On Thursday 16th, the Portuguese Council of Ministers approved a set of “measures that seek to respond comprehensively to all dimensions of the housing problem”, among those tabled proposals the Golden Visa will end (at least the option concerning real estate investment).
The Council of Ministers was exclusively dedicated to the theme of housing, and the approved measures and proposals that “will be put under public discussion for about a month so that, in the end, they may be definitely approved, some by the Government, others through a law proposal to the Parliament, in the Council of Ministers of March 16th,” said the Portuguese Prime Minister.
The above meeting of the Council of Ministers proved controversial, with several opposition parties claiming some measures presented to be unconstitutional and promising to take all measures to bring said measures, if implemented, to the Portuguese Constitutional Court if implemented.
Main measures proposed
Increasing the supply of housing
Increase the supply of housing properties by changing the land use plan or license; classified land or properties licensed for commerce or services can be used to construct or convert to housing.
Also, to increase the supply of housing properties, the State will make land or buildings available for cooperatives or the private sector to build affordable housing, noting “two tenders dedicated to model construction that significantly shortens construction times and increases energy efficiency.
To simplify licensing processes in two ways:
- Architectural and speciality projects are no longer subject to municipal licensing, and there is now a term of responsibility of the designers, with municipal licensing limited to urban planning requirements;
- Establish an effective financial penalty for public entities when they do not respect the deadlines foreseen in the law for the issuing of opinions or the taking decisions, with interest for delay running to the benefit of the promoter and the State deducting, “in the Budget of the year following the one causing the delay” to the entity that delayed.
To strengthen the trust of landlords so that they put vacant houses on the market through two measures, the first of which is that the State proposes to rent all available houses for five years as long as it can sublet them.
Another measure is “to introduce an alteration, in relation to contracts that already exist or that are established between landlords and tenants, so that, in all eviction requests that are received at the National Rental Bureau after three months of non-fulfilment, the State substitutes itself for the tenant in the payment and for the landlord in the collection of the debt, verifying if there is a socially acceptable cause and resolving it, or evicting the tenant”.
To increase the public supply of housing for accessible renting, “a principle of exemption from capital gains tax is established for those who sell to the State, including municipalities, any type of housing”, encouraging those who have houses they don’t intend to use to sell so that the number of houses to be put on accessible renting can be increased.
Still, to widen the rental market, “a line of credit of 150 million euros will be created to finance coercive works by municipalities, which the law allows but municipalities rarely do due to financial difficulty”.
Several measures will be implemented to create a “strong incentive so that fractions dedicated to short-term touristic rentals (alojamento local) return to the housing market”.
Thus, current licences for alojamento local will be re-evaluated in 2030 and, subsequently, there will be periodic re-evaluations; the issuing of new licences will be prohibited except for rural accommodation in inland municipalities where there is no urban pressure and where they can contribute towards the economic dynamism of the territory; owners who transfer alojamento local dwellings to rental housing by the end of 2024 will have a zero rate of income tax until 2030; an extraordinary contribution to alojamento local will be created to finance housing policies.
Tax incentives for accessible renting will be reinforced, with no municipal property transfer tax payment on acquiring houses for accessible renting. Whoever carries out rehabilitation works on these houses will pay VAT at a rate of 6% and will have a total exemption from personal income tax on income from the property.
Tax incentives for all rentals will be improved, lowering the rate from 28% to 25%.
Incentives for stability in the lease contracts will be reinforced: if the contract is between 5 and 10 years, the 23% rate will be reduced to 15%; if it is between 10 and 20 years, the 14% rate will be reduced to 10%; and if it is more than 20 years, it will be reduced from 10% to 5%.
End of Golden Visas through investment in real estate
To combat real estate “speculation”, two measures were approved by the Council of Ministers. One, the end of the concession of new Golden Visas, “existing ones being renewed, in the case of real estate investments, only for own and permanent housing or if it is placed durably in the rental market”.
Another measure is to regulate rent prices, and the State will limit the growth of rents in new contracts, which “should result from the sum of the rent practised with the annual updates and the value of the increase of inflation set by the European Central Bank”.
What happens next?
Currently the plans are nothing more than an intent and are open to public discussion for a month by stakeholders. As a result, input from the stakeholders and potential amendments can be proposed. Once stakeholders have tabled their proposals, the following steps are expected to take place: at the Council of Ministers meeting on 16 March, the final version of the bill will be approved after the public discussion. On 16 or 17 March, the bill is submitted to the Parliament for further amendment. Within 1-3 months, the Parliament will approve the bill. Then, in 1-2 weeks, the President will ratify the law and have it published, unless there are constitutional conflicts. Finally, the law will be published and take effect with a possible transition period.
What to do in the meantime?
The Portuguese Golden Visa is merely one of the multiple residency permits available. The right option for you will depend upon your motives and the point of your Golden Visa application process. With the many unanswered questions and the need for timely action, here are some of the alternatives to look into:
- You can still send an application for the Golden Visa – it should be noted that, presently, there has only been an announcement of a decision. This implies that you may still benefit from this until the law is made public and enforced.
- You could also apply for the D7 or Digital Nomad Visa other residency permits in Portugal – If you were wanting to relocate to Portugal anyway, there are other residence permits you can submit your application for.
To help reduce family indebtedness, “the exemption of the capital gains tax on the sale of a house for the amortization of the home loan of the owner or of a descendant is allowed”.
All financial institutions offering home loans will have to offer fixed-rate loans.
A subsidy is created for credits of up to 200 thousand Euros for families taxed at up to the 6th personal income tax bracket, with the State subsidising interest at 50% of the value above the maximum value to which the family was subjected in the stress test carried out when contracting the credit.
For rental contracts already in force, a State subsidy of up to a maximum of 200 euros per month will be granted to families with incomes of up to the 6th IRS tax bracket and a rate of effort higher than 35% and a house rent within limits set by the IHRU for the respective municipality.
The above measures were presented briefly in a press conference which can be consulted here and here. PDF containing the measures to be introduced by the Government can be consulted here.
The MCS team will keep all stakeholders informed of the upcoming regulations set by the Government regarding this matter.
At MCS, we can assist you with your tax, immigration and real estate matters in Portuguese territory, especially Madeira Island. This article is provided for general information purposes only and is not intended to be, nor should it be construed as, legal or professional advice of any kind. Should you have any questions, please do not hesitate to contact us.
Miguel Pinto-Correia holds a Master Degree in International Economics and European Studies from ISEG – Lisbon School of Economics & Management and a Bachelor Degree in Economics from Nova School of Business and Economics. He is a permanent member of the Order of the Economists (Ordem dos Economistas)… Read more