Portugal - Investment Tax Planning

When investing in Portuguese property, various tax considerations will need to be taken into account. Below is an overview of property related taxes due with your purchase.


Stamp Duty

Since 2003, this municipal tax has been known as IMT, replacing the old SISA system of transfer taxes in Portugal. This has led to a reduction to 6% in “stamp duty” and is applied to the declared value of your property. Evidence of payment of this tax must be presented prior to signing the deed of sale. On a property priced 150,000 EUR, a payment of 5% would be due (7,500 EUR), minus a fixed allowable deduction of 4,900 EUR, making a total duty of 2,600 EUR.

Capital Gains Tax

Gains achieved on capital are treated as income tax in Portugal, with no special rate for capital gains.

Tax at a flat rate of 25% is payable by non-residents based upon the difference between the declared purchase price and the declared selling price. As a resident you will be liable to pay income tax of 50% of the gain, payable over five years. However, exemption is given if your capital gain is from a property in which you have lived as a permanent home and have re-invested the gain into another property within two financial years from the date of sale. You will be considered as a permanent resident in Portugal if you are in the country for 183 or more days per year.

Portugal has recently taken drastic steps to prevent the avoidance of Capital Gains using Offshore Companies. For this reason, it has raised transfer taxes and transfers by Offshore Companies which are now subject to a 16% transfer tax.

Inheritance Tax

This is not a tax applied to inheritance from the direct members of your family, while other beneficiaries including unmarried partners will have to pay tax at anything from 0 – 50% on their inheritance. Rates vary widely, depending upon the value of the property and on the relationship between the parties concerned.

VAT

Value Added Tax (VAT) is payable on property purchase in Portugal and is usually around 17%, with lower rates applicable on the islands of Madeira and the Azores.

VAT registration is compulsory, irrespective of your tax residency, whenever you acquire any taxable product in Portugal. Services relating to Portuguese real estate, such as estate agency, brokering and related professional services, are all subject to the standard rate of VAT, currently set at 21%.

Tax on Rental Income

If you let out and receive an income from your property, income tax will be charged on your gains. Portugal has many double taxation agreements in place that prevent you having to pay tax twice, but you are advised to check this out with a tax adviser before you submit your tax returns.

In Portugal income tax for rental revenue is calculated on a sliding scale, with 40% as the top rate of tax that could be incurred.

Local Taxes

IMI (Imposto municipal sobre imóveis) is a form of council tax and is based upon the property value. It ranges from 0.2 to 0.5% of the value for new builds and 0.4 to 0.8% for older properties.

Income Tax

All Portuguese residents are liable for payment of income tax in Portugal. If you own a main residence in Portugal and/or live in it for at least 183 days, the tax authorities will consider you to be a resident. The tax year in Portugal is the year ending on December 31st.
If you are employed in Portugal, your employer will deduct tax at source each month from your salary.

Tax %

Tax Base (Euros)

10.5%

up to 4,544

13%

4,545 - 6,873

23.5%

6,874 - 17,043

34%

17,044 - 39,197

36.5%

39,198 - 56,807

40%

56,808 -61,260

42%

61,261 and over

You are obliged to submit your own tax returns in Portugal:

  • between 1st February and 15th March for earnings from employment and/or pensions and
  • between 16th March and 30th April for all other income.

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