1) ACQUISITION OF REAL ESTATE PROPERTY:
Generally speaking, provided none of the exceptions specified in the law applies, the acquisition of real estate property is subject to two separate taxes – IMT and IS
1.1 ) IMT - Property Transfer Tax
IMT is a tax applicable to any transfer of real estate property for a consideration or similar transactions as defined in the law, and is assessed on the price of the real estate property or its established patrimonal value for tax purposes, whichever is greater. As a rule, this tax must be paid before execution of the agreement formalizing the acquisition of the real estate property. If it is acquired through a service known as ''Casa Pronta', such tax may be paid at the moment of the acquisition agreement signature.
Which is Applicable Real Estate Tax?
It depends on value and type of property purchased and whether it is to be your main residence or second home. Below are the current rates of property tax in Portugal.
- Rustic and Agricultural Plots – 5%
- Other property and Urban Plots (lands for construction, offices , etc.) – 6,5%
- Real Estate (Flats and Villas)
What is Taxable Value?
The fee is levied on the highest between the declared acquisition value and the taxable value.
- property agreed price and declared on the acquisition agreement / or
- established patrimonial value for tax purposes
Note: The IMT rate is always 10% in the case of any acquisition or similar transaction by entities based in a country, territory or region ‘offshore’ mentioned in the list of the Ministry of Finance.
This tax is not applied when the property buyer is an individual person even if resident in an ‘offshore.
Examples for Main Residence
- €100.000 x 2% - €1.848, 14 = €151,86 IMT
- €620.000 x 6% - = €37.200 IMT
Examples for Second Home
- €180.000 x 7% - €8.163, 12 = €4.436,88 IMT
- €580.000 x 6% - = €34.800 IMT
Exemptions from IMT
The law provides for several cases which may benefit from an exemption from IMT. Some of these exemptions are automatic, while others are conditional upon authorization or recognition by the Tax Authorities.
We highlight the following:
a) �� acquisition of any property individually classified as of national interest, public interest or municipal interest, in the terms of the applicable legislation;
b) acquisition of any property located in economically depressed areas by commercial companies or civil companies organized as commercial companies, which allocate this property to the carrying out of any agricultural or industrial activity considered of superior economic and social interest in these regions;
c) acquisition of urban property for refurbishment, provided the acquirer commences the works within 2 years as from the date of acquisition;
d) �� acquisition of any urban property or part thereof exclusively intended for one’s own permanent residence, in the first transfer for a consideration of the refurbished property, provided the property is located in an urban renovation area (Área de Reabilitação Urbana);
e) acquisition of any urban property or part thereof intended for undertakings classified of interest for tourism, in the terms of the applicable legislation;
f) acquisition of any urban property or part thereof exclusively intended for one’s own permanent residence, provided the amount which would be used as a basis for assessment does not exceed €92,407.00;
g) Acquisition of property by companies registered for resale for tax purposes.
1.2 ) STAMP TAX (IMPOSTO DO SELO - IS)
In general, stamp tax on the acquisition of immovable property is assessed at a fixed rate of 0.8%, which applies irrespective of the type, nature or nationality of the vehicle or transaction in question.
This tax must be paid before execution of the agreement which formalizes the acquisition of the real estate property, and is assessed on the agreed price or the established patrimonial value for tax purposes, whichever is greater.
Note: When the property acquisition is made using bank loan, the stamp duty payment is applied at a rate of 0.6% and is assessed on the value of the loan.
1.3 ) OTHERS COSTS WITH THE ACQUISITION
- Property Acquisition Agreement - €250 a €500
- Property Registration - €250 a €500
2 ) TAXES WITH PROPERTY OWNERSHIP
2.1 ) Property Tax ( IMI)
An ownership of real estate property entails payment of IMI as a base tax charge. IMI is a tax payable annually and is assessed on the economic value of the property for tax purposes, which is calculated by the tax authorities taking into account certain criteria set forth in the law (in particular, the area, location and features of comfort) and is due by its owners as at 31 December of each year.
As a rule, the IMI is paid in three installments, in April, July and November of the year following that concerned by the tax:
a. It is paid in one installment during the month of April, when the value of the amount is under €250
b. It is paid in two installments, on April and November, when the value of the amount is over €250 and up to €500
c. In three installments in April, July and November, when the amount is over €500.
What is the established patrimonial value of the property for tax purposes?
Real Estate properties’ taxable value is determined by assessment according to the rules of the IMI. This value is updated annually on December 31.
- Rustic property - 0,8%
- Urban property or land plots for construction, not evaluated under “new evaluation rules” of CIMI (transacted before 2003): 0.5% to 0.8%
- Urban property or land plots for construction, not evaluated under “new evaluation rules” of CIMI (transacted or evaluated after 2004): 0.3% to 0.5%
- Any property owned by offshore companies: 7.5%
Exemptions of IMI
The law provides for several cases which may benefit from an exemption from IMI.
Some of these exemptions are automatic while others are conditional upon authorization or recognition by the Tax Authorities.
We highlight the following:
a) Exemption applies for a 3 year period, in case of urban properties considered as a permanent place of residence 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;
b) A renewable 3 or 5 year exemption for immovable property subject to urban renovation regulations;
c) A 7-year exemption under the regulations applicable to properties of interest for tourism or family-run guest houses;
d) Companies that make relevant investment may benefit from IMT exemption until 10 years on the acquisition of real estate property regarded as eligible investment.
2.2 ) Stamp tax (IS)
- Properties whose economic value for tax purposes is equal to or greater than €1,000,000.00 are now taxed annually under stamp tax, to an amount corresponding to 1% of the economic value of the property for tax purposes;
- Properties are owned by companies registered in black-listed offshore jurisdictions – 7,5%
3 ) EXPLOITATION OF IMMOVABLE PROPERTY
a) For residents - rate at 28%
b) For non-residents – rate at 28% (with the possibility to opt for the aggregation income if it is more favorable)
This rate is applied to the rental income deducted maintenance and conservation expenses, properly documented, as well from the IMI (municipal property tax) and IS (stamp tax).
The income statement shall be annually sent to the Tax Authorities by delivering the IRS Declaration document (Annex F). This must be done by the owner or, if non-resident, by its fiscal representative.
Tax authorities shall settle the tax due.
4 ) OTHER ANNUAL CHARGES WITH PROPERTY
Building units’ owners must pay a monthly maintenance work fee (condo fee). These condo maintenance fees are the percentage share of the costs to run the building as a whole, and are calculated according to the size of each unit.
5 ) TAXES WITH THE SALE OF IMMOVABLE PROPERTY
The sale of immovable property or shares in companies which own immovable property is subject to IRS or IRC, depending on whether the landlord is an individual or a legal entity, respectively, under the heading of capital gains.
Sale of shares corresponding to more than 75% of the share capital of private limited liability companies which own immovable property also entails payment of IMT.
There is a vast set of rules and provisions applicable to various cases. Portuguese legal system contains several solutions in this area, depending on whether residents or non-residents and individuals or legal entities are concerned. Accordingly, each case must be analyzed individually.
With regard to non-residents, it is crucial to analyze the corresponding Double Taxation Agreement, if any.
For individuals the capital gain is calculated as follows:
Capital gains tax = phurcase price - (Acquistion value + Phurcase and sale costs)
a) For Residents
The capital gain is subject to a progressive tax (depending on the total income) and levies on 50% of the capital gain obtained.
There is a tax benefit if the value of the sale or part, is reinvested in a new other property.
b) For Non- Residents
The capital gain is calculated the same way as for the residents but the tax levies on the total of the capital gain obtained. The rate is 28%.
The income statement shall be annually sent to the Tax Authorities by delivering the IRS Declaration document (Annex G). This must be done by the owner or, if non-resident, by its fiscal representative.
Tax authorities shall settle the tax due.
6 ) INHERITANCE OR GIFTS TAX
Between close relatives there is no inheritance tax in Portugal. i.e. parents/children and spouse. Although on gifts you have to calculate a 0.8% stamp duty based on the VPT.
Any other situations of inheritance or gift will be subject to stamp duty at a rate of 10% of the VPT.
- Onerous or cost-less transmission of property rights or partial figures - 0,8%
- Cost-less transmission of property rights or partial figures - 10% (to be added at the rate of 0,8%)
- Cost-less transmissions between spouses, descendants or ascendants relatives ( only regarding to the rate of 10%)
- Cost-less transmissions in favor of a legal person subject to IRC
THIS INFORMATION IS NOT
INTENDED TO BE A SUBSTITUTE FOR CONSULTING THE APPLICABLE LEGISLATION