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End of Real Estate’s Golden Age? Brokers and Investors on Alert over BE and Sweden

4 September 2018

Alarms bells have already begun to sound in the real estate sector. The focus of attention is an initiative by the Left Bloc (BE) to end the exemptions on income taxes that have been extended to foreigners as early as 2019, while Sweden is looking to put an end to the tax avoidance by Swedish pensioners in Portugal. Brokers and investors note that foreigners have been one of the main drivers of growth in the sector and the Portuguese economy in recent years and warn that much of it may now be in danger.

“Foreign investment funding programs (such as Golden Visas and Non-Habitual Residents) were an excellent example of how they can and should help grow our economy,” says Hugo Santos Ferreira, vice president of APPII – Portuguese Association of Real Estate Developers and Investors. He added that measures such as this are “castrating or limiting foreign investment and tourism as well, and can be very dangerous. They can, or are already, throw away everything we have regarding wealth and investment in our country.”

Portugal left-wing political party, the Left Bloc, recently announced that it will propose ending the tax regime for non-habitual residents (RNH) as soon as 2019, preventing more foreign citizens from taking advantage of the program to limit income tax payments to a rate of 20%, irrespective of income, or 0% in the case of some retirees.

Growth outside Lisbon affected

Noting that while “more and more foreigners are buying real estate in Portugal without recourse to any programs,” the president of APEMIP – the Portuguese Association of Realtors and Real Estate Agents, reiterated that “there is no doubt that RNH continues to be important in attracting investment. ”

Luís Lima thus believes that “the BE’s proposal reveals that decisions are still being made to look at the country solely and exclusively from Lisbon’s point of view, without considering the benefits that this type of investment provide to other regions, where they are beginning to arrive little by little.

According to APEMIP’s spokesperson, “if in the first phase foreigners looked only at the opportunities available in the big cities, they are now beginning to expand their investments to low-population density regions.”

Eliminating this program would, therefore, in Luís Lima’s view, “prevent other areas of the country from being invigorated and loss the potential investments to other European countries that will understand how to take advantage [of our loss] …”

Sweden may open Pandora’s box

In the case of Sweden, whose joint taxation agreement with Portugal is being reconsidered – Mr Ferreira stated that “we should all be very attentive to the potential contagion effect if this approval is effectively taking place with other countries which are the source of real estate investors in our country.”

At the base of the problem is the combination of two programs: the Portuguese non-habitual resident regime and the agreement signed in 2002 between Portugal and Sweden to avoid double taxation.

Over the last nine years, 3,000 Swedes have opted to live in Portugal. Few came at first, but once the tax regime became known, hundreds more began coming every year. In 2017, close to 800 arrived, according to data cited by Público.

The Nordic countries (in particular Sweden and Finland – which has already taken a similar initiative) take a dim view of the Portuguese program, which they believe promotes unfair competition and distorts the income tax’s objectives.

The Swedish government has long demonstrated its unhappiness with the current state of affairs. Sweden’s finance minister, Magdalena Andersson, recently emphasised that Portugal was heading back to the negotiating table.

Original Story: Idealista

Photo: Gtres

Translation: Richard Turner