Portugal Versus Panama—A Planting Flags Comparison
I spent last week in the Algarve region of Portugal looking at real estate and hosting the Live and Invest in Portugal Conference.
Americans tend to dismiss Europe for offshore lifestyle and investment options thinking this part of the world is too complicated or too expensive. The truth is that some European countries can be cheaper than destinations that might much sooner come to mind for obtaining residency or investing in real estate. Portugal is one of them.
My bottom line impression after 10 days on the ground is that the go-offshore opportunities in Portugal are many right now, ranging from real estate investment in short-term rentals and renovation projects to residency and citizenship programs of note.
To make my point, I’d like to offer an offshore-flag-by-offshore-flag comparison between Portugal and Panama, the latter a good example of a country that comes quickly to mind in this context.
Portugal is emerging from recession and real estate crisis. Prices have stabilized. Bank foreclosures remain an option (the bank that presented at our conference last week has some on its books, for example), but, for the most part, this market has been cleansed of those properties. In addition, contacts on the ground reported that buying one of these foreclosures can be complicated, the process lengthy. I found enough of interest in the market otherwise to decide to pass on the foreclosures idea.
Property prices in general are low in Portugal, an absolute bargain for Europe. They reflect the crisis and the down economy. That is, you aren’t going to be able to negotiate much off the asking price in most cases, but the asking prices in most cases are low.
In the Algarve, you’re looking at 1,400 euros per square meter in the center of old-town Lagos, where I am buying an apartment, to as much as 2,000 euros a square meter in higher end tourist locations like Carvoeiro. Thanks to the euro-U.S. dollar exchange rate right now, that means the upper end of the apartment market is about US$2,200 per square meter. Note that villas have different pricing, as they come with land.
Renting short term on the tourist market, you can look for net yields of 5% to 8% at a minimum. Buying right and working your rental marketing, you could net 10% per year or better.
In Panama City and in the City Beach areas nearby, condos in the better areas are selling for at least US$2,200 a square meter. In Punta Pacifica, prices are more than US$2,500 a square meter. Rental rates support these prices. That is, you should expect net yields in the range of 5% to 8%, but you’re not likely to see double digits even at the beach.
Neither Lagos nor any of the other towns along Portugal’s Algarve coast can compete with Panama City for access. On the flip side, Panama City doesn’t have the Old World charm of Lagos and the rest of the Algarve.
Panama offers more than a dozen residency visa options and qualifying for them can be easy… but it’s not cheap. Between government fees and attorney costs, expect a pensionado residency visa to run you about US$2,500 all in. You’ll spend US$3,500 to become a Friendly Nations resident.
You need at least US$1,000 a month from a pension or Social Security to qualify for Panama’s retirement visa. In Portugal, you need 500 euros. A couple in Panama needs US$1,250, 1,000 euros in Portugal… roughly the same amount.
However, the cost of applying for a resident visa in Portugal can be less expensive than in Panama, around US$1,500 all in.
Pensionado residency status in Panama doesn’t (can’t) lead to citizenship. If you’re interested in Panamanian citizenship, you should apply for a Friendly Nations visa (or another non-pensionado option).
But Portuguese residency can lead to citizenship. Also, a Portuguese passport is an EU passport, meaning that, once you’ve qualified for one, you could live and work in any EU nation. An EU passport is also a useful travel document, allowing for visa-free to more destinations than a Panamanian passport.
This is where Panama eclipses most competition. With its jurisdictional approach to taxation and tax exemptions for bank interest and agricultural income as well as tax incentives for tourism projects and businesses operating in certain areas of development (Panama Pacifico, for example), Panama makes it possible for you to organize your life and your business so that you and it pay little or no tax.
Portugal is not a no-tax or even a low-tax jurisdiction, but it does offer options for reducing your tax burden. Specifically, the country has introduced what they’re calling the Non-Habitual Resident (NHR) Program, to which they recently made adjustments to reduce the required investment amount to as little as 280,000 euros.
Under the NHR, you are exempt from taxes on most if not all (you should seek local tax advice to understand how this would play out given your circumstances before applying) income from outside Portugal for 10 years. As Portugal taxes residents on worldwide income, the NHR tax exemption can be an important advantage.
To qualify for the NHR program, you must not have been resident in Portugal at any point during the previous five years and invest 500,000 euros in real estate. This can be in one property or more than one, but the total cash investment must meet the requirement. That is, you could buy a piece of property for 1 million euros and pay 50% in cash and finance the other 50%, but you could not buy 500,000 euros of real estate with leverage and qualify.
If you buy a piece of property that is older than 30 years, the investment threshold is reduced to 350,000 euros. If you invest in an area low population density (fewer than 100 people per square kilometer), then you get an additional 20% discount on the investment requirement, meaning your investment can be as little as 400,000 euros for a newer property or 280,000 euros for an older one.
Essentially, all of Portugal except the western provinces from Lisbon north qualify for the reduced investment, including the Algarve. This is where I’ve invested.
The bottom line is that Portugal offers many attractive options for planting flags right now.
“Lief, your information is first rate, and I will probably be using some of it as I prepare to move to Uruguay.
“However, I have been very disappointed in the way you have overlooked the dangers of relocating to Panama and Ecuador. A lot of people who are looking to leave the United States, like myself, are looking to avoid the terrible disasters facing the United States, such as the ruin (devaluation) of the U.S. dollar when, on, or soon thereafter (no one knows when), Oct. 20, the Chinese yuan will become a part of the new world reserve currency. That, or the collapse of the huge credit bubble, will cause destruction as bad as a war would cause.
“The currencies of Panama and Ecuador are the U.S. dollar. So the horrible fate that will happen to the U.S. citizens will also happen to the expatriates who moved to Panama or Ecuador to protect themselves from it.
“So please stop promoting Panama and Ecuador. You are hurting so many people who believe in you and depend on you. Direct people to other countries (like Asia that you also promote). It’s horrible to run away from the coming disaster in the United States only to have it hit you, anyway, because you are where the U.S. dollar will collapse and leave you starving.”
Is your retirement income based in U.S. dollars? Then you’re going to be in as much or more trouble should the U.S. dollar collapse. What will your U.S.-dollar Social Security check be worth in Uruguay?
The only way for an American to minimize the potential effects of a U.S. dollar collapse is to get all of his assets, including pensions, out of the U.S. dollar. Unfortunately, while you can move your IRA offshore and into other currencies, you can’t move your Social Security checks out of U.S. dollars until you receive them.
All that aside, the Chicken Little theories that some are pushing about the collapse of the U.S. dollar are speculation. In the last 18 months, the U.S. dollar has appreciated against many currencies. Will it fall from its current position? Yes, sure, probably, at some point. Will it collapse overnight like the Zimbabwe dollar? Probably not.
Of course, though, I can’t say for sure what will happen with the U.S. dollar a year, 5 years, 10 years, 100 years from now… and neither can anyone else. That’s the point.
Diversify and live your life. Don’t scurry around and waste your time and energy worrying about when the U.S. dollar is going to collapse.