Successfully investing in Portugal

last updated on 7 June 2024 | reading time approx. 6 minutes

How do you asses the current economic situation in Portugal? »
How would you describe the investment climate in Portugal? Which sectors offer the largest potential? »
What challenges do German companies face during their business ventures into Portugal? »
How has Portugal been dealing with the housing crisis? »
How will Portugal develop? »

How do you asses the current economic situation in Portugal?

2024 began with a general feeling of positivity and confidence about the country's economy and development. With the new centre-right executive, which took office in March, measures have been announced to lower direct taxes, thus increasing household income and purchasing power, and the unemployment rate has been slowing down. Although there is a risk of some political instability due to the government's lack of a parliamentary majority and the need for party agreements, the new government's vision of the economy is progressive and more liberal, allowing for development and attracting investment, especially foreign investment. Investment rates, both public and private, have been steadily increasing, with the technology and real estate sectors leading the way. In addition, the country inherited an unusual budget surplus from the last government, and public debt is below 100 percent of GDP for the first time in more than a decade, which will allow for a less evasive policy for the Portuguese, leveraging the economy. Although GDP is still below the European average, productivity has been increasing, outperforming most European countries, and it is expected that confidence in the new, less interventionist government will certainly motivate employers and workers. Inflation has been slowing down since last year and, because of this positive indicator, interest rates on loans are likely to fall.

National industrialization has been growing, with exports increasing, and tourism has contributed significantly to the country's economic improvement, as usual. Immigration has also been increasing, including skilled immigration, which has translated into a greater and more diversified supply of services and an increase in social contributions and tax payments. Finally, Portugal currently has its most qualified young generation ever, with fewer school dropouts and more graduates, which means a better prepared and more capable society, which will translate into a trend towards higher GDP per capita. Although it still has a difficult road ahead and a lot of work to do, Portugal currently has good prospects for economic development.

How would you describe the investment climate in Portugal? Which sectors offer the largest potential?

Portugal, a country in which more than 60 percent of its population speaks a foreign language, today has one of the most vibrant entrepreneurial ecosystems in Europe, as a result of the investments made over the last decade in human resource qualification, infrastructure and technology, which provide enormous opportunities for those wishing to launch or invest in new businesses. Gross Fixed Capital Formation has increased substantially, totalling almost 52 billion euros last year, of which almost 45 billion euros is private. The trade balance has been positive, with a trade balance of 3 billion euros last year, which translates into exports exceeding imports. Positive indicators that motivate and create confidence in investors in Portugal, opening doors for growth and development.

In addition, the quality of life in Portugal is one of the highest in the world, combined with the country's political stability and rule of law, where there is a strong sense of security. Access to quality education and healthcare at very low costs and the "most qualified generation ever" also mean that more and more people and organisations are moving to Portugal and setting up their activities and businesses in the country, forming families and companies. In terms of total investment in Portugal, with a rate of 21 percent last year, translating into 3.5 billion euros invested directly, the areas of renewable energies, information technology, manufacturing, real estate and tourism stand out.

What challenges do German companies face during their business ventures into Portugal?

A significant challenge that German entrepreneurs encounter in Portugal is the bureaucratic process. Portugal has a complex bureaucratic system that can be time-consuming and complicated for foreign business owners. From company registration to obtaining licenses and permits, navigating the bureaucratic tangle can be a daunting task.

Another challenge for German entrepreneurs in Portugal is the high tax burden. Portugal has relatively high corporate tax rates, which can affect the profit-making of companies operating in the country.

In addition, there are various other fees and tariffs that companies are obliged to pay, adding to the financial burden.

Despite these challenges, Portugal offers several opportunities for German entrepreneurs, including access to the European market, a skilled labour force and a strategic geographical location. By carefully navigating the bureaucratic landscape and seeking professional assistance, German entrepreneurs can overcome these challenges and thrive in the Portuguese business environment.

How has Portugal been dealing with the housing crisis?

A fundamental issue that has been prominent in Portugal is the housing crisis, which has become more evident with the significant increase in demand for housing due to the growing influx of immigrants, investors, and digital nomads choosing Portugal as their new home. It is undeniable that the country boasts unparalleled richness in terms of climate, breath-taking landscapes, and internationally renowned gastronomy, factors that attract people from all over the world.

However, this population influx has also intensified challenges related to the availability of adequate housing. The lack of affordable and quality housing has been a growing concern. It is crucial for the government to adopt effective measures to combat this housing crisis and promote sustainable economic growth. One possible solution is to encourage the construction of affordable and quality housing capable of accommodating the growing population. By investing in the expansion of the real estate sector, we can not only meet the increasing demand for housing but also stimulate economic growth. The construction of new housing creates jobs, boosts the service sector, such as restaurants and hotels, and generates business opportunities in various areas.

Therefore, it is crucial for the government to implement policies and initiatives that encourage sustainable real estate development, ensuring that everyone has access to adequate housing and contributing to a prosperous future for Portugal.

In response to the question about the new housing laws in Portugal and their relevance in the current context, it is undeniable that the adopted measures represent a significant step in addressing the housing crisis in the country. Under the auspices of the More Housing Program, promulgated by the President of the Republic, Marcelo Rebelo de Sousa, these measures reflect an assertive response to the pressing needs of the population, as well as the growing demands of immigrants, investors, and digital nomads who have chosen Portugal as their home.

The reduction of income tax on rental housing and incentives for investment in affordable rental housing are crucial measures to increase the supply of affordable housing, making the rental market more competitive and attractive to investors.

Additionally, streamlining bureaucracy for housing construction is a wise measure aimed at expediting processes and stimulating the construction of new housing units.

The imposition of fines on owners of vacant properties may be considered a more controversial approach, but it can play an important role in mobilizing underutilized properties, thereby increasing the supply of available housing.

However, it is essential to emphasize that the success of these measures will depend not only on their effective implementation but also on ongoing supervision to ensure that the objectives of price reduction and increased supply are achieved sustainably.

Looking to the future, the significant government investment of 2.7 billion euros in the housing sector through the Recovery and Resilience Plan promises to complement and further strengthen the measures already in place, offering hope for substantial improvement in housing conditions in Portugal.

Therefore, the new housing laws represent not only a legislative milestone but also a promise of a more promising and equitable future for all citizens and residents in Portugal.

How will Portugal develop?

Portugal's development trajectory is linked to its strategic focus on renewable energies and the imperative of fostering investment in this critical sector. As the global community increasingly recognizes the urgency of transitioning towards sustainable energy sources, Portugal stands poised to capitalize on its abundant renewable energy potential.

Investment in renewable energies represents a fundamental pillar of Portugal's development strategy, offering manifold benefits across economic, environmental, and social dimensions. With its diverse renewable energy resources, including solar, wind, hydroelectric, and biomass, Portugal possesses a solid foundation for sustainable energy development. Strategic investment in renewable energy infrastructure, such as solar farms, wind turbines, hydroelectric plants, and biomass facilities, holds the promise of enhancing energy security, reducing carbon emissions, and catalysing economic growth.

Investment in renewable energies serves as a catalyst for job creation, technological innovation, and industrial development. The renewable energy sector offers opportunities for skilled employment in engineering, manufacturing, construction, research, and project management. Additionally, investments in renewable energy projects stimulate the growth of ancillary industries, such as equipment manufacturing, maintenance services, and energy consulting, thereby fostering a dynamic ecosystem of economic activity.

Portugal's commitment to renewable energies positions the nation as an attractive destination for domestic and foreign investment. As global demand for clean and sustainable energy solutions continues to rise, nations that demonstrate leadership in renewable energy deployment are poised to attract significant investment inflows. By fostering a conducive investment climate and implementing supportive policies, Portugal can capitalize on this trend to drive economic growth, attract capital inflows, and enhance its competitiveness on the global stage.

In conclusion, Portugal's developmental trajectory hinges on its ability to harness renewable energies and mobilize investment towards sustainable energy development. By prioritizing renewable energy initiatives and fostering a favourable investment environment, Portugal can chart a course towards a prosperous, resilient, and sustainable future.