Tag Archives: Residency by Investment

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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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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fishing boats and a village next to a lighthouse

Golden Visa: Why Madeira?

The Statistics: Investment Turnover

Official statistics collected from the Portuguese National Statistic Institute and the Directorate of Statistics of the Madeira Regional Government showed that, already in 2018, 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). These numbers positioned Madeira as the second region among the seven regions with the highest median of rental income, behind the Lisbon Metropolitan Area (EUR 6.06 / m2) and ahead of the Algarve (EUR 5.00 / m2), which came in the third position.

According to the same authorities, the median housing prices in Madeira remained among Portugal Top 3 regions. In 2018 the Algarve (EUR 1,500 / m2), the Lisbon Metropolitan Area (EUR 1,318 / m2) and the Autonomous Region of Madeira (EUR 1,203 / m2) were all above the national average of EUR 984 /m2.

The above mentioned values are sustained by the fact that the Autonomous Region of Madeira is the solely year-round tourism destination in Portugal due not only to its permanent spring-like weather climate, but also because of its tourism history that dates back to the 19th century when it was a coveted destination among European royalty and nobility.

In Funchal’s civil parishes of Sé and São Martinho apartment rents 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.

Outside the municipality of Funchal, the long term rental income decreases per square meter decreases, namely in the municipalities of Santa Cruz (4.46 € / m2), Câmara de Lobos (3.81 € / m2) and Machico (3.68 € / m2).

However, just like the Madeiran capital, the city of Santa Cruz, especially in the civil parish of Caniço, can yield good short-term rental income (EUR 1,200/week) due to the fact that this area of Madeira is popular with the Germanic market. The trick here is to invest in a villa with a good view over the Atlantic Ocean. In the Caniço civil parish, villas start at EUR 250,000 and depending on the view you have over the ocean they can go up half a million or more euros, specially in the highly coveted Garajau area.

Apart from the existing houses and apartments already available for sale, some stakeholders in the Madeiran real estate market are offering 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.

While those offering bespoke villas usually require an initial investment of at least EUR 295,000 for a fully personalized villa built from scratch and along the famous banana line, in the municipalities of Ponta do Sol and Ribeira Brava, a Madeiran quinta will never be sold below EUR 1 Million threshold.

The advantage of a bespoke villa project is that with a single investment you get the opportunity to built a house the way you like and, depending on the plot you get, you can built two additional luxury bungalows for short-term renting and with an expected yield of  EUR 1.000/week.

Most of the quintas available for sale in the Madeiran real estate market are superbly preserved and combine history and tradition with modern amenities. Even though few of them are allocated to rental, the yield regarding such investment option is never below EUR 1000/week, due to the peaceful and romantic scenery that inspires rest and happiness among travelers and owners.

The Golden Visa

Given the statistics above, those looking to obtain residency, and later citizenship, by real estate investment as a way to obtain the Portuguese Golden Visa should look into Madeira as the place to invest.

Under the Golden Visa scheme, qualifying real estate investments are the following:

  • Real estate in Portugal 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).

Disclaimer: the above statistics are for informative purposes only and refer to the information available for the year 2018. All investors are advised to fully understand all risks associated with any kind of investment they choose to do. Hypothetical, simulated or statistical performance is not indicative of future results.

Our team at MCS, with more than 20 years of experience in the sector, is able to assist in the obtaining the Golden Visa in Madeira. For more information click here, for information our services click here.

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