Planting Flags: Portugal Versus Panama
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.
I’ve gotten to know Portugal well over the past three years. My bottom line impression 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 globally competitive residency and citizenship programs.
To make my point, here’s 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 and are on the rise in key spots.
That said, property prices in Portugal remain low in general and an absolute bargain for Europe.
In the Algarve, you’re looking at 1,400 euros per square meter in the center of old-town Lagos, where I invested in a rental apartment, to as much as 2,000 euros a square meter in higher-end tourist locations like Carvoeiro. Thanks to the current euro-U.S. dollar exchange rate, that puts the upper end of the apartment market at only slightly more than US$2,100 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% at a minimum. Buying right and working your rental marketing, you could net 8% per year.
In Panama City and in the City Beach areas nearby, condos in the better areas are selling for at least US$2,400 a square meter. In Punta Pacífica, prices are more than US$2,700 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 (US$1,250 for a couple) from a pension or Social Security to qualify for Panama’s retirement visa. In Portugal, an individual needs around 1,200 euros (double it for couples), but the income can be from any source.
However, the cost of applying for a resident visa in Portugal can be less expensive than in Panama, around US$1,500 all in.
Portugal also has a residency-through-real estate investment program called the Golden Visa.
The starting minimum investment is 500,000 euros. 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 with low population density (fewer than 100 people per square km), 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 Portugal except the western provinces from Lisbon north qualify for the reduced investment, including the whole of the Algarve. This is where I’ve invested.
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).
Portuguese residency can lead to citizenship after six years of residency. 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, including Portugal. 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 targeted development (Panamá Pacífico, 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 call the Non-Habitual Resident (NHR) Program.
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 personal 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 you must invest some minimum amount in real estate.
The bottom line is that Portugal offers many attractive options for planting flags right now.
And it’s an awfully nice place to spend time.