Capital Gains Tax Portugal – The Ultimate Guide for Expats

Portugal is an excellent country to buy a property or invest in the real estate market, with attractive returns on investment and many desirable locations on offer to choose from. Indeed, many individuals have opted to buy property in Portugal, given that property is very affordable when compared with neighboring countries. When it comes to taxation in Portugal, it can at first seem a little complicated. Indeed, if you live in Portugal and own Portuguese property or other assets, you may face capital gains tax in Portugal and the UK, depending on your Portugal residency status.

As is the same in many other countries, there is a tax on capital gains in Portugal that is imposed on the sale of assets.

However, with taxation in Portugal, unlike in other countries, the capital gains tax in Portgual only applies to gains that are made on real estate and investment. Therefore, personal items are not subject to tax, and inheritance tax is only subject to a limited form of stamp duty.

The Portugal tax rate falls between 14.5% to 48%, as of 2021. This article focuses on the capital gains tax, which is important to know when buying and selling property in Portugal. If you are looking into capital gains tax Portugal crypto you can see our article on Portugal Crypto Taxes that covers the topic.

It is very important to understand capital gains tax Portugal 2022. Exposure to this tax will depend on your Portugal tax residency status, how you own the asset, and, if it applies to owning property, whether it is your primary residence. Foreigners will also be able to have significant tax advantages in Portugal, under the non-habitual residence (NHR) scheme, which we will also cover in this article.

What is Capital Gains Tax?

Capital gains are the profit that you generate when selling a property (i.e. when you sell a property, the eventual profit that you make from a purchase).

This capital gain that you make from the purchase of the property is liable to tax. The owner of the property will need to disclose the tax return for the year in which the house was purchased and the respective price that was paid when acquiring the property.

If there were works or maintenance that were carried out on the property, these should be declared —for example installing a new heating system. You will need to show the invoices and the amounts that were paid. These will be carried out in the capital gains assessment.

If you are looking to reinvest your total selling price into a new property then the potential capital gain may not be subject to tax. This is only applicable if the house you are selling is your permanent address and corresponds with your tax address — in that you have Portugal tax residency.

An important consideration is the time period. You must purchase a new house and reinvest the total selling price 24 months before such a sale or 36 months after the sale. If this is the case, the owner needs to inform the Portuguese Tax Authorities that they intend to reinvest back into the property market in Portugal.

Capital gains tax for Portuguese residents

Regarding capital gains tax, Portugal residents are liable to tax gains on worldwide property and investments that were acquired from 1 January 1989 onwards. Capital gains on real estate are added on to other income for the year and are taxed at the income tax scale rates — ranging from 14.5-48%.

Shares, bonds, and securities are taxed at a flat rate of 28%. Assets that are deemed to be from a “tax haven”, such as Gibraltar and Guernsey, are taxed at a greater rate of 35%.

The rules are quite generous for Portuguese residents. As an example, only 50% of the gain of the sale of real estate is liable to be taxed and you are positioned to have inflation relief after two years of ownership. There also may be exemptions available to you, so it is best to check with a financial advisor.

Main home exemptions for residents

If you reinvest the proceeds from a property sale into another main home in Portugal, or anywhere in the European Union or European Economic Area (EU/EEA) that has a tax treaty with Portugal, then you will not have to pay tax on capital gains. Note that the property has to be your primary residence. To qualify, you will need to reinvest into the property market within 36 months after the sale of your property market or 24 months before the sale.

Note that this tax exemption no longer applies to UK properties. This means that British expats that want to sell their Portuguese property to return to reinvest this money in the UK no longer benefit.

In 2019, an additional capital gains relief was introduced that is focused on benefiting retirees. If you are retired or above the age of 65 then you are tax exempt on capital gains arising if you reinvest the proceeds from the primary home in a pension income fund or eligible insurance contract within six months after the sale.

Rules for non-habitual residents (NHR)

The non-habitual residence (NHR) scheme is perfect for expats that are looking to move to Portugal. Under the scheme, you are able to have a significant taxable benefit for up to ten years, if structured correctly.

If you have NHR status, then you are able to avoid liability for tax on capital gains on certain worldwide gains. This will depend on which country has the taxing rights under the terms of the double tax treaty (DTT). A DTT is a two-party agreement between two countries that is made up to resolve issues relating to the double taxation of passive and active income for their respective citizens.

If the gain is taxable in the same country, for example with the UK property market, then there is no liability in Portgual for those with NHR status. Nonetheless, the capital gains are “exempt with progression” and are still added to your annual taxable income to calculate the effective tax rate in Portugal. As a result, although not directly taxable, the gain could increase your overall tax bill.

On the other hand, UK shares are taxable in the country of residence. Therefore, this gain will be taxed in Portugal under the NHR scheme.

You can learn more about the NHR scheme here.

Capital gains tax for non-Portuguese residents

Regarding capital gains tax for Portugal non residents, then the full capital gain from the sale of a property, bonds, or securities in Portgual are taxable at a flat rate of 28%.

Put simply, capital gains tax in Portugal is charged on the sale of property or other assets at a rate of 28% for individuals and 25% for companies and non-residents. Residents will need to pay taxes on just 50% of their capital gains.

If you are an EU resident, then you can choose to be taxed as a Portuguese resident instead of at the sale income tax rates. Nonetheless, you will need to declare your worldwide income to calculate the correct and relevant rate of tax on the gain. Therefore, this may not be the most tax-efficient way forward for you.

If you own a property in Portugal through a non-resident corporate structure (i.e. a company, business, or trust) then the capital gains have only recently become taxable in Portugal. From January 2018, if 50% or more of a company’s value, if owned by a non-resident, comprised of Portuguese real estate, the gain on the transfer of shares attracts a 25% corporation tax rate. If it’s from a blacklisted jurisdiction, then this rises to 35%.

This only applies where the double taxation treaty between Portugal and the company’s country of incorporation provide Portugal with taxation rights. This is the case for US-owned companies, for example.

There are also companies that are not affected. For instance, companies based in the UK or Luxemburg pay a corporation tax rate in their respective country as opposed to in Portugal.

Taxation on rental income

Regarding rental income and taxable income, as a rule of thumb, if you are renting out your property, then rental income is taxed at a flat rate of 28%. However, there are certain tax deductions that could apply to you. When you declare your rental income to the Portuguese Tax Authorities, there are deductions for fire insurance as it is compulsory to have this for all rental properties. Additionally, property owners can deduct expenses such as the IMI, costs regarding obtaining the energy certificate, and condominium fees (if applicable). It is often worth speaking with an accountant who can help you regarding your tax return on renting property, particularly if you do not speak Portuguese or are unfamiliar with the processes.

How to reduce your capital gains tax exposure?

With a thorough plan, you may be able to significantly reduce your tax liability. As an example, certain types of life insurance policies can provide significant tax benefits in Portugal. Discuss your options with an experienced wealth manager about the best option for your situation.

Scouting out an advisor with cross-border or international experience can help you find tax-efficient and compliant ways to manage your financial assets so that you do not need to pay more tax than is necessary, whether in Portugal or your resident country.

Goldcrest: Your buyer’s agent in Portugal

Goldcrest is a buyer’s agent based in Lisbon. We provide expert advice on real estate investments and on buying properties in Portugal, working with you to secure the best deal for you. If you are thinking of relocating to Portugal, investing in the property ladder here, or would simply like to discuss your options, please book a call with us today.

Here are some additional articles that you may find useful:

Frequently asked questions about capital tax in Portugal:

1. How do I avoid capital gains tax in Portugal?

There are some exemptions to capital gains tax in Portugal that you should be well versed in. If you have a Portugal tax residency and are selling your residence in Portugal and intend to purchase another home in Portugal, then you may be tax exempt. Note that the home must be your primary place of residence.

The time period is important as you must purchase a new house and reinvest the total selling price 24 months prior to such as sale or 36 months after the sale. If this is the case, the owner needs to inform the Portuguese Tax Authorities that they intend to reinvest back into the property market in Portugal.

Note that property improvement costs and maintenance should be declared, as this may be considered in the capital gains assessment when working out the capital gains. You should ensure you keep the invoices of any maintenance as proof of the costs incurred.

2. Is Portugal a tax haven?

Portugal is not a tax haven. A significant advantage for foreigners is the attractive non-habitual tax residents’ (NHR) scheme that provides tax benefits for up to ten years of their residency in Portugal. Alongside this, it offers a low personal income tax rate of 20% if you are employed in a “high-value” activity in Portugal, and where you can receive some foreign income tax-free. For self employed income there are Portuguese personal income subject tax bands beginning at 14.5% for tax resident individuals.

3. Does Portugal have a wealth tax?

Yes, Portugal has a wealth tax. If you are purchasing a higher-end property, then you will need to pay the Portuguese Wealth Tax or AIMI. There are three levels to this:

0.7% tax if the property is valued between €600K and €1mil;
1% tax if the property is valued between €1mil and €2mil;
1.5% tax if the property is valued above €2mil.

Note that the €600K is on an individual basis. Should the property be jointly owned with your partner, this will only attract AIMI if the property is valued at over €1.2mil.

4. How much are capital gains in Portugal?

For tax residents, capital gains on real estate are added on to other such income for the year and are taxed at the income tax scale rates, which range from 14.5-48%. Shares, bonds, and securities are taxed at a flat rate of 28%. Assets that are deemed by Portugal a “tax haven”, such as Gibraltar and Guernsey, are taxed at a rate of 35%.

If you are a non-Portuguese resident, then the full capital gain from the sale of a property, bonds, or securities in Portugal are taxable at a flat rate of 28%.

5. How does capital gains tax work in Portugal?

Capital gains are the profit that you generate when selling a property. The capital gain that you make from the purchase of the property is liable to tax. The owner of the property will need to disclose the tax return for the year in which the house was purchased and the respective price that was paid when acquiring the property.

6. Is Portugal tax free for expats?

You are considered a resident of Portugal if you reside in the country for 183 days or more in a calendar year and will therefore need to pay income tax on your worldwide income. You will only need to pay income earned within Portugal if you live in Portugal for fewer than 183 days. If you have permanent residence in Portugal you will also be considered a tax resident and your worldwide investment income is taxed.

7. How much tax do foreigners pay in Portugal?

As an expat, you are considered a Portuguese taxpayer and tax resident if you reside more than 183 days in a single calendar year in Portugal or if you have a permanent residence in Portugal. Investment income paid as tax will depend on whether you are a non-resident or resident of Portugal.

8. Is there inheritance tax in Portugal?

Portugal doesn’t impose an ‘inheritance tax’ as we know it, but rather applies a 10 percent ‘stamp duty’ when assets are passed on as a result of death or as a lifetime gift. Spouses, descendants (children, grandchildren), and ascendants (parents) are exempt from this tax.

Mortgages for Buy-to-Let

English Speaking Realtor Portugal: What You Need to Know

Buy-to-Let: An Overview

More Info