Is Now the Right Time to Invest in Portugal?

Despite the sovereign debt crisis, foreign direct investment in Portugal has been growing at a considerable pace. According to the UNCTAD’s Global Investment Trends Monitor, FDI increased from USD 2.6b in 2010 to USD 10.3b in 2011, and from USD 2.2b in the first half of 2011 to $7.8b in the first half of 2012. The EU/IMF team that monitors the country’s performance under the financial bailout package forecasts a growth rate of 80% in FDI for 2012/2013 due to the attraction to foreign investors of the bargain prices brought about by the crisis.

The Bank of Portugal’s statistics indicate that in 2011/2012 the most important countries of origin of FDI were France, Spain, Switzerland and the US, the most sought out sectors having been finance and insurance, manufacturing, services to business and real estate.

Most forecasts point to the high probability that the cost of acquiring businesses or real estate in Portugal may hit rock bottom in 2013/2014, which is proving to be a magnet to cash-rich foreign investors.

Investors wishing to start up operations in Portugal will benefit from an abundance of qualified cheap labour, strong government incentives, a tax regime that is being changed in order to attract investors and possibly the easing out of the traditionally heavy red tape.

Non resident skilled individuals willing to settle down in the country may benefit from a highly favourable special tax regime, which essentially caps their Portuguese-source income at a 20% tax rate and exempts them from tax on non-Portuguese sources of income. This special status is guaranteed to be granted for an initial period of 10 years, renewable for identical periods.

The main current risks of investing in Portugal are the prospect of social unrest due to the unpopular reforms being implemented by the government and the possibility of an exit by Portugal from the Euro currency. However, unlike other peoples, the Portuguese are peaceful, it taking absolutely extreme circumstances for any significant unrest to occur and this would in any case be limited to a few major cities.

As regards the possibility of the country leaving the Euro, the two following factors make it highly improbable: on the one hand, the worst is now over in respect of the Portuguese financial crisis and both the government and local banks are now finding it possible to recur again to the international markets to finance their operations; and, on the other hand, there have been all kinds of assurances by the EU and Eurozone leaders that Portugal will be fully supported with a view to remain a Eurozone member.

In sum it does look as though now is the right time to consider investing in Portugal, taking advantage of the current exceptionally favourable circumstances.

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