fbpx

Perhaps the least glamorous part of buying a property anywhere 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 property taxes in Portugal. 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 run over taxes for rental properties (including potential tax deductions), capital gains tax, and inheritance tax. Lastly, we’ll inform you of agency fees and tax representation. 

Our new e-book Your Expert Guide to Buying Property in Portugal runs over the taxes and fees, legal fees, financing your property, and many other aspects of buying in Portugal. 

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. 

 

Your NIF and your Bank Account

To deal with tax matters in Portugal, you will need to have a NIF (Número de Identificação Fiscal or Número de Contribuinte) which you can obtain from the Finanças (Finances) office. This is your Tax Identification number in Portugal that you will  need to make transactions in Portugal.

Although not mandatory, it is also recommended to have a Portuguese bank account, to avoid transaction costs. 

 

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 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. This is paid when buying property in Portugal and can range from 0%-10%. The price 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 IMT amount charged is levied over the purchase price. 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 here

There are three criteria essential to calculate the IMT tax:

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

The IMT rates for buying private property as a primary residence are listed below.

Property ValueMediumMarginal
Up to €92.407€00%
Between €92.407 and €126.4030,5379%2%
Between €126.403 and €172.3481,7274%5%
Between €172.348 and €287.2133,8361%7%
Between €287.213 and €574.323-8%
More than €574.3236 (single rate)6 (single rate)

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 taxes exemptions 

You do not pay any IMT if the property is located on Portugal’s mainland and its price does not exceed 92.407. Likewise, no IMT tax is due if the property is located in an autonomous territory and is worth less than €115.509. 

Tax exemptions are also possible under the following conditions:

  • Purchase of property for urban rehabilitation;
  • Purchase of properties by real estate investment trusts for resale;
  • Purchase of real estate by real estate investment funds for residential letting;
  • Purchase of land or an autonomous part of the urban property to construct a tourism complex, to which the utility of tourism has been attributed;
  • Purchase of buildings of interest to the nation, the public, or a municipality;
  • Investments that qualify for the Investment Promotion Tax Regime (RFAI). Either an exemption or reduction of IMT is possible in this case;
  • Cooperation agreements for restructuring operations.

More IMT circumstances 

  • No IMT: Purchase of a whitelisted jurisdiction corporation shares;
  • 5% IMT: A flat rate for agricultural and rustic lands;
  • 6.5% IMT: A flat rate for commercial and building plots;
  • 8% IMT: Purchase of a blacklisted jurisdiction corporation shares;
  • 15% 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 Tax) 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 (Imposto de Selo). Depending on the kind and worth of the property, the rate varies. The rate ranges from 0.4% to 0.8%, 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. This stamp duty has a 0.8% rate.

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

Transactions involving corporate property ownership are exempt from stamp duty.

 

Property taxes in Portugal: Taxes after the purchase

The following taxes are those that you will need to pay after you have purchased your new property. 

 

Municipal Property Tax (IMI)

The Imposto Municipal sobre Imóveis (IMI) (Municipal Property Tax) is an annual tax, and, as a property owner in Portugal, you are required to pay a yearly property tax. Every municipality has a separate tax rate, and the municipal legislatures set their own rates. Note that the IMI is levied on the property tax value (VPT), not on the price you paid for the property. The tax value of the property is normally much lower than the market value of the property, which turns out nicely for the buyer. 

Portuguese municipalities receive funding from the property tax, which is also used to maintain public facilities. When you own the property on the last day of the applicable tax year, you are responsible for paying the IMI tax. The value of the tax asset (TPV) must be multiplied by the relevant rate in order to determine the IMI tax.

The amount is determined each year by the municipality in which your property is located. Generally speaking, the rates fall between 0.3% to 0.5% for urban dwellings and up to 0.8% for rural properties. 

If your property is located in a rehabilitation area that was subject to rehabilitation works, you are exempt from paying IMI for three years, if certain conditions are met. The three-year period begins from the year in which the rehabilitation works were concluded. There is also the possibility to extend the IMI to five years, should the property be registered as the primary residence.  

  • If a property was valued before 2004, the rate is from 0.4% to 0.8%.
  • If a property has been re-valued since 2004, the rate is from 0.2% to 0.5%. 
  • If the property is owned through a corporation that is located in a jurisdiction that is on the “black” list, the rate will be a flat 7.5% of the rateable value.

Exemptions on IMI tax

There will occasionally be exemptions from property taxes (IMI). For three years, the property will not be subject to property taxes if, for instance, you plan to live there permanently or rent it out. The patrimonial worth of the property will also affect the rate. It must be an urban property with a tax registration value of up to €125,000 that is owned by a person who earned up to €153.300 in taxable income the year before the purchase.

In the case of a permanent exemption, the household’s annual taxable income cannot exceed €15,295. To take advantage of the exemption, you must submit a request to Finanças; be sure to do this before you buy the home and after the property inspection is finished.

Additional to IMI (AIMI)

Owners of shares in Portuguese real estate with a value of more than €600.000 are subject to the wealth tax (Adicional Imposto Municipal Sobre Imóveis). Regardless of resident status, the rates are stable. The charge is 0.4% of the total amount of properties owned by businesses. Additionally, it is 0.7% for people. The rate is 1% if your property is worth more than €1 million.

Each person is eligible for a €600.000 allowance deduction from the value of all Portuguese properties. In other words, if you and your partner jointly own a home in Portugal and the property is valued at more than €1.2 million, AIMI will apply.

  • 0.7% tax on property valued between €600K and €1mil.
  • 1% tax on property valued between €1mil and €2mil.
  • 1.5% tax on property if its total value is above €2mil.

 

Property taxes in Portugal: Rental income 

For renting out your property there are certain taxes that you will need to consider. As a rule, rental income is taxed at a flat rate of 28% although there are possible deductions 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. 

 

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. This is a very good option if you are looking to only 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 most of the old town in central Lisbon is locked for AL Licenses. Therefore, it is not, at present, possible to request it. 

 

Long term rentals:

For long-term rentals, you can rent out your property with standard lease agreements and an AL License is not required.

 

Portugal Capital Gains Tax

Portuguese capital gains tax is based on your ownership structure, residency status, and if the asset is your primary residence. Capital gains are the profit 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% if you are a non-resident of Portugal. Residents of Portugal are required to pay taxes on gains from investments and real estate acquired after January 1, 1989. Once all real estate profits have been added to your other yearly income, taxation will take effect. It may range from 14.5% to 48% depending on the income tax scale rates.

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 address and that 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 3 years after, or 2 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 is no inheritance tax in Portugal. Nonetheless, stamp tax (at a rate of 10%) 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 on 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. This is just to be on the safe side, as most real estate agents will have your best interests at heart. 

 

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 will need to have a fiscal representative that is registered with the tax authority.

Frequently asked questions about property taxes in Portugal: 

1. What are the property taxes in Portugal?

For property tax in Portugal, there are different taxes that will fall either before or after you purchase the property. The property taxes before the purchase include the Imposto Municipal sobre as Transmissões Onerosas de Imóveis (IMT) (Municipal Tax on Onerous Transmissions of Real Estate) which is the transfer tax and Stamp Tax.

The property taxes that you will need to make after the purchase include the Imposto Municipal sobre Imóveis (IMI) (Municipal Property Tax) and the Wealth Tax (AIMI) if the property that you are buying is valued over €600K. 

Note that the Capital Gains Tax is important if you are looking to gain profit from a property sale. There are also taxes on renting out your property, normally at a flat rate of 28%.

 

2. What will you need to pay property taxes in Portugal?

You will need to have a Tax Identification number – NIF (Número de Identificação Fiscal or Número de Contribuinte) – and a Tax Representative. It is also recommended that you have a bank account in Portugal, to avoid transaction costs.

3. Is it easy to move to Portugal and navigate property taxes?

As with moving to any country, there are many things to consider, and Portugal is no different. It is much easier to navigate the market if you have a trusted financial advisor on your side. 

 

4. Do you pay tax when buying property in Portugal?

Yes. Imposto Municipal sobre Transmissôes Onerosas de Imóveis (IMT) of up to 8% + 0.8% stamp duty are charged when purchasing real estate in Portugal (Imposto de Selo).

5. What taxes do you pay in Portugal?

Personal income tax (PIT) is charged to both Portuguese residents and non-residents who earn money from the country. 2021’s tax rates were between 14.5% and 48%.

Related Articles
Villa Alegre Apartments – Things You Need To Know!
Read More
Finding a Real Estate Agent in Tavira
Read More
Finding a Real Estate Agent in Cascais
Read More
More Info