Here are some of the financial and legal issues encountered when buying property in Portugal.
If you buy a property in Portugal and you are not a resident in Portugal, you are required to pay some taxes. By definition, it is considered that you do not live in Portugal if you are not 183 days a year (calendar year of tax) or more living in Portugal or if your main address is not there.
As a non-Portuguese resident, you are subject to taxes on your Portuguese income and a couple is taxed together. When buying a property in Portugal, you will be subject to the taxes described below.
- Rental Tax
- Council Tax (IMI)
- Property Tax (IMI)
- Wealth Tax (AIMI)
- Stamp Duty
- Capital Gains Tax
- Fiscal Representation
- Inheritance Tax
If you decide after you have purchased your property that you wish to rent it out, then you will be taxed on that rental income. Net rental income is taxed at a flat rate of 15%, which is withheld at the source.
The Taxable income, can be calculated as the gross rent minus any maintenance costs, related expenses for example insurance premiums and the municipal tax, and also any repair costs that may have arisen. You cannot deduct your interest costs which may have incurred when you bought the property.
Council Tax (IMI)
When you purchase property in Portugal, you are liable to pay property owners tax annually (IMI).
IMI (Imposto Municipal sobre Imóveis)
IMI is the tax payable by property owners. The tax is calculated in relation to the tax value of the property (value of the property as assessed by the Tax Authorities). It is paid yearly, in one or two installments. The rates may vary depending on the location of the property.
|Type of Property||Rate|
|URBAN PROPERTY||Between 0.3 and 0.45%|
|Property owned by residents in offshores (except individuals)||7.5%|
Offshore (Blacklisted)companies owning property in Portugal have to pay council tax at a maximum rate 5%. Offshore whitelisted companies will use the table above.
Property for permanent residence can be exempt from paying IMI from 3 to 6 years, depending on the assessed value.
Property Tax (Immovable Property Tax, IMI)
As an owner of property in Portugal you will have to pay property tax (Immovable Property Tax, IMI).
Each individual municipal has its own rate, and is decided by the municipal assembly. The person/Corporation that owns the property on the last day of the respective tax year is liable to pay the IMI Tax.
- The Tax rates range from 0.3% to 0.45%.
- Property in rural areas are be taxed at 0.8%, whereas property in more urban areas will fall in the stated range.
- Property that has been re-valued since 2004 will fall between 0.2 and 0.5%, and property valued before 2004 will be between 0.4 to 0.8%.
- Property owned through a corporation domiciled in “Black" listed jurisdictions (Tax havens – E.G British Virgin Islands, Isle of Man, Gibraltar) will pay a straight 7.5% Tax of the rateable value.
- Some property cases will be exempt from the property tax (IMI). Property which is to be used as a permanent home or to be rented out will be exempt from property tax (IMI) for a period of 3 years and will depend upon the patrimonial value of the property.
- Exemption applies for a three-year period, in case of urban properties with a Tax Registration Value up to € 125,000, held by individuals which obtained a taxable income in the year prior to the acquisition, of up to € 153,300.
Wealth Tax (AIMI)
First introduced back in 2017, the Adicional Imposto Municipal Sobre Imóveis (AIMI) is seen as Portugal's version of a wealth tax, which affects owners with a share in Portuguese property worth over €600,000. Regardless of residency status, rates applied are 0.4% on the total amount for properties held by companies, 0.7% for individuals and 1% for those owning property valued over €1 million.
There is some relief which comes via a €600,000 allowance per person, deducted from the value of all Portuguese properties.
The values below are based on the Patrimonial Values of the property
- Up to the value of €600,000 No AIMI is payable
- Between €600,000 and €1Million 0.7% on the value between €600,000 and €1 Million
- Valued above €1 Million 0.7% on €400,000 + 1 % on Value in excess of €1 Million
Those not eligible for the allowance pay AIMI on the full property value. However, for both IMI and AIMI, the tax authorities calculate property value using the Valor Patrimonial Tributário (VPT), bear in mind these values are usually lower than the actual market value.
|Individuals (1) and undivided inheritances||0.7|
|Urban properties owned by entities in tax havens||7.5|
(1) To the taxable amount of more than € 1,000,000, or the double for married or living in non-marital, will apply a marginal rate of 1% in case of individuals.
(2) In the case of urban properties owned by corporations, for the personal use of the shareholders, members of the board or of any administrative bodies, management or supervision, a rate of 0.7% shall be applied. To the portion of the taxable amount that exceeds € 1,000,000 a marginal rate of 1% is applied.
You are required to pay stamp duty on contracts, deeds, bank mortgages and loans, documents, and titles and are the responsibility of the buyer. The rate of Stamp duty varies according to the type of property and the value of the property. The rate according to the type of deed/operation is between 0.4% and 0.8%. Corporate property ownership transactions pay No Stamp Duty.
Capital Gains Tax
Understanding Capital Gains Tax in Portugal
There is a Capital Gains tax in place in Portugal on the sale of a property at a rate of 28% for individuals and 25% for companies (non-residents).
If the money from a sale is re-invested then only 50% of the net taxable income will be subject to capital gains tax.
To calculate the taxable gain, you take the selling price, minus the acquisition costs, any costs incurred during the transfer of ownership, and also any property improvement costs that have incurred within 5 years of the sale.
There are a few exceptions to Capital Gains Tax in Portugal:
- If you are a tax resident of Portugal (Domiciled in Portugal) and you are selling your primary resident in Portugal and you buy another residence in Portugal. Importantly this rule applies for sales that are within 3 years after, or 2 years before.
- If the property in question was first occupied before January 1989 in your name.
- If you decide to reinvest the monies made from the sale of your Portugal primary residence into another primary residence in the EU, you are then able to roll over the costs.
It is a legal requirement for all non-resident individual or companies who have assets based in Portugal to appoint a fiscal representative. Non-resident taxpayers who earn taxable income in Portugal & the Algarve are required to appoint a fiscal representative who guarantee’s that the non-resident is compliant with Portugal’s tax obligations.
The fiscal representative is a go between the Individual/Company who have the assets and the tax department. The fiscal representative is then jointly (with Individual/Company) for any tax calculations related to all of the Individual/Companies Portugal’s tax obligations (E.g. Property, bank accounts, cars, and income – all tax bills).
The tax authority with only work with/via the Individuals/Companies fiscal representative regarding, rental income declarations, valuations, IMI tax bills, etc.
There is NO Inheritance Tax between immediate relatives (children / parents / spouses)
When living in Portugal, there are a number of different things that individuals must be aware of in regards to property tax. In general, inheritance in Portugal is determined by the nationality of the deceased person, so if someone was living in Portugal but was from another country, the laws of that person’s original country would be the determining factor. If this person was married to an individual from a different country, however, the laws of Portugal would becoming the deciding factor, as the goal is to be as consistent as possible. If there is any sort of court decision to be made regarding inheritance, it will usually take between one and two years to decide, depending on how many factors are involved. In the end, there is no inheritance tax in Portugal, but there are a number of other things that must be considered in this situation.
The basic laws in Portugal were implemented to protect the rights of spouses and descendants, as a minimum of 50% of the entire amount goes to these people. There are a number of different factors that are included in this, as the number of children that are present and whether or not the deceased spouse is alive will determine how much of the total estate is reserved. This information is important because it helps determine the taxes that will be paid as well. This is because property is part of the estate and, therefore, it must be accounted for.
Most people in Portugal are encouraged to make a will, as this will determine where the rest of their assets go. A will goes beyond direct family, as it makes it possible for individuals to leave assets behind for friends or family members who would not normally be considered. In addition, standard beneficiaries can be excluded from the will, such as an estranged spouse or child who has not had contact with the deceased for quite some time.
Once the decision has been made on who will end up with these assets, the process begins, as there are a number of different things that must be included in this portion of the process. For example, it is possible for a property owner to donate property to other individuals during his or her lifetime, although this donation is usually subject to taxes. The owner should also ensure that the reserved portion of the estate is taken into account, as there is a certain amount that must go to children and a spouse unless it is otherwise stated in a will. It is up to the property owner to leave enough property to cover taxes upon being sold, as the deceased assets should be enough to cover these fees.
The value of an estate is meant to include these deductions, so the value ends up being the actual value of all assets minus expenses relating to the estate minus estate debts. What this all means is that those who inherit property will not be subject to paying these fees because the money will come out of the value of the estate. While this method works out on paper, there are situations where significant prior debts can serious cut into the value of an estate and make it so those who are supposed to be inheriting money will end up having to pay. There is a law to protect people from this situation; however, as some people are eligible to have the donated value reduced to ensure that it is less than the existing assets.
The property that is being considered here must be registered to the owner in order for all of this to work out. If the person has been living in the property for a lengthy period of time, but is not the official owner of the property, additional work will have to be done in this situation. If the individual has been living in the home for over 20 years, however, and there is no dispute from another party regarding the true owner of the home, the inhabitant will be considered the true owner and these laws will apply to that home.
With any type of legal documents, including what is being inherited, the guardian must act of behalf of any minor. This guardian must be either a direct relative or have been appointed by a relative in order for him for her to have any legal right in this situation. If no immediate family member can be located, an independent source must provide a guardian for the child in order for this process to continue.
Overall, these laws are in place to protect family members of the deceased, as they give these individuals a number of different rights that must be respected. For starters, family members are guaranteed a certain stake in the estate and this can only be overturned by the property owner’s will. In addition, there are special tax considerations that will ensure that these descendants do not have to pay more in debts than the property is worth. The fact that there is no inheritance tax in Portugal does not mean that there are no fees associated with this process, so anyone who is inheriting property should be aware of this. There are definitely measures in place, however, that will protect people who inherit or are gifted property, as these people should not be responsible for paying more in administrative fees than the property is actually worth.