Property Taxes in Portugal 2023: An Overview

Perhaps the least glamorous part of buying a property is the taxes and fees associated with the purchase – even more so when buying in a different country. However, property taxes in Portugal are not as daunting to deal with as you may first assume, and it is important that you have your records in order and fully grasp the fees that you’ll need to pay and to whom.

In this article, we’ll provide you with everything that you will need to know concerning taxes on Portugal property. We’ll split this into the property taxes that you’ll need to pay at the time of purchase and those that you will need to pay after you’ve bought your new property on an annual basis.

Following this, we’ll take a look at taxes for rental properties (including potential tax deductions), capital gains tax, and Portugal inheritance tax. Lastly, we’ll inform you of agency fees and tax representation.

As a rule of thumb, foreigners will have to pay the same taxes on properties as locals. However, note that if you are making the purchase through an offshore company, then higher rates can be expected.

Property Taxes in Portugal: Taxes During the Purchase Process

The following taxes are those that you will need to pay at the time of purchasing the Portugal property.

Property purchase tax (IMT)

The Imposto Municipal sobre as Transmissões Onerosas de Imóveis (IMT) (Municipal Tax on Onerous Transmissions of Real Estate) is a transfer tax levied over the purchase price of the Portugal property. This is paid when buying property in Portugal and can range from 0 -10 percent. The tax will depend on the price of the property, the type of the property (rural or urban), and the location (continental Portugal, autonomous regions). Whether you are going to make your Portuguese property your primary or second home will also have a bearing on the price.

The property purchase tax (IMT) amount charged is levied over the purchase price. Note that this is also referred to as the property transfer tax in Portugal. To work out the rate, the following sum can be used:

IMT = property value x tax rate x tax deduction

Or you can calculate the percentage in this property taxes in Portugal calculator here.

There are three criteria essential to calculate the Property purchase tax (IMT):

• Type of property: Urban property or rural property
• Buying purpose: Principal or secondary residence
• House location: Mainland Portugal or its autonomous regions

The IMT rates for buying private property in Continental Portugal as a main residence are listed below.

Note that if the buyer intends to use the property as his sole and permanent residence in Portugal, and the property is in a rehabilitation area, then it can be possible to request a refund of the IMT that needs to be paid.

IMT property tax exemptions in Portugal

You do not pay any IMT (Property Transfer Tax) if the property is located on Portugal’s mainland and its price does not exceed €97,064. Likewise, no IMT tax is due if the property is located in an autonomous territory and is worth less than €121,330.

Tax exemptions for IMT payments are also possible under the following conditions under the State Budget for 2023 (OE2023):

• Properties acquired by state bodies, local authorities and associations, and federations of municipalities governed by public law
• Real estate acquired for the headquarters of diplomatic missions, legal persons with public utility status, IPSS, and religious legal persons
• The acquisition of buildings individually classified as of national, public, or municipal interest, as well as the acquisition of venues for holding cultural shows
• The purchase of buildings for resale
• Acquisition, by credit institutions, of real estate in foreclosure proceedings, bankruptcy, insolvency, or in lieu of payment

More IMT circumstances

• No IMT: Purchase of a whitelisted jurisdiction corporation shares
• 5 percent IMT: A flat rate for agricultural and rustic lands
• 6.5 percent IMT: A flat rate for commercial and building plots
•  For blacklisted related IMTs, the rate is always 10 percent
• 15 percent IMT: Property acquired by a corporation based in a jurisdiction that is on a blacklist
• Some IMT rates from the table above: Property acquired by a corporation based in a jurisdiction on the whitelist

Stamp duty

Said to be the oldest tax levied by the state, the Imposto do Selo (Stamp duty) is an additional transaction cost that is required of the property owner. On deeds, contracts, bank mortgages and loans, paperwork, and titles, as a buyer, you must pay stamp duty. Depending on the kind and worth of the property, the rate varies. The rate ranges from 0.4 percent to 0.8 percent, depending on the type of act or operation.

When purchasing a home, stamp duty must be paid to the notary at the time of the deed of sale (see the next section for more info on the Notary). This stamp duty has a 0.8 percent rate.

You also have to pay stamp duty when you take out bank mortgages. The tax on the stamp duty is 0.6 percent if the repayment duration is longer than five years. It is 0.5 percent if it is less than five years.

Note that corporate property ownership transactions are exempt from stamp duty.

Notary fees

And thirdly, although not a tax, you’ll need to take into account notary fees. The Notary is the private entity responsible for providing you with the official documents that prove you are the owner of the property. This fee usually amounts to €1,200.

Rental Income 

For renting out your Portuguese property, there are certain taxes that you will need to consider. As a rule, net rental income is taxed at a flat rate of 28 percent. However, there are possible deductions on rental income for the following:

• Deductions for fire insurance, as it is compulsory for rental properties
• Expenses such as the IMI
• Costs associated with obtaining an energy certificate
• Condominium fees (if applicable)
• Expenses for the upkeep and maintenance of the property, such as repairing and replacing items (this needs to be proven legally and cannot be considered as furniture)
• Maintenance and conservation costs that were carried out 24 months prior to renting out the property

Note that you will need to present an invoice to identify the work that was carried out on the property and its location to receive deductions from tax on rental income.

There are certain differences between short and long-term rentals.

Short-term rentals:

For short-term rentals, you will need an Alojamento Local (AL) Local Accommodation License. This allows property owners to rent out their properties and for them to be able to get rental income from their property. This is a very good option if you are looking to stay in Portugal for part of the year. You will be able to rent out your property for the rest of the year, providing you with a good inflow of cash. Indeed, the Portuguese property market can be very lucrative as it’s a popular tourist destination due to the climate, beaches, and rich history.

It is important to note that there may be location restrictions for AL licenses, so be sure to check this before buying a property with the intention of renting it out.

You can read our article here for more information: Alojamento Local Tourist Letting Registration: An Overview.

Long-term rentals:

For property owners looking to put their property up for long-term rentals, you can rent out your property with standard lease agreements, and an AL License is not required.

Capital Gains Tax on Property in Portugal

Portuguese capital gains tax is based on your ownership structure, residency status, and if the asset is your primary residence. Capital gains are the profits that you make when selling a property. When you sell a property, the eventual capital gain that you make from the purchase is liable to tax.

Asset sales are subject to capital gains tax. Personal goods are not subject to taxation, and inheritances are only subject to a limited sort of stamp duty because it only applies to gains made on real estate and investments.

Your whole gain on the sale of a property in Portugal is subject to tax at a flat rate of 28 percent if you are a non-resident of Portugal. Portuguese residents are required to pay real estate taxes on gains from investments and real estate acquired after 1 January 1989. Once all real estate profits have been added to your other yearly income, taxation will take effect. It may range from 14.5 percent to 48 percent, depending on the income tax scale rates, with the income tax rate determined by your earnings.

The owner of the property is required to disclose the tax return, the year in which the house was bought, and the respective price that was paid in acquiring the property. If you had works carried out on the property, then these should be declared. This includes things like installing a new heating system. Present the invoices and the amounts paid for the maintenance, and they will be considered in the capital gains assessment.

An important note is that if you are reinvesting your total selling price into a new home, then the potential capital gain may not be subject to tax. However, this is only applicable if the house that you are selling is your permanent residence address and if it corresponds with your tax address.

The time period is also important – you must purchase a new house and reinvest the total selling price 24 months prior to such a sale or 36 months after the sale. If this is followed, then the owner informs the Portuguese Tax Authorities of their intention to reinvest back into the property market in Portugal.

We`ve created an ultimate guide about Capital Gains Tax in Portugal so you can get all the information you need in one place.

Exceptions to capital gains tax in Portugal

1. You are selling your primary residence in Portugal and purchasing a new one there, and you are a resident of Portugal for tax purposes at this time. This rule will apply for sales within three years after the sale or two years before.
2. This property was first occupied in your name before January 1989.
3. When you decide to reinvest the funds earned from the sale of your primary house in Portugal into a second primary residence in the EU, you can roll over the costs.

Inheritance Tax

There are no inheritance tax in Portugal. Nonetheless, stamp duty (at a rate of 10 percent) is applicable on the assets considered to be located in the Portuguese territory passed on as inheritance. An exemption to the stamp tax applies whenever such inheritance is passed on to spouses, descendants, and ascendants.

Agency Fees

In Portugal, there are no agency fees for the buyer, as these fall to the seller to pay. They will usually work on a commission basis for the seller. Therefore, when negotiating the property price, make sure you get a second opinion from a trusted advisor. This is because the seller will get a higher commission for a higher sale. In this respect, it can be worth working with a buyer’s agent, who works solely on behalf of the buyer.

 Tax Representation

A tax representative in Portugal acts as the interface between a non-resident and the tax office on all tax matters. If you are a non-resident that owns property in Portugal, has a bank account here, or has any other commercial activity in the country, you must have a fiscal representative that is registered with the tax authorities. The tax authorities in Portugal are the Tax and Customs Authority (Autoridade Tributária e Aduaneira, AT).

Portugal is one of the most stunning countries in Europe, with affordable property options for expats and investors. From the sun-drenched Algarve in the south to the historic city of Porto in the North, there is something for everyone.

If you are considering buying property in Portugal or moving to the country, the following articles could be of interest to you regarding the real estate purchase.

• 3 Key Essential to Buying Property in Portugal
• Should I Buy Property in Portugal or Spain? 
• A Closer Look at Portugal’s Real Estate Market
• How to Buy a House in Lisbon, Portugal
• Cost of Living in Portugal – Everything You Need to Know
• Portugal Real Estate: Everything You Should Know Before You Buy
• Property Surveyor Portugal: An Overview

For more information on property ownership, you can consult our article: Types of Property Ownership in Portugal.

And, if you have just moved to Portugal and are a tax resident in the country, you can enjoy significant tax benefits through the Non-Habitual Residence Program. You can find out more in our article, NHR Portugal Program: All You Need to Know, which delves into the benefits of being a tax resident in Portugal and the NHR program, in addition to going over the countries that have a tax treaty with Portugal.