Tag Archives: Golden Visa

Golden Visa and Tax Benefits

Golden Visa – Can it be a profitable investment? Tax Benefits related to the rehabilitation of real estate.

In the last few articles I have been mentioning and outlining several reasons why the purchase of a property worth 350 thousand Euros with rehabilitation works will be a good and profitable investment to obtain the Golden Visa.

Associated to a lower investment value, which will be a minimum of 350 thousand Euros for the purchase of a property and rehabilitation works, in comparison to the investment of 500 thousand Euros for any property or group of properties, the option for rehabilitation of urban real estate, especially in the perspective of its profitability through rental housing, there are also other advantages for the investor.

In addition to some support programs and funds available to owners who proceed with the rehabilitation of buildings in areas of urban rehabilitation, in this article we will specifically focus on the aspect of tax benefits associated with urban rehabilitation, which adds even more advantages to the Golden Visa regime through real estate investment.

The Golden Visa regime in the form of investment in a minimum global (acquisition of property and rehabilitation) value of 350 thousand Euros foresees that the same can be made in real estate located in an area of urban rehabilitation, or in real estate whose construction has been concluded at least 30 years ago.  This is also the premise in the case of the tax benefits stipulated in article 45 of the Statute of Tax Benefits (EBF), as the benefits will be attributed when the rehabilitation works are carried out in real estate that is in either of the two aforementioned situations.

However, there are two other conditions, in this case cumulative, which need to be observed:

  1. a) the property rehabilitation interventions must be promoted under the terms of the Urban Rehabilitation Legal Regime;
  2. b) As a result of the intervention referred to in the previous sub-paragraph, the maintenance status of the property needs to be two levels higher than that previously attributed, and must have at least a Good level, comprehending that the energy efficiency and thermal quality requirements applicable to the buildings are fulfilled.

In order to comply with that mentioned in paragraph b), it will be necessary to request a technical evaluation from the Municipality and the fee for such evaluation of the state of conservation will be reduced by 50% in these cases.

If the requirements are fulfilled, in accordance with the EBF, the tax benefits to be granted are as follows:

Exemption from municipal property tax (IMI) for a period of three years from the year, of the conclusion of the rehabilitation works, with the possibility of this exemption to be renewed and extended, at the request of the owner, for a further five years in the case of properties assigned to rental for permanent dwelling purposes or to own as permanent dwelling;

Exemption from municipal tax on onerous transfers of real estate (IMT) in the acquisition of real estate for rehabilitation, provided that the purchaser begins the respective works within a maximum period of three years from the date of acquisition;

Exemption from municipal property transfer tax (IMT) on the first transmission of property, following the rehabilitation intervention, in the case that the property will be used as rental for permanent dwelling purposes or, when located in an area of urban rehabilitation, also for own and permanent dwelling purposes;

In my opinion, these exemptions allied with the Golden Visa regime, in which the investor is obliged to maintain the investment property for a period of five years, may bring enormous advantages by mitigating the most onerous taxes and costs related with the acquisition and holding of a property.

The first advantage will be the IMI exemption that may last for eight years after the acquisition and rehabilitation of the property, if it is used to rent for habitational purposes, or even if it’s used as the permanent habitation of the investor.

The second advantage will be not having to pay IMT if the rehabilitation works are started within the first three years after the acquisition of the property. That is, there is a suspension in the payment of IMT during the first three years, and a total exemption of its payment if it is proven that the owner started the rehabilitation within the maximum period established.

If we take as an example a property acquisition to rehabilitate in the amount of 350 thousand Euros, the investor can be exempted from paying the 8% tax on that amount, corresponding to a value of 16,964.75 Euros.

Finally, the advantage of exempting the future purchaser of the rehabilitated property from the IMT tax, if he uses the property for rental as a permanent residence, or even as his own permanent residence.

This advantage of exempting the future buyer of the payment of IMT is a great advantage at the level of marketing of the property in the future, when the investor under the Golden Visa, has already exceeded the five years in which it is required to maintain ownership of the property, and now decides to capitalize the investment through the sale of the same.

Another interesting tax benefit is the fact that the cost of the contract for the rehabilitation of the property can be taxed in terms of VAT at 6% instead of the usual 22% applicable to construction contracts. With a rehabilitation contract, it will be possible to apply the lower rate of VAT.

Also at the Personal Income Tax (IRS) level there are some interesting benefits when opting for the investment in real estate for rehabilitation, through the Golden Visa, and its profitability through renting.

And although it is not contradictory to the Golden Visa regime, the truth is that in order to benefit from these incentives in terms of IRS, the investor must become a tax resident in Portugal, something that every so often it’s not a common aspiration from the investors.

As we know, many of the investors who opt for the Golden Visa, do not intend to become tax resident in Portugal, however for other investors who effectively choose to move to Portugal cutting ties with their country of origin, the change of tax residence to Portugal is not an impediment at all.

For those investors who choose to become tax resident in Portugal, Article 71 of the EBF, grants two tax benefits in terms of IRS:

  1. a) Capital gains earned by IRS taxpayer’s resident in Portuguese territory arising from the first disposal, subsequent to the intervention, of property located in an urban rehabilitation area, are taxed at an autonomous rate of 5%, without prejudice to the option for aggregation;
  2. b) Rental income earned by IRS taxpayer’s resident in Portugal is taxed at 5%, without prejudice to the option for aggregation, when it derives entirely from the rental of real estate located in an ‘urban recovery area’, recovered under the terms of the respective recovery strategies;

Finally, and perhaps of less relevance for those who make an investment under the Golden Visa, also in terms of IRS, if the investor becomes tax resident in Portugal, he will be entitled to deduct 30% of the costs incurred by the owner/investor related to the rehabilitation of the property, up to a limit of 500 euros.

As mentioned above, there are other tax benefits associated with rehabilitation if the investment is made through other vehicles holding the property, and there are also other incentives and support in the form of funds and support for rehabilitation.

Nevertheless, as it was possible to demonstrate, the tax incentives themselves, allow, in the case of investment through rehabilitated real estate, to mitigate one of the disadvantages most often mentioned in real estate investment under the Golden Visa regime, which is related to the tax costs, some fixed as the IMI, throughout the five years in which the investor is obliged to keep the property in his ownership.

Therefore, using the example I have been giving, the profitability of the investment through the rental housing, it is possible to avoid most of the tax costs in the procedure of purchase and maintenance of the property.

auctor Pedro Marrana

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Golden Visa – Rehabilitation for affordable housing

In the last article I have mention that in 2021, it will be possible to observe an increasing trend in the betting on construction and rehabilitation of urban real estate, in order to accommodate the growing demand in the market for more affordable housing, specially pursued by young couples, who end up leaving their parents’ house at later stages than 40 or 50 years ago, and look for a new home closer to the best infrastructures, the jobs, the best socio-cultural activities and the best services, specifically health services and care.

Even with the news that BCE will maintain a monetary policy that will ease the resource to credit for habitation, keeping the interest rates stuck near at 0%, the fact is, we currently face the cold truth of one of the biggest economic crises in history, which impact, and duration will depend on the global measures taken by the several governments, in terms of supporting the sustainability of several economic sector, companies and specially jobs. This means, that even with low interest rates, the habitation on the bigger urban areas needs to make a change in order to be more affordable, more effective in terms of the usage of construction materials, and more sustainable.

This leads me to consider, in the scope of the Golden Visa procedure, that the bet on the investment in the value of 350.000 Euros, in real estate, whose construction has been concluded at least 30 years ago or located in an area of urban rehabilitation and execution of rehabilitation works of the acquired real estate, may be a good solution to advance towards the transformation of the housing market in urban centers, keeping a solid bet on the profitability of the investment.

In Portugal, whether in Lisbon, Porto or even Funchal, there are good opportunities for properties with the characteristics and requirements mentioned in the previous paragraph.

The fact that there are a good number of properties that can fulfil the above requirement, together with the fact that over the last 10 years we have seen the exponential growth of the area of urban rehabilitation of cities, as well as the intervention of new techniques of reconstruction, reconditioning, use of new and better materials and architectural solutions, create the perfect symbiosis for the bet in this market segment.

It is also important to mention that in Portugal there are tax benefits for the rehabilitation of real estate for residential purposes, and in addition to the tax benefits granted, which range from municipal tax exemptions, to reduced VAT rates for construction services, there are also, depending on each municipality, support and financing programs for the rehabilitation works on the acquired real estate.

These tax and non-tax benefits will be addressed in articles that I will publish in the future.

The Golden Visa program obliges the applicant to keep the real estate investment for a period of five years in its ownership, going through the two renewals of the temporary residency permit, until the applicant reaches the possibility of requesting for the permanent residency permit, but that does not prevent the applicant  from using the investment in a profitable way, for example through renting.

Another form that is not ruled out, is the lease for a period of five or six years, with purchase option at the end of that period for a value determined from the beginning, ensuring that price for the future, or even leaving that value open to a possible market valorization of the property.

This way I believe it is possible to give the fullest mark of the term investment, to the Golden Visa, keeping the fulfillment of the obligation to retain ownership of the property during the period of five years.

The next step should be getting to know what material requirements are needed regarding the investment beside the minimum amount of the global investment.

Within the application procedure for obtaining a Golden Visa, the requirements that are necessary, regarding the real estate investment, beside that the global value needs to be equal or higher than 350.000 Euros, are:

  1. the construction of the acquired property must have been concluded at least 30 years ago or be located in an area of urban rehabilitation;
  2. rehabilitation works will have to be carried out on the real estate acquired;

The requirements mentioned above need to be proven at the time of the application for obtaining the Golden Visa by this investment route.

The way to prove the requirements in a) should be done either through documentation of the property’s land registry for the first part of that paragraph, or through a declaration of the Municipality attesting the location of the property in an urban rehabilitation area, concerning the second part of that paragraph.

A more complex issue will be the meaning and scope to be given to what is intended by the rehabilitation works that must be carried out.

Undoubtfully, some sort of rehabilitation work needs to be done in either case, but I don’t believe that the legislator had the intention to force a full rehabilitation of the property, but rather gave great latitude in the volume of works to be performed in order to be considered that the rehabilitation of the property has been carried out.

In the next article I shall provide a deeper analysis of what I deem to be considered rehabilitation work for the purposes of complying with the requirement mentioned in the point b) above.

Having said this, in the next article I will again address in general terms the requirements for the investment of 350 thousand Euros in real estate built more than 30 years ago, or in an area of urban rehabilitation, and focus more specifically on the interpretation that I believe to be more correct and balanced, regarding the interpretation of the obligation of rehabilitation works, and what will be the extension or volume of those works, which may vary according to the physical state of conservation in which the real estate is acquired.

auctor Pedro Marrana

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Golden Visa in Portugal – Real Estate Stats

As I mentioned in the first article, this second article will focus on a brief analysis of the property market in Portugal, with a special focus on Madeira Island.

Why Madeira Island, and why investors should really start looking into Madeira Island as a new focal point for the real estate investment through Golden Visa?

First of all, with the approval of Decree-Law no. 14/2021 of 12 February, one of the most important changes to take place in the Golden Visa program was the limitation of real estate investment destined for housing, to be carried out only in the Autonomous Regions of the Azores and Madeira or in inland territories, identified in the annex to Ordinance no. 208/2017, of 13 July.

This means that due to the legislative changes, as of January 1st 2022, a great part of the Portuguese territory, including bigger cities like Lisbon, Porto and many of the costal areas will be excluded from the Golden Visa investments in what respects to habitational properties, and in what concerns to real estate investment within the scope of the Golden Visa program, Madeira Island will be one of the most interesting territories with the highest market value.

Second, how better to explain and summarize all the reasons to live and invest in Madeira than through this article on 15 reasons to live in Madeira when this is over.

The property market in Madeira Island has had stable growth over the last five years, and continues to grow, with a progressive increase in value per square meter, from €1,160 in February 2016 to a current value of €1,749 in February 2021.

As you can see from the graph provided by the Idealista website, the average value of property has been increasing consistently, with a considerable increase of 12,8%  only between July 2020 and February 2021, in the midst of the pandemic crisis.

In comparative terms over the same period between July 2020 and February 2021, the real estate value of the square meter in Lisbon increased by 4.8%, in Porto by 5.6% and in Faro by 3.3%.

This means that overall, amid the pandemic crisis the value of the real estate market has been rising, but with a special focus on the Madeira Island.

The same situation is verified at the level of the rental market, with a permanent increase in the square meter value for rental purposes in Madeira Island, with an increase of 6.4% between June 2020 and February 2021. Currently the value per square meter on the rental market is valued at €8.3 per square meter, on average for Madeira Island.

The same cannot be said in relation to Lisbon and Faro, which had a decrease, and in relation to Porto the increase in those periods was only 1%.

However, in general terms, the property market in Portugal has shown signs of maintaining a certain stability in its growth, with a certain dynamism in demand and supply, the result of a readjustment in the way of living in Portugal.

Even with interest rates at very low levels for credit to buy property, the rental market has recently seen a surprising amount of demand for the insufficient supply on the market.

The case of Funchal, capital of the Madeira district, is a clear example of a shortage of supply in terms of the rental market, with a clear difficulty in responding to the constant increase in demand.

In Portugal there has been a growth in property investment through the construction or rehabilitation of real estate for rent, and it is currently a solid investment, as can be seen in the analysis made in the article by CRBE consultants.

One of the main reasons for this search for a more flexible long-term rental is urban migration and the search for a first home by the younger population, where we would include the digital nomads, or younger independent workers that can provide their services from any place on the world.

It should not be forgotten that although remote working was one of the most impactful circumstances during the Covid19 pandemic, people and businesses still want and demand to be close to the best infrastructure, social and cultural activities, as well as access to the best services and healthcare.

Therefore, using the real estate investment to obtain the Golden Visa, being able to monetize the acquired property for the rental market, or even using the rehabilitation of properties over 30 years old or in rehabilitation areas, to be later refurbished and put on the rental market, proves to be a safe and sensible investment in the near future.

In the specific case of Madeira Island, whether the investment is in the perspective of urban rental, or in the use of the property for tourism activities, there will always be a return on the property during the five-year period in which it will be mandatory to maintain the investment.

Even after this five-year period, what the market has shown is that the investment in real estate for long or short term rental is effectively a market with great possibilities of financial return.

auctor Pedro Marrana

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Golden Visa – A profitable investment?

Although the advent of vaccines showed a light at the end of the tunnel to solve the pandemic crisis, we are still far from solving the serious economic crisis that will follow.

There are doubts as to whether the government measures in the various countries to stimulate and recover the economy will be taken in time, and if so, whether they will be sufficient to guarantee some immediate stability that will allow the gradual economic recovery.

While risk is always an inalienable part of investment, in times of greater uncertainty any investor appreciates the security of informed analysis, and that is our goal with the several articles I shall be doing twice a week concerning the Golden Visa and the different forms of investment.

In my first article, I shall initiate the analysis of the most common form of investment, real estate.

Although there are several forms of investment under the Golden Visa, real estate investment has remained the preferred form of investment since the beginning, corresponding to €4,908,676,856.49 of the total €5,431,263,516.27 invested since October 2012, under the Golden Visa program.

According to many international consultants, the Portuguese Golden Visa program is among the most sought after and successful global visa programs, specially by the means of real estate investment, along with other destinations such as Switzerland or Montenegro.

Real estate investment under the Golden Visa can be carried out in two ways:

(a) acquisition of real estate of a value of €500,000 or more;

  1. b) Acquisition of real estate, whose construction has been concluded at least 30 years ago or located in an area of urban rehabilitation and execution of rehabilitation works of the acquired real estate, in the total amount equal to or over €350,000 or more;

The value of any of the forms of investment may be reduced by 20% when it is carried out in low density territory (NUT III level with less than 100 inhabitants per km2 or per capita GDP below 75% of the national average)

The legal nomenclature of the Golden Visa program is Residence Permit for Investment, and as the name indicates, the investment can be capitalized, so the applicant can, besides using the acquired property as his/her own home, rent it or use it for commercial, industrial, agricultural or tourism purposes.

It is important to focus on this characteristic of the investment, on its ability to be capitalized, not just held, and how stable that form of investment will be in Portugal for the next years.

Given the high volatility of cryptocurrency investment, which requires a highly informed investor to be contemporary within the blockchain system, the fact that commodity markets are in an uncertain period of transition, and that the stock market leaves some apprehension as to future stability, real estate investment turns out to be a relatively safe investment given the indicators of the past year.

Also, there will be tax benefits associated with any of the forms of property investment, whether in the scope of rehabilitation, or for the purchase of a permanent dwelling, or even through the exploitation of the property for tourism or long-term rental purposes. These tax benefits will be analysed in future articles.

In the following articles I will make an analysis of the real estate market in Portugal, with a special emphasis in Madeira Island, either in the perspective of sale, renting or any other form of profitability, either in the housing, commercial or tourism market, always aggregated to an investment perspective within the Portuguese Golden Visa program.

auctor Pedro Marrana

Our multidisciplinary team of lawyers, economists and accountants has more than 20 years of experience and is able to provide expats an integrated approach to investment and relocation to Madeira Island by operating as one-stop-shop. Through MCS expats are able to deal in an huge array of matters such as personal and corporate income taxation in Madeira, immigration (including Golden Visa), company incorporation, legal assistance with real estate purchase/rental and succession

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Golden Visa in Portugal? Why Madeira?

Golden Visa in Portugal, a residency and citizenship by investment program, is having some of its rules changed when it comes to the investments requirements that allow someone to take up residency (and eventually citizenship) in Portugal.

One of the changes the Portuguese Golden Visa program pertain to the location of the of real estate investment. Under the new rules for the Portuguese Golden Visa real estate investment can only be considered, for the purposes of obtaining the residency permit, if said property is located in the Autonomous Region of Madeira (the Pearl of the Atlantic), in Azores or in the interior of the Portuguese mainland.

The Madeiran Real Estate Market and the Golden Visa

Real estate investors in Madeira can be divided into two categories, those coming from the European Union and those coming outside of the Union, both in search for a safe place, high-standard quality of life and eternal Spring.

Golden Visa in Madeira, through  is mainly sought after by South Africans, British, Americans and Russians. Why Madeira? While house prices in Portugal rose 5.9% in 2020, in the midst of the Covid-19 pandemic, settling at €2,147 per square metre (m2), Madeira’s housing prices rose 7,8%, above the mainland’s average (reflecting not only the quality the construction quality of the property’s sold, but also Madeira’s unique location and spring-like weather throughout the year allowing the use of the properties for touristic rentals in a sustained way).

Statistics also show that the median price of dwellings in Madeira (1,332 €/m2) are above of Portugal’s northern capital, Porto, (1,264 €/m2) – registering a year-on-year rates of change +12.2%. Therefore, it is not surprise, to find a Madeiran municipality (Calheta) among the Portugal’s top 10 municipality for rentals.

Madeira being named the “Best Island Destination in the World” by the World Travel Awards for several years in a row has also made a positive impact on its desirability as an real estate market that is sought after by investors with medium and long-term visions, since the characteristics that gave Madeira the award for “Best Island Destination in the World” will not disappear.

Another reason for why real estate investors opt for Madeira is its safety, from a Covid-19 pandemic point of view, thanks to the way the Regional Government has successfully managed the pandemic and the regional healthcare system resources to fight it.

For all the reasons above plus the quality of life and work-life-balance that one finds in Madeira it is no surprise that Madeira is on track to become one the most sought after regions where one can do an investment to obtain a Portuguese Golden Visa.

 

 

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Golden Visas Limited to Madeira

What will change?

The Portuguese Government has published its decree-law introducing substantial changes to the Portuguese Golden Visa programme and thus the following new rules apply to obtain said visa:

  • Capital transfer in the amount of 1.5 million euros or more;
  • Capital transfer in the amount of € 500,000 or more, which is applied to research activities carried out by public or private scientific research institutions, integrated into the national scientific and technological system;
  • Capital transfer in an amount equal to or greater than € 500,000, intended for the acquisition of investment fund units;
  • Capital transfer in an amount equal to or greater than € 500,000, intended for the constitution of a commercial company with headquarters in the national territory.
  • The purchase of real estate with a value of € 500,000 or more is only allowed when the houses are located in the Autonomous Regions of the Azores and Madeira or in the interior territories.

These changes come into force on January 1, 2022.

Why Madeira, of all other places in Portugal?

Weather: Geographically located off the coast of Africa, Madeira is certainly European.  The currency is the euro, the culture is European and politically speaking Madeira is 100% Portuguese.  And yet the climate is sub-tropical with temperatures rarely dropping below 20 degrees centigrade even in the winter, and a high level of rainfall in the mountainous interior ensures the island is very green for the majority of the year.

Reduced operational costs: Madeira offers low operational costs when in comparison with other European countries. In fact, the cost of human resources and the price of several goods and services are very competitive when directly compared with other European locations, allowing companies to face considerably lower costs when establishing operations in Madeira.

Connectivity: Business wise, Madeira has a highly qualified workforce and most of the people speak and understand the English. Add that to the fact the its Cristiano Ronaldo Airport connects you to most of European capitals (Paris, Amsterdam, Vienna, Zurich, London, Berlin…) and it is easy to understand why the tech start up scene is developing.

In terms of international communications connectivity, Madeira is connected to a Submarine Cable Station connecting Europe to Africa and the Americas, hosted in the “Madeira Datacenter”, operating several international optical submarine cables, allowing interconnectivity with national and international SDH networks and providing, as such, significant advantages in terms of quality, cost, bandwidth and scalability.

Safety: Madeira is Portugal’s safest region, with a criminality rate of just 26 criminal cases per thousand inhabitants.

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Americans Moving to Portugal

In recent months we have seen a trend of Americans moving to Portugal or inquiring about the advantages available to them in this European Union Member-State.

Portugal itself is a unique budget destination, having a surprisingly affordable cost of living, and an ideal place to either retire and invest in the sun, by providing unique tax benefits for those effectively relocating to the country. But what many Americans do not know is that Portugal’s Pearl of the Atlantic, Madeira Island, offers all the perks available in the mainland and sophisticated and affordable Island living.

Just under a two-hour flight from Lisbon, Madeira Island combines European flare, tropical vibes and unique tax perks for expats wishing to retire or find peace of mind to conduct their business from the comfort of a peaceful island connected directly to other major European capitals—including Paris, Brussels, London, Berlin, and Zürich.

Getting Residency in Madeira

Unless you also hold a European Union passport or your spouse is an European Union citizen, you will have to, generally speaking, apply for a residency visa at the Portuguese Embassy with jurisdiction over of the country where you currently live.

There are different types of visa that you can choose from including passive income visa (also known as a D7), visa to conduct business (either as a free-lancer or as a business owner), among others. Alternatively once can also apply for a Residency Permit for Investment Purposes, also known as the Golden Visa, therefore skipping application for a visa with the Portuguese Embassy prior to travelling to Madeira.

Digital Nomads and Pensioners

Digital nomads and pensioners wishing to relocate to Madeira Island, Portugal, may be eligible to the very sought after Non-Habitual Resident scheme, a set of tax benefits available to those effectively taking up tax residency on the island. Under the NHR scheme foreign sourced income is exempt from personal income taxation in Portugal (Madeira island included), while some types of Portuguese sourced income may be subject to special flat rates.

To digital nomads and internet entrepreneurs, who usually need a good internet connection to generate their income, Madeira offers incredible internet speeds, when compared to mainland Europe. This is because Madeira benefits from a Submarine Cable Station, hosted in the “Madeira Datacenter”, operating several international optical submarine cables, allowing interconnectivity with national and international SDH networks and providing, as such, significant advantages in terms of quality, cost, bandwidth and scalability.

Another available infrastructure is the Internet Gateway provided by Marconi Internet Direct (MID). This MID offers international Internet access without any kind of contention and using diversity in the access to international backbones.

The IP platform has its international connectivity distributed by: 3 PoPs (London, Amsterdam and Paris), peering connections with hundreds of major international ISPs and IP transits to Europe and the USA.

On the other hand, pensioners (and digital nomads) moving to the island will be surprised with the stress-free day-to-day life and the cultural offerings are immensely diverse for an island. Museums with Flemish and religious art, churches hosting organ music festivals, monthly symphonic orchestra and chamber music concerts, gastronomical and traditional folk festivals throughout the year, and recurring art exhibitions are just some examples of Madeira’s active cultural scene.

Launching your business

Unlike the Portuguese mainland, Madeira Island offers unique tax perks to those wishing to open a company in Portugal. Benefiting from a unique tax regime, known as the Madeira International Business Center (MIBC), Madeira is the only region in Portugal offering a 5% corporate income tax rate to companies whose profits are derived from non-resident entities.

English is the way

The strong bond with the British community is also seen in Madeira’s medical and law sectors. You’ll have no trouble finding English-speaking doctors or lawyers catering to the expat community.

If you are looking into relocating with your kids you will be pleased to know that Madeira has international kindergartens and schools offering the International Baccalaureate (IB) program.

With rents and restaurant prices an average 10.5% lower than those in the Algarve, and up to 80,5% lower than in Lisbon, Madeira is one of the most affordable places to spend live in this part of the world. Utility costs are lower here, too — electricity is as much as 21.8% lower than in the Algarve, internet 11.2% less costly.

The founding of Madeira Corporate Services (MCS) dates back to 1995. MCS started as a private and corporate service provider in the Madeira International Business Center and rapidly became one of the leading management firms. As a result of its position in the market, the quality of the services it has been providing for over a decade and full compliance with business ethics, MCS was awarded the Merit Certificate by SDM – Sociedade de Desenvolvimento da Madeira.

auctor Miguel Pinto-Correia

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Portugal’s Golden Visa: Investment Funds

One of the fastest routes to obtain Portgual’s Golden Visa, residency by investment program, is through a capital transfer into an investment fund.

Under the current Golden Visa rules, one can apply for a residency permit in Portugal (with full free travel access to the European Union) through different investment options, one of them being a capital transfer of the amount of € 350 000, or higher, for the acquisition of units of investment funds or venture capital fund of funds dedicated to the capitalisation of companies, capital injected under the Portuguese legislation, whose maturity, at the moment of the investment, is, at least, of five years and, at least, 60% of the investments is realized in commercial companies with head office in national territory.

Note that the minimum investment for the Golden Visa, under the fund, is way lower when compared with the investment in real estate (€ 500 000) or simple capital transfer (€ 1 000 000).

Main advantages of the opting for an investment fund:
  1. The fund must be professionally managed by experts.
  2. Venture capital funds are a tax-efficient vehicle.
  3. Some funds offer a minimum return hurdle-rate (usually of 5%) which means managers will only be compensated if the fund performance is above a certain percentage.
  4. Some funds have the support of the Portuguese Government through subsidies or financed by the IFD (Instituição Financeira de Desenvolvimento).
  5. Funds must be regulated and must comply with the rules stipulated by the Portuguese Securities Market Commission (CMVM), which means that fund managers are regularly audited by third parties.

(2) Unlike real investment, which is subject to municipal transfer and property taxes and notary fees and rental tax (if investment is rented out), investment in funds is not subject to initial taxation and may even be tax-exempt.

Types of investment funds for the purposes of Golden Visa application

There are several types of investment funds, such as, for example, securities funds (which invest mainly in shares), real estate funds (which invest mainly in real estate) and venture capital funds (which focus on investment in companies).

Advantages of the Golden Visa

Portugal’s Golden Visa grants the holder the following rights:

  • Residence visa waiver for entering Portugal.
  • Living and working in Portugal, on condition that they stay in Portugal for a period of 7 or more days, in the first year, and 14 or more days, in the subsequent years.
  • Benefit from the Non-Habitual Resident tax regime, if the applicant wishes to permanently relocate to Portuguese territory.
  • Visa exemption for travelling within the Schengen Area.
  • Family reunification – this means that the following applicant’s family member can also get benefit from the Golden Visa:
    • The spouse (marriage or civil union and regardless of gender);
    • Minor children (below 18 years old) or dependents of the couple or the spouse with special needs;
    • Minors (below 18 years old) adopted by the visa holder of the respective spouse (be means of a decision issued by the competent authority of the country of origin, provided that the law of that country recognizes adopted children identical rights and obligations as to the natural affiliation and as long as that decision is recognized in Portugal);
    • Children of age, dependent of the couple or of one spouse, single of age and studying at an educational establishment, irrespective of the country where said establishment is located.
    • Parents of the golden visa holder or of the respective spouse, that are dependent
    • Minor siblings, under the legal guard of the golden visa holder pursuant to a decision issued by the competent authority in the country of origin and as long as such decisions is recognized or obtains legal recognition under Portuguese jurisdiction
    • Minor children or children with special needs, single, including adopted children of the partner of the golden visa holder as long as legally trusted to the them.
  • Applying for permanent residence after 5 years.
  • Applying for Portuguese citizenship after 6 years (subject to knowledge of the Portuguese language).
Why apply through Madeira Island, Portugal?

Golden visa applications are processed, on average, faster, when compared to the Portuguese mainland.

For more information on these matters, please do not hesitate to contact us. MCS and it’s team has more than 20 year of experience in assisting private and corporate clients in investing in Portugal and Madeira Island.

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Changes to the Golden Visa and the NHR scheme

Following the approval of the Portuguese State Budget for the FY2020 the following changes have been introduced regarding the Golden Visa and the Non-Habitual Resident (NHR) scheme:

Golden Visa

Before the Approval of the State Budget: real estate investment, for the purposes of obtaining a residency permit, was allowed to be carried out in entire Portuguese territory.

After the Approval of the State Budget: the Portuguese Government has been authorized by the Assembly of the Republic, for a period of one year, to legislate on changes to the Golden Visa regime.

Under such authorization the Government is allowed to limit real estate investment, for the purposes of obtaining a residency permit, to the Portuguese mainland’s interior and the Autonomous Regions of Madeira and Azores.

Furthermore, under such legislative authorization, the Portuguese Government is expected to increase the minimum amount of the investment required to obtain the residency permit.

Last, but not least, these changes will not affect the Golden Visas already issued under the old rules.

NHR scheme

Before the Approval of the State Budget: those under the NHR scheme would have their:

  • Pensions exempted from personal income taxation in Portugal, provided that: pensions are taxed in the jurisdiction of origin according to the Double Tax Treaty entered into between Portugal and that jurisdiction; or provided the income cannot be considered as obtained in Portugal according to Portuguese domestic law.
  • Professional income (“free-lancer” income) derived from high added value activities in only be exempt in Portugal, provided that: the income may be taxed in the jurisdiction of origin according to the Double Tax Treaty entered into between Portugal and the jurisdiction concerned ; or in case Portugal has not entered into between a Double Tax Treaty with the jurisdiction of origin, the income may be taxed in conformity with the OECD Model Tax Convention (in this case, this exemption shall only apply if the jurisdiction of origin is not considered a black listed jurisdictions and as long as the income cannot be considered as obtained in Portugal according to domestic law).

After the Approval of the State Budget:

  • NHR status holders are taxed at the rate of 10% relative to net pension income. This measure can be offset through a tax credit in order to avoid any potential double taxation.
  • Professional income derived from high added value activities from foreign sources can only be exempt in Portugal, provided that effective withholding tax is applied by the source jurisdiction.

The above rules are in force since April 1, 2020.

For more information on these matters, please do not hesitate to contact us.

 

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Golden Visa Portugal: Choosing Madeira Island

The Golden Visa, in Portugal, is a residency (and citizenship) by investment scheme designed to attract high-net worth and ultra-high-net worth individuals and their families to live in the country. Legally known as Residency Permits for Investment Activities (“ARI”), the scheme allows for non-European/European Economic Area to be granted the following rights:

  • Live in Portugal;
  • Work in Portugal;
  • A permit for Family Reunification
  • Access to the Portuguese National Health Service (or the Regional Health Services of Madeira or Azores);
  • Travel freely through the Schengen Area (plus Andorra, San Marino, Monaco and the Vatican City state);
  • Apply for Portuguese citizenship after 6 years.

A Portuguese Golden Visa holder is only required to stay in the country for 7 days during the first year, but is legally entitled to stay 365 days, as a resident, per visa.

In order to access the Portuguese Golden Visa applicants must perform only one type of investment, of which we highlight the following as being the more advantageous:

  • Real Estate Purchase in Madeira

    • Real estate with a value of 500 000 Euros or more (this value can be reduced to 400 000 Euros if the property is located in areas of low population density); or
    • Construction of at least 30 years or real estate acquired in an area of urban rehabilitation and rehabilitation of real estate acquired in the total amount equal to or greater than 350 000 Euros (acquisition + works) – (this value may be Reduced to 280 000 Euros if the property is located in areas of low population density).
  • Company Incorporation in Madeira
    • Hiring 10 employees; or
    • Having a share capital of 1 million euros.

Why Madeira for the Golden Visa in Portugal?

Real Estate Investment in Madeira
  • The median value of rents for new leases of family accommodation in Madeira was EUR 5.15 / m2, which is higher than the value registered for Portugal (EUR 4.39 / m2).
  • Madeira is the second region in Portugal with the highest median of rental income, behind the Lisbon Metropolitan Area (EUR 6.06 / m2)
  • The Autonomous Region of Madeira is the solely year-round tourism destination in Portugal.
  • In some civil parishes can yield a monthly rental income (long-term rental) between EUR 1,800 to EUR 2,000 for a EUR 270,000 investment in 196 m2 apartment.
  • Should you opt for short-term rentals, in the likeness of AirBnB, the same well located apartment can yield between EUR 500 and EUR 1,000 per week.
  • Once in a lifetime investment opportunities that can turn into great short-term rental income sources: bespoke modern villas and traditional Madeiran manorial houses known locally as Madeiran quintas.
Corporate Taxation Advanges

If the route of investment chosen by the main Golden Visa applicant is the company incorporation, the Autonomous Region of Madeira offers a unique corporate income taxation regime known as the International Business Center of Madeira. Companies incorporated under this taxation regime can benefit from the following benefits:

  • 5% corporate income tax rate;
  • 0% withholding tax on dividends remittances;
  • 0% withholding tax on dividends on payment of interest, royalties and services;
  • 0% tax on capital gains payments to shareholders;
  • 0% exemption on stamp (capital) duty;
  • Full access to the participation exemption regime.

Taking into account the above and adding to the the fact that:

  • Golden visa applications are processed, on average, faster, when compared to the Portuguese mainland; and that
  • Applicants can still NHR tax regime, along with other unique perks exclusive to the island

Madeira Island is definitely the place where your investment should be made if your are looking to benefit from the Portuguese residency and citizenship by investment scheme.

Our team at MCS, with more than 20 years of experience in the sector, is qualified to support its clients in the application for the Golden Visa scheme. For more information click here.

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