Portugal attracted 248 Foreign Direct Investment (FDI) projects in 2022, 24% more compared to 2021. A number that places the country in the top 10 in Europe with the highest growth rate of FDI projects.
According to the EY Attractiveness Survey Portugal, which assesses the perception of foreign investors regarding the country’s attractiveness as an FDI destination, Portugal rose to 6th place in the ranking of European countries with the most announced FDI projects. But not everything is good news, particularly in the real estate sector: the high tax burden, with increased IMI and IMT rates, are driving away foreign investment, according to a report by idealista.
“The majority of FDI carried out was in the software and IT services sector – 99 projects, of which 76 represent companies establishing their operations in Portugal for the first time, reinforcing the country’s attractiveness for the digital economy. Still, in line with previous years of the EY Attractiveness Survey, 59% of investors expect Portugal’s attractiveness to improve over the next three years”, says EY in a statement.
According to the study, Germany, with 36 projects, surpassed the USA in the number of FDI projects directed to Portugal, becoming the main investor in Portuguese territory. Investments from Germany, the United States and France were mainly directed towards Software & IT Services (39 projects), with these three countries representing 39.4% of total projects in the sector.
“The importance of Portugal in total European FDI projects has also been increasing. Between 2018 and 2022, the country’s relative weight in total FDI projects in Europe rose from 1.2% to 4.2%”, concludes the study.
Around 29% of investors consider that Portugal is above the European average in terms of availability and quality of talent in the job market, while 73% of investors surveyed want to invest in Portugal, more than the European average (67%).
High tax burden
Implementing regulatory adjustments and environmental policies and supporting SMEs are the main areas that investors believe will help Portugal maintain its competitive position.
In the specific case of real estate investment, the high tax burden is a problem. According to a report by Jornal de Negócios, Pedro Fugas, partner at EY, recalls that the Gulf countries, but also Hong Kong, a territory “through which China carries out much of its their investments abroad”, are obliged, in Portugal, to increased IMI and IMT rates, as they appear on the list of “tax havens” drawn up by the Ministry of Finance.
“This is an obstacle to investment from these countries, with which there are already information exchange agreements. It is a clear message from Portugal that any investment coming from these countries has a penalty compared to investment coming from others”.
According to the publication, since 2021, any entity that owns properties in Portugal – or that acquires them – has started to pay increased IMI and IMT rates as long as it is controlled directly or indirectly through an entity that has its tax domicile in a country, territory or region subject to a more favourable tax regime, included in a list approved by order of the Minister of Finance, that is, in one of the so-called “tax havens”. Instead of the normal IMI rate, between 0.3% and 0.45% (depending on the municipalities’ decision), these owners pay a single rate of 7.5%. In IMT, the single rate is 10%, instead of progressive rates, a maximum of 7.5% for properties above one million euros.
Pedro Fugas considers that the very high costs involved discourage investors and argues that “increased rates should not apply when the entity is headquartered in a tax haven that has signed an information exchange agreement with Portugal or an agreement to avoid double taxation”.