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.
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.
Said to be the oldest tax levied by the state, the Imposto do Selo (Stamp Tax) is an additional transaction cost that is required and the property owner will have to pay stamp duty. As a rule of thumb, real estate transfer transactions are subject to a stamp tax at a rate of 0.8%.
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. 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.
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% of 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 are IMI exempt 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.
Additional to IMI (AIMI)
If you are buying a higher-end property, you will need to pay the Portuguese Wealth Tax (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.
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
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.
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.
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.
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.
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.