capital gains and investment or rental income will be exempt from Portuguese tax as long as they may be taxed in the source country either under a double taxation agreement or under the OECD model tax convention. In addition, such income must not be deemed Portugal-sourced under applicable Portuguese law, and must not be sourced from a blacklisted tax haven.
    • Foreign-source employment income will be exempt from Portuguese tax as long asit is liable to tax (at whatever rate) in the source country either under a double taxation treaty or under the OECD model tax convention, and is not deemed Portugal-sourced under applicable Portuguese law.
    • Occupational pension income will be exempt from Portuguese tax as long as it is liable to tax in the source country under a double taxation treaty or it is deemed as not being Portuguese-source income under applicable Portugueselaw.
    • If your occupation is eligible (see below), Portugal-source employment or self-employment / sole trader income will be taxed at a flat rate of 20%, while other Portugal-sourced types of income will be taxed at the normal rates applicable to resident taxpayers, the calculation of the applicable marginal tax rate taking into account all income, including exempt income.
    • In Portugal there is no wealth tax or capital duty, and an inheritance or a gift received by a spouse, descendant or ascendant is tax exempt. Inheritance or gifts received by other individuals will be either not taxable under territoriality rules, or else may be subject to a flat 10% stamp duty.
If you are interested in learning more about the NHR and purchasing a property in the Algarve do not hesitate to get in touch.