Portuguese Property Taxes: A Complete Guide for 2024
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Portuguese Property Taxes: A Complete Guide for 2024
Introduction
Welcome to our simplified guide to understanding Portuguese property taxes! Whether you're a first-time buyer or an experienced property investor, navigating the complexities of a foreign tax system can be challenging. This guide aims to provide you with a broad understanding of the various property-related taxes in Portugal.
Before we delve in, it's essential to note that we are not tax consultants or accountants, nor do we offer financial advice. While we strive to provide accurate and up-to-date information, tax regulations can change, and each individual's circumstances are unique. Always consult a tax professional or accountant to ensure you're fully informed and compliant with Portuguese tax laws.
IMT (Imposto Municipal sobre Transmissões Onerosas de Imóveis): Property Purchase Tax in Portugal
The IMT is a tax on transfers of property rights, or portions of those rights, over immovable property. It applies to all types of property including land, houses, apartments, and commercial properties.
Variable Rate: The IMT has a variable rate tax. For example, if you're purchasing a property for your own primary residence, the tax rate could range from 0% to 8% depending on the property's fiscal value.
How It's Applied: The tax rate depends on factors such as the property category (primary residence, secondary residence, rustic buildings, etc.), the property's location (mainland Portugal or autonomous regions), and the VPT (taxable property value) or acquisition value, whichever is higher.
Settlement Timing: This tax is typically paid on the deed's signing or before. However, it's not advisable to pay before the deed day, as any delay or cancellation of the deed could lead to complications and a lengthy refund process.
Resources: Consult Portal das Finanças to get to know the official IMT tax rates to consider, as presented in the tables below. Bear in mind that IMI rates are updated frequently.
Formula for IMT Calculation
IMT = Property acquisition value or Taxable property value (the highest) x tax rate - amount to deduct
IMT Tax Exemptions
As illustrated in the table above, if the property is your primary residence and located in mainland Portugal and its value is no more than €101,917, you are not liable for IMT tax. Similarly, if the property is in an autonomous region and its worth is under €127,396 it's not subject to IMT tax, as you can check in Deco Proteste. Additionally, tax exemptions are also granted under the following scenarios:
When a real estate trading company purchases properties for reselling.
When properties are acquired with the intention of urban rehabilitation, under certain requirements
When a property or a self-contained portion of urban property is purchased with the objective of setting up a tourism complex that has been awarded tourism utility.
When real estate investment funds buy properties for residential leasing.
In the case of cooperation agreements for restructuring transactions.
When buildings deemed of national, public, or municipal interest are purchased.
When the acquisition qualifies for the Investment Promotion Tax Regime (RFAI). In such instances, either an exemption or reduction of IMT is achievable.
IS (Imposto de Selo): Stamp Duty
Stamp Duty is a type of consumption tax that applies to transactions not subject to VAT, including real estate purchases.
How It's Applied: Buyers are obligated to remit stamp duty (Imposto de Selo) for various documents including deeds, contracts, bank mortgages, loans, and titles. For real estate, the applicable rate of stamp duty varies based on the nature and value of the property, typically ranging between 0.4% and 0.8%.
Settlement Timing: When purchasing a property, a stamp duty of 0.8% is payable to the notary upon the execution of the sales deed.
How It's Calculated: For properties, Stamp Duty is charged at a flat rate of 0.8% on the higher value between the taxable property value and the property acquisition value.
Example Stamp Duty calculation
A. Property acquisition value: 150.000€ B. VPT (taxable property value): 100.000€
As A > B, it is assumed A for the calculations
So, the amount of IS to pay: 0.8% x 150.000€ = 1.200€
Stamp Duty Tax
IMI (Imposto Municipal Sobre Imóveis): Municipal Property Tax
The IMI is an annual property tax that serves as a direct funding source for city councils in Portugal. It's levied on the taxable value of the property.
How It's Calculated: The IMI is calculated by applying a rate to the property's VPT (taxable property value). This rate can vary depending on the year of the property, the municipality where the property is located, and the type of property (Prédio Urbano or Prédio Rústico).
Settlement Timing: This tax is paid every year for as long as you own the property on December 31st. It can be paid in installments depending on the total amount due:
One installment when the amount < 250 euros
Two installments when 250 ≤ amount ≤ 500 euros
Three installments when the amount > 500 euros
Resources: For a more precise calculation of your IMI, you can use the Portal das Finanças IMI calculator, filtering by year of the property, municipality, and type of building. In case you do not have access to Portal das Finanças yet, you can consult Idealista, but keep in mind that Portal das Finanças always has the most accurate and updated data.
Example (using Portal das Finanças)
VPT: 150.000€ District: Lisbon Municipality: Lisbon Type of building: Prédio Urbano Tax rate: 0.675%
IMI amount to pay: 0.675% x 150.000€ = 1.012,5€
NOTE: as this amount is > 500€, it can be paid in three installments.
IMI Tax Exemptions
While there are indeed several exemptions applicable to the IMI Tax in Portugal, it is highly recommended to seek advice from a tax professional or financial advisor. This is due to the dynamic and often complex nature of Portuguese tax legislation, which undergoes regular changes and adjustments.
Expert guidance can ensure that you're up-to-date with the current laws and help you make the most informed financial decisions.
AIMI (Adicional ao Imposto Municipal sobre Imóveis): Wealth Tax
The AIMI was introduced in 2017 as an additional levy on residential properties and land for construction with a VPT (taxable property value) above a certain threshold.
How It's Applied: This tax is levied on the sum of the VPT of all residential properties and land with a building permit held by each taxpayer on January 1st of each year.
Target: This wealth tax pertains to those owning a portion of the property in Portugal that is worth more than €600,000. The rates are constant irrespective of whether the individual is a resident or not. If the property is company-owned, the applicable rate is 0.4%. However, if it is owned by an individual, the rate stands at 0.7%. When the property's value goes beyond €1 million, the rate escalates to 1%.
Provision: There is a provision for a €600,000 deduction per person on the total value of properties in Portugal. Thus, if a property in Portugal is co-owned by you and your partner, the Wealth Tax (AIMI) will be imposed once the property's value exceeds €1.2 million.
Resource: Consult page 17 of Sistema Fiscal Português to get to know the official AIMI tax rates to consider.
Several usd bills.
IRS or IRC: Property Income Taxes
Income derived from property in Portugal is subject to taxation. This could be from rental income or from the sale of property.
As a private individual (through IRS, Personal Income Tax):
Resident Taxpayers: Income from property earned by residents is added to the other income and taxed at the applicable progressive rate (Category B of IRS) or at an autonomous rate of 25% (Category F of IRS). Both options allow for the deduction of costs related to the property.
Non-resident Taxpayers: Income from rentals earned by non-residents is subject to a fixed tax rate of 25%. Expenses related to maintenance, repairs, municipal property tax, and stamp tax can also be deducted from the gross rental income, as long as these costs are genuinely incurred and appropriately documented.
As a company (via IRC, Corporate Income Tax): Companies pay a flat rate on their profits from property, with additional possibilities for deducting costs related to the property.
Recommendation! The Portuguese tax system is very dynamic, especially in what concerns IRS (individuals) and IRC (companies), so it is highly recommended to consult a tax professional for personalized financial advice.
Mais-Valias: Capital Gains Tax
When selling a property, you might make a profit, also known as a 'capital gain'. This gain is the difference between your purchase price and the selling price. Here's what you need to know about Capital Gains Tax in Portugal:
How It's Applied: The amount of capital gains tax in Portugal that you'll owe hinges on your residency status, the manner in which you possess the asset, and whether the asset in question is your primary residence.
Resident Taxpayers: Residents are required to pay tax on 50% of the capital gain that will be added to their yearly income (sale of property obtained from January 1st, 1989 onwards), and taxed at the applicable tax rate that can range from 14.5% to 48%, depending on the total taxable income. However, the taxable amount can be reduced if you reinvest the proceeds in another property for personal and primary residence within a specific period (between two years before and three years after the sale (bear in mind that this period can change).
Non-Resident Taxpayers: Non-residents face a flat tax rate of 28% on capital gains from selling Portuguese property.
Example 1. As an Individual
Purchase price: 110.000€ Sale price: 160.000€ Construction & Renovation expenses: 20.000€ Estate agent fee (sale): 9.600€ (variable) Expenses with the purchase (taxes, deed, etc.): 3.000€ (variable) Currency devaluation coefficient: 1,00
Taxable Amount = 50% x [160.000 - (1,00 x 110.000 + 20.000 + 9.600 + 3.000)] = 50% x 17.400 = 8.700€
NOTE: The taxable amount of the capital gain is 8.700€, but that's not the amount of tax to pay!
The 8.700€ will be added to the IRS (Income Tax) earnings.
In the end, the respective taxes should be paid according to the IRS tax bracket (ranging from 14.5% to 48%). For non-residents, it should be applied a 28% flat rate, as stated previously.
Example 2. As a company
As a company, the taxable amount is 100% of the capital gain (instead of 50%)
Based on the previous example, the taxable amount would be 100% x 17.400€ = 17.400€.
Capital Gains Tax Exemptions
You'll be free from capital gains tax under the following conditions:
If you are a tax resident in Portugal, selling your primary residence within the country, and purchasing another one in Portugal. This provision is applicable for transactions conducted within a span of 3 years after or 2 years prior.
If you initially occupied the property before January 1989 and the property is under your name.
In case you choose to reinvest the proceeds from selling your primary Portuguese residence into acquiring another primary residence within the European Union, you'll have the opportunity to defer the associated costs.
Capital Gains Tax
Conclusion
Understanding Portuguese property taxes is an essential part of any successful real estate investment strategy. From transfer taxes to annual property taxes, stamp duty, and income taxes, the Portuguese tax system offers a comprehensive structure.
This guide has provided you with a broad understanding of the main property taxes you can expect to encounter in Portugal.
While this guide offers a helpful starting point, always consult a tax professional to gain a complete understanding of your tax obligations. They can provide personalized advice tailored to your unique circumstances and keep you informed of any changes in Portuguese tax law that may affect you.
In essence, navigating Portuguese property taxes doesn't have to be overwhelming. With the right information and professional advice, you can confidently make informed decisions about your Portuguese property investment.