Since 2012, many non-EU citizens have used the Portugal Golden Visa to gain residency and huge tax savings in Portugal. Chinese, Brazilians, and South Africans are among the majority of people who have taken the opportunity to use the golden visa to give themselves European residency.
Over time, the the Golden Visa has stimulated the Portuguese economy. It has been a great revenue earner for a government recovering from the adverse results of the 2008 financial crisis. From 2012 to the end of 2019, the Golden Visa program had brought in over €4 billion into the Portuguese government coffers.
On the other hand, the golden visa has also had some adverse effects on varying socioeconomic factors within the country. The most pronounced is that most people can’t afford to buy or rent homes in the major cities of Lisbon and Porto.
As a result of these changes, both positive and negative, the government and parliament of Portugal have devised new changes to the golden visa program. These changes will enable the country to keep benefiting from the program and mitigate against its adverse effects.
Overview of Golden Visa
The Portugal Golden Visa can be described as a residency by an investment program. Through this program, participants invest a given amount of money in real estate or government investment funds for residency in Portugal.
The Golden Visa was started in 2012 as a program to help the government of Portugal earn foreign currency from the sale of residency permits in the country. At this point, Portugal had suffered adversely from the 2008 financial crisis and was in dire need of finances. The golden visa was therefore an innovative way to stimulate the recovery of the economy.
Over the years of its existence, the golden visa program has given over 8200 residency permits to investors and much more to their family members. In doing so, it has led to foreign investments in Portugal’s real estate and tourism markets. This has had a great impact on helping create local jobs and growing the local economy.
To qualify for the golden visa, you are required to invest in real estate worth € 500,000. There is another category that requires investors to € 350,000. Once you have paid the required amount, you qualify to apply for your residency permit.
Apply for your residency by paying application fees and submitting personal information. Your family can also apply for the golden visa with you. Spouses, children, and dependent parents are allowed to apply with the main investor. Once the applications are completed, all you have to do now is wait for a maximum of six months to get information on approval or rejection of your application.
Other conditions that must be met for approval of a golden visa include:
- Clean criminal record
- Proof of income
- Proof of tax compliance
- In-person interview and duly collected biometric data
- Ownership documents of the property invested in.
Once the golden visa application has been approved, you can now visit Portugal as a resident. The residency permit is valid only for one year in the beginning. Once it is renewed, it becomes valid for two years until the fifth year. To qualify for renewal, you must keep your investment property for the period of the residency. Further, you will need to meet the minimum stay requirements of the residency. For the first year, you are required to have been in Portugal for a minimum of seven days. For the two-year renewal period, you need to have been in Portugal for at least 14 days.
With your residency permit, you can freely travel to each of the Schengen visa countries. However, you are only limited to work in Portugal, as this is where you hold your residency. As a beneficiary of the golden visa program, you will benefit from tax-free income, as long as it is earned from another country. For income earned in Portugal, you will pay tax at a reduced rate.
Over time, Portugal has attracted a large number of investors. Some have taken advantage of the golden visa, while others are European investors. With many of these investors buying real estate, there has been increased demand, which has in turn pushed up the prices. This has happened especially in the major cities of Lisbon and Porto. Consequently, the locals can no longer afford to buy or rent houses in these cities anymore.
It is because of challenges such as pricing out locals, over-investment in hotels, and short-stay homes over long term rentals that parliament has supported the government’s decision to change the structure of the golden visa program.
One of the major changes that are likely to occur in the golden visa program is that going forward, pensioners who have had the special tax status of non-habitual tax residents will start paying taxes. As non-habitual residents, pensioners, and foreigners who earn their income from outside of Portugal don’t pay taxes.
With the proposed changes on the golden visa, pensions earned from other countries will now be taxed at 10%. Artists and performers who had taken advantage of the golden visa program for the 0% tax charged will now start paying tax at 20%. Portugal has attracted different types of celebrities into the country with the zero-tax payment for artists. This is now likely to change.
A significant change proposed to the golden visa program touches on areas that investors will buy an investment property. The new proposals suggest that property purchases in Lisbon and Porto won’t be eligible for the application to the golden visa program. This is to spread investment away from the city and into the rural areas of the country. This will also lower the demand for investment property in the cities and bring the prices down to affordable levels.
Many are suggesting that these proposed changes will lower the popularity of the Portugal golden visa. Over the few years that the golden visa has been in existence, there have been many changes to the regulation’s in search of tax. However, this hasn’t led to a decrease in the popularity of the golden visa. Since the beginning of the program, every year sees an increase in the number of people applying for the golden visa.
What led to the proposed changes?
The European Union parliament has been at the forefront of pressuring Portugal to reform their taxation systems. This is especially so, on the golden visa program. According to the EU parliament, Portugal had an unfair advantage over the other EU countries by marketing their non-habitual tax system which doesn’t tax income and pensions from other countries, which isn’t what other EU countries did.
The EU parliament has been pushing Portugal for a long time to change the tax laws and limit participants in the golden visa. Other European countries have stopped their golden visa programs following advice from the EU parliament.
Local politicians have also had a great impact on pushing for these changes to be made. With the government having a minority in parliament, the other parties have been pushing for changes in the golden visa program.
Residents have been pushed out of their homes due to the expensive prices on rental and investment properties, local politicians are their only solution. The changes made to disqualify Lisbon and Porto are to make it easier for the locals to afford to rent and even buy properties within the cities.
Politicians feel that the golden visa hasn’t helped the local population except for real estate developers, who are making large profits. For this reason, they pushed for most of the changes in the proposal.
To enhance the budget
As the economy recovers, the government needs more money to provide services effectively. One of the easiest ways to raise additional revenue for the government is to introduce new tax bases. The low-lying fruit in this capacity is the high net worth pensioners who don’t pay tax on the pensions they earn from other countries and celebrity performers who have moved to Portugal with a golden visa and also don’t pay tax.
To meet their new budget estimates, the tax for those who earn pensions from abroad has been raised from zero to 10%. Performers and artists that Portugal has attracted in large numbers will now be charged 20% tax on their income.
The need to drive investment in rural areas
As the urban areas and cities have had an increase in the level of investments, rural areas and areas away from the city seem to have been abandoned. This increasing interest in the major cities has led to high prices for homes, which has forced out the locals. If the situation persists, it will be a problem for the government and it will have to regulate rents that aren’t attractive to investors.
To prevent a situation like this, it has been suggested that those who want to participate in the golden visa going forward will need to buy property away from the major cities of Porto and Lisbon. This will then direct investment into other areas of the country, and, therefore, spread investment in real estate evenly.
Lack of affordable housing in the city
The lack of affordable housing in the major cities of Lisbon and Porto is a major reason for the change in the requirements to qualify for the Portugal golden visa. As investors turn rental homes into short-stay houses, the rental price increases, and locals can no longer afford the houses they lived in.
With this situation, legislators must seek alternatives in the golden visa program and move investors away from the cities to other areas that require more investment.
What should you do when the changes are activated?
To start with, all investors and golden visa consultants need to let their clients know that these changes will be implemented at a later date. Due to the interruptions brought about by the Covid-19 pandemic, these changes have been shelved. Their implementation will start at a later date not yet announced.
Also, existing golden visa beneficiaries are unlikely to be affected by the proposed changes. When these changes were proposed, they were to be implemented progressively. This means that they will apply only after they are passed into law and will affect all who will apply for the golden visa after they are passed.
For those seeking to invest in the major cities of Portugal, act now, before the changes are implemented. For those who are seeking to invest outside of the cities, they can visit Portugal to identify areas in which they would like to invest in. Once the changes are implemented, they can then make their investment to qualify for the golden visa.
To ensure that you are not locked out of high-value investments, it is best for all investors to collect as much information about the changes being made. Understand what will change and find a way to adapt. This is the only way that you can then take advantage of the prevailing situation to benefit you.
Going forward, the golden visa program investors need to know that the requirements and conditions provided in the program are not cast in stone. They can change at a moment’s notice. As a result, they need to have a backup plan, which will enable them to cope with the changes as and when they are announced.
The Portugal golden visa program has been a popular residency by investment program since it was launched in 2012. Beneficiaries of this program have not had to pay tax on some of their income. After the Covid-19 pandemic and the need for more revenues in government coffers, this situation is likely to change. The Portuguese parliament has proposed changes that will lead to golden visa beneficiaries paying taxes that they didn’t previously pay. These changes are currently suspended and will become operational when the government decides on how to implement them.