Portugal Versus Panama

As regular readers will know, Kathleen and I divide much of our time between Panama and Paris.

A little over a week ago, we repositioned from the Old World to the New once more. As we bid farewell to Paris, I was reminded how many Americans often dismiss Europe for offshore, lifestyle, and investment options, thinking the region is too complicated or too expensive.

The truth is that some European countries can be cheaper than destinations that might much sooner come to mind for obtaining residency or investing in real estate.

Indeed, the go-offshore opportunities in the Old World are many, ranging from real estate investment in short-term rentals and renovation projects to residency and citizenship programs of note.

Panama, where I spend at least half my year these days and where I’ve been investing for more than 20 years, is, for many, a granddaddy offshore haven.

So, how does Portugal, a long-time favorite for U.S. expats, stack up against the competition?

Here’s an offshore-flag-by-offshore-flag comparison…

Panama vs. Portugal: Real Estate Investment

Property markets in Portugal have been rising steadily in recent years. In many areas, such as Lisbon and the Algarve, the country’s Golden Visa program was blamed for inflated house prices, so much so that in October 2023 the Portuguese government removed the real estate option from the program.

Property prices in general in Portugal remain low for Europe, but they aren’t the absolute bargain they were when I bought back in 2015. New construction or the lack thereof is one reason prices have remained strong.

Net rental yields are down from when I bought in 2015, as well. You can find properties netting 5% or more annually in hotspots like the Algarve, Lisbon, and Porto—but deals are hard to find and you’ll likely pay a premium.

Still, for those wanting to be in Europe, Portuguese real estate can offer excellent value.

Panama, of course, offers big opportunity. My contacts in the industry report a growing number of people looking to move to Panama but not buy… meaning long-term rental demand, as well. You should expect net yields in the range of 5% to 8% in most areas.

Neither Lagos nor any of the other towns along Portugal’s Algarve coast can compete with Panama City for access. On the flip side, Panama City doesn’t have the Old World charm of Lagos and the rest of the Algarve.

Panama vs. Portugal: Residency

Panama offers more than a dozen residency visa options and qualifying for them can be easy… but not cheap. Between government fees and attorney costs, expect a pensionado residency visa to run you about $3,000 all-in.

You need at least $1,000 a month from a pension or Social Security to qualify for Panama’s retirement visa. In Portugal, you need around 1,000 euros. A couple in Panama needs $1,250, 1,500 euros in Portugal.

The cost of applying for a resident visa in Portugal will run you about the same as in Panama. For this fee, you’ll also get help from your immigration attorney setting up a bank account, obtaining the required tax ID number, and other processes related to becoming a legal resident.

Panama vs. Portugal: Citizenship

Pensionado residency status in Panama didn’t originally lead to citizenship, but pensioners petitioned for that to change and, in theory, can now qualify. The requirement is five years of permanent residency status. I don’t know any pensionado residency holders who have applied for citizenship in Panama so cannot speak to the ease or the speed of the process.

I do, however, know a couple of people who applied for citizenship under a different residency program after their five years of permanent residency. In one case, the naturalization process took more than three years. In other words, don’t expect to have that second passport from Panama quickly once you’re eligible to apply.

Portuguese residency can lead to citizenship after five years of legal residency… and, fascinating and charming to me, after 10 years of illegal residency. If you’re able to get away with living in Portugal for 10 years without formalizing your status, the Portuguese seem to think you deserve the chance to continue. I don’t recommend putting the theory to the test.

One additional thing to note for those seeking permanent residency or citizenship in Portugal is the language requirement. You will need to prove knowledge of the Portuguese language to at least A2 level by taking the Certificado Inicial de Português Língua Estrangeira (CIPLE) exam.

A Portuguese passport is an EU passport, meaning that, once you’ve qualified for one, you could live and work in any EU nation. An EU passport is one of the world’s most useful travel documents, allowing for visa-free access to more destinations than a Panamanian passport.

In both cases, you’ll need to show you have “settled” in the country and have spent significant time there. You can’t get residency as a backup plan, spend the minimum time in the country required to maintain your residency (one day every two years in the case of Panama), and expect to have your naturalization approved.

Panama vs. Portugal: Taxes

This is where Panama eclipses most competition. With its jurisdictional approach to taxation and tax exemptions for bank interest and agricultural income as well as tax incentives for tourism projects and businesses operating in certain targeted zones (Panama Pacífico, for example), Panama makes it possible for you to organize your life and your business so that you and it pay little or no tax.

Portugal is not a no-tax or even a low-tax jurisdiction. It did offer the Non-Habitual Resident (NHR) Program but it was discontinued in January of this year. However, in July Portugal’s new government announced that it plans to reintroduce tax breaks for foreign residents.

Plus, for those considering just part of the year here, non-residents (staying less than 183 days) only pay tax on Portuguese income, meaning Social Security is exempt.

Stay diversified,

Lief Simon

Editor, Offshore Living Letter