Portugal Introducing Tax on Real Estate Fortunes

Portugal will introduce a tax on real estate fortunes above €600,000 ($661,000) in 2017 to help pay for pensions, the government has said.

The tax, fiercely opposed by the real estate sector which fears it will put the breaks on foreign investment, was included in Socialist Prime Minister Antonio Costa’s draft budget for 2017, AFP reported.

“The taxation of large real estate fortunes will enhance the sustainability of our social security system and contribute to fiscal justice,” he told parliament Friday.

If the value of all real estate owned by a taxpayer surpasses €600,000, a levy of 0.3% will be applied to the amount above this threshold, according to the draft budget.

The government expects the measure will raise €160 million each year.

“The taxation of real estate fortunes will make it possible to raise pensions,” said Catarina Martins, a lawmaker with the far-left Left Block party which backs the minority Socialist government.

The threshold of €600,000 will spare most beneficiaries of the country’s so-called “golden visa” scheme, which has helped fuel demand for real estate among wealthy foreigners from outside the European Union.

Cash-strapped Portugal in October 2012 started offering “golden” visas to non-EU citizens willing to invest €500,000 in property, make a capital transfer of €1 million or create 10 jobs.

The Portuguese visas allow foreigners to travel within Europe’s 26-country Schengen free trade zone without restriction.

Portugal has issued nearly 4,000 “golden” visas that have generated investments of €2.37 billion since the scheme was launched at the end of 2012, most of them to Chinese, Brazilians and Russians.

  Unprecedented Fiscal Attack

The Association of Lisbon Homeowners criticized the new tax, calling it an “unprecedented fiscal attack against the real estate sector”.

The measure will also affect foreign buyers who have flocked to Portugal to take advantage of tax exemptions granted to European retirees who move for the first time to the country.

French nationals account for 27% of all foreign real estate buyers, followed by Britons who account for 18%.

“With this measure, the government has shot itself in the foot. Portugal can’t constantly change the rules of the game,” added Henrique Moser, a lawyer with the Telles law firm which specializes in real estate.

The government also decided to raise its tax on home rentals for tourists, which have up until now been lower than those applied to long-term rentals.