With Portugal’s real estate market showing continued strength and resilience in 2025, buying rental property in Portugal has become a compelling strategy for expats residing in Madeira and foreign investors seeking stable, euro-denominated returns. This guide provides a detailed overview of property investment’s legal, fiscal, and strategic aspects, particularly focusing on opportunities within the Madeira region.
Portugal remains one of the most attractive destinations in Europe for real estate investment. With sustained tourism, a growing expat community, and solid long-term fundamentals, the property market continues to generate competitive rental yields, particularly in urban and coastal regions.
Average gross rental yields in cities such as Lisbon and Porto range between 5% and 8%, with some properties exceeding those figures in the short-term rental market. Mortgage conditions in Portugal have stabilised, with interest rates moderating and lending terms extending to 25–30 years, creating favourable financing conditions for qualified non-resident buyers.
In Madeira, the property market is experiencing a steady increase in demand, particularly in and around Funchal, as international residents and digital nomads look for lifestyle-based investments with rental income potential.
Who Can Purchase Real Estate in Portugal?
Portugal imposes no nationality-based restrictions on property ownership. Foreign nationals, including those from outside the European Union, may acquire full legal title to real estate in both mainland Portugal and the autonomous region of Madeira. Investors must obtain a Portuguese Tax Identification Number (NIF), open a local bank account, and ensure compliance with anti-money laundering (AML) procedures.
Engaging legal, tax, and property advisors is critical for non-resident investors to ensure due diligence is conducted before signing any binding contracts.
Buying Rental Property in Portugal: Legal and Administrative Process
The process of buying rental property in Portugal is well-regulated and follows a predictable legal framework:
- Property Identification and Negotiation: Investors typically engage local real estate agents or buyers’ representatives to identify suitable properties.
- Reservation and Due Diligence: A reservation agreement may be signed, followed by legal and technical due diligence, including title verification, encumbrances, building licences, and local tax compliance.
- Promissory Sale Agreement (CPCV): This legally binding contract outlines the terms of sale, with a deposit (usually 10%) payable upon signature.
- Final Deed (Escritura Pública): Executed before a notary, the public deed of purchase is the final step in the acquisition process. Ownership is formally registered with the Land Registry and Tax Authority.
Retaining a lawyer throughout the process is advisable to ensure full compliance and secure representation, especially for buyers not physically present in Portugal.
Fiscal Considerations for Rental Property Owners
Investors should be aware of the applicable taxes associated with buying rental property in Portugal:
- Property Transfer Tax (IMT): Payable at the time of purchase, the rate depends on the property’s use (primary residence vs. investment) and value.
- Stamp Duty (Imposto do Selo): Charged flatly, typically 0.8% of the purchase price.
- Municipal Property Tax (IMI): An annual tax assessed by local municipalities, based on the property’s taxable value (VPT).
Rental income is subject to taxation under the Portuguese Personal Income Tax Code (CIRS), with different rates and deductions applicable depending on whether the income is derived from long-term or short-term lettings.
Buying Rental Property in Portugal: Short-Term vs. Long-Term Rental Markets
Portugal’s rental market is bifurcated into short-term tourist accommodation and long-term residential leasing. While short-term rentals can offer higher gross yields, they are subject to licensing restrictions in certain municipalities, particularly in Lisbon and Porto (as perhaps soon, Funchal too).
Madeira, however, remains a more flexible jurisdiction. Local councils in Funchal and surrounding parishes continue authorising short-term rental licences (Alojamento Local), subject to planning and zoning requirements. The demand for furnished short-stay units is rising due to the influx of remote workers, retirees, and seasonal visitors.
Conversely, long-term rental properties provide more stable cash flows and fewer regulatory constraints. They are increasingly sought after by relocating families, professionals, and students.
Regional Spotlight: Madeira
Madeira has gained recognition as a high-quality destination for property investment, offering a unique combination of natural beauty, safety, infrastructure, and favourable taxation for residents. Its growing international profile has resulted in strong demand for mid- and high-end rental units, particularly in Funchal, Caniço, and Ponta do Sol.
The region’s authorities actively promote economic diversification, including incentives for digital economy participants and green infrastructure. This positions Madeira as a sustainable investment location with long-term capital appreciation potential.
Final Considerations about Buying Rental Property in Portugal
Buying rental property in Portugal in 2025 remains a well-regulated and rewarding venture for international investors. With rising demand, a strong legal framework, and access to the broader EU market, Portugal, and especially Madeira, continues to offer exceptional real estate opportunities for yield and capital growth.
However, success in this market requires more than purchasing a desirable asset. Investors must navigate tax rules, regulatory obligations, and operational challenges. For this reason, professional legal, tax, and property support is indispensable.
To learn more about structuring your investment or relocating to Madeira, we invite you to schedule a consultation with our team. Click “Book a meeting” to speak with one of our senior advisors.
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