Portugal is a bright and sunny place to live but, even so, the prospective relocator needs to do their homework before making the move as there is a minefield of differences to northern Europe, from renting and buying property, to getting a new car, or paying your utility bills. Top of the list though is getting a lawyer, accountant and tax advice. Business owners and managers explain more at an Irish-Portuguese Business Network Algarve Living Series webinar.
Irish national Sharon Farrell is an advisor for Blevins Franks Wealth Management, a wealth and tax advisory service in Loulé. Sharon provides strategic wealth planning and management advice to both UK and Irish nationals living in the Algarve and explains that there are many tax advantages to working and living in the region.
“Our market is those who are mainly thinking of retiring to the Algarve, or are already there. For example, we have the NHR scheme (Non-Habitual Residents) which Portugal introduced in 2009 and which aims to encourage more people to come to Portugal.
“The NHR offers certain earnings to be taxed at 20% for the first 10 years, and which can mean that dividends may levy no or very little tax. Certain UK and Irish pension schemes can be received with only a 10% tax reduction, so it is really good, tax efficient, and offers a lower cost of living for people who want to come here and work or retire,” she explains.
Sharon Farrell says it is very easy to become a resident in Portugal, by either spending 180 days in Portugal, or by making it the permanent home by becoming habitually resident.
“There are ways and means of doing things, and planning is key because most people rush ahead and don’t think about the consequences, so it is best to seek advice, plan it, and then do it,” she advises, adding that even after the 10-year grace period, there are ways to live in a tax-efficient manner beyond that.
Rob Jenner, CEO of Vilamoura World, came to the Algarve and took advantage of the NHR scheme, and says that there is a 20% tax rate on Portuguese-sourced income.
Rob also points out that royalties are not taxed in Portugal and there is also a very attractive inheritance regime in the country where rates are much lower than elsewhere in Europe.
Another advantage is that Portugal does not have a global wealth tax, whereas neighbouring Spain does, although the taxable amount varies from region to region in that country.
If you have income that is or was taxed in a non-blacklisted jurisdiction, then Portugal will not assess any further tax on it. That means if you have income that is taxed at a lower rate in Luxembourg or the United States, you can bring it to Portugal and not pay taxes on it.
Rob Jenner says that one of the things that surprised him, and continues to do so, is the differences between the UK common law system and the Napoleonic code system practised in Portugal – where things are expressly forbidden unless expressly allowed – particularly the red tape which he says can be “brutal”.
“You need a lot of patience and a good lawyer on speed dial. There are a lot of lawyers here, they are not super expensive and Portuguese life revolves around the law,” he stressed.
Sharon Farrell points out that while there are many accountants and lawyers, not all of them are experienced and versed in how to deal with the kind of tax and earnings issues faced by overseas residents, so it is important to find advisors who have a number of links to those who can provide these services.
The cost of cars and health
Buying cars in Portugal is very expensive, especially new ones. The reasons why cars and fuel are expensive is because income taxes are not efficiently collected in Portugal, so the government is forced to tax aggressively on goods and products because the population can’t avoid it.
“One of the things that anyone coming down to Portugal should do is take advantage of a scheme whereby if you’ve owned a car for 12 months in the EU, you can bring your car to Portugal free of tax,” says Jenner, adding that it is wise to get a lawyer to do it because savings on a BMW 3 Series, for example, could be up to €20,000.
Other surprises that Declan Cassidy, CEO of Lazer Telecom, found was how low salaries are compared to other European countries.
“With salaries in Portugal being a lot lower, you have to ‘hide the diamonds’ and be sensitive to the fact that a lot of local people are not high-wage earners, and ‘think out of the box’ when running a business. There is a huge amount of successful people down here, but it is a challenge getting access to good quality human resources since so many talented and skilled people move to Lisbon or other countries where they can get better paid,” he points out.
Sharon Farrell says the cost of quality healthcare is reasonable in the Algarve, the social life can be great with lots of clubs to join to suit all interests, and an amazing music scene for younger people both in the Algarve and Lisbon.
Rob Jenner points out that private healthcare, even without insurance, is very reasonable and very accessible. For example, an MRI scan might cost €60 so, for people from northern Europe, it is very good value, although by Portuguese standards it is still a lot of money so “be discrete and don’t flash the cash”.
“What people don’t always say is that there is a real sense of community in the Algarve, your friends become a surrogate family, you get invites to all kind of places and there are lots of US citizens who really like it down here,” she says.
Kelly Murtagh, Director of Omey Projects, references mixing with a wide variety of cultures and enjoying different foods, adding that she has friends from Russia, Belgium and other countries, not all Irish or English. “We’re all in it together with our kids at international schools which means they get a really diverse list for life and contact with people from all over the world.”
When it comes to long-term rentals and before buying a more permanent home, it’s a good idea if you are not sure where you want to be to rent first and ‘try before you buy’.
“It is hard to get good quality, long-term rental in the Algarve,” warns Rob Jenner who points to two reasons: you can get more money from renting in the summer months than for the whole of the year; the second is that residential tenant law is very tenant favourable on long-term leases, so “don’t expect to rent your dream home”.
Another problem with rented properties is the heating system, or rather lack of it, with many overseas relocators not realising that the winters in the Algarve can be quite cold and damp. “What looks good in June and July may not necessarily look so rosy in December and January,” says Declan Cassidy.
The buying process, however, is quite straightforward, with estate agents asking for large deposits when buying, which is reassuring, with stable house prices throughout the region and no real ‘gazumping’ or ‘gazundering’.
“Get a good real estate agent. There are many agents in the Algarve, but to get an agent that has been in the region for a long time is a good idea, as there can be some really dicey agents,” says Rob Jenner.
Aoife Healy, Chair of the IPBN who runs Pathway Consulting, said what had surprised her was that electricity and gas are equally as costly as they are in Ireland as well as paying municipal and rubbish collection taxes. “You will pay for everything, and that does come as a surprise.”
Kelly Murtagh, Director of Omey Projects, agreed that the electricity company EDP is “quite expensive”. “We were one of those people that bought a house that was lovely in the summer and freezing and damp in the winter, so we insulated the outside of the house quite reasonably which has really worked out.”
By CHRIS GRAEME