Real Estate Taxes in Portugal
Alcino, Wednesday, 8 January 2014
This article is part of a series of 8 articles about buying property in Portugal. The other articles in the series cover the following topics:
Overview of Property-Related Taxes
Whether you are considered a resident or non-resident in Portugal, all your Portuguese property-related taxes are declarable and payable in that country. Double-taxation treaties that the Portuguese government has established with a long list of other countries should help to ensure that you avoid being taxed twice on the same income or interests.
Everyone’s tax situation is unique and it is always advisable to seek professional advice and guidance whenever decision-making is concerned, and until you are at least aware of the ins and outs of property ownership in Portugal, on a year-to-year basis. There is a lot of misinformation passed around by individuals that have often conveniently misinterpreted the rules. Avoid unnecessary problems and stress, not to mention hefty penalties, and keep yourself well-informed at all times.
Portuguese fiscal law foresees the evaluation of all immovable property for tax purposes. This amount calculated is known as the Taxable Value (Valor Patrimonial Tributário in Portuguese or simply VPT) and is based on factors such as size, location, use and amenities relating to quality and comfort. More often than not, a property’s Taxable Value is substantially lower than its real market value. The Taxable Value serves as the basis for calculation of yearly taxes and also upon transferring property whenever the declared sales price of a property is below this amount.
The following taxes are relevant to those planning to purchase and own property in Portugal:
Upon purchase of a property
Property Transfer Tax (Imposto Municipal sobre as Transmissões Onerosas de Imóveis ou IMT)
The purchase of a house, or rather, the onerous transfer of real estate in Portugal, is subject to a property transfer tax. The amount due varies according to the amount agreed upon for the transaction, the type of property involved, and the intended use of the property (whether for primary permanent residence or to be used as a second or holiday home). This tax is actually payable prior to completion of the sale and signing of the transfer deeds before a public notary.
The applicable rates are as follows:
For urban dwellings that are to be used as a primary and permanent residence there is a tax exemption for the first €92,407. From this amount upwards the tax is calculated based on a marginal sliding percentage scale that starts at 2% and ends at a maximum amount of 6%* of the sales price.
The table below demonstrates exact figures:
For all non-primary residences (this will be the case for anyone buying a second or holiday home, investment property, etc.) there are no tax exemptions and the following table applies:
The autonomous island regions of Azores and Madeira have slightly lower rates. Other urban (but non-residential) property is taxed at a flat rate of 6.5%
The purchase of rural (non-urban) property is taxed at a flat rate of 5%.
* Whenever the purchaser (individual or company) is resident in a country, territory or region that the Portuguese government has listed as a “tax haven”, the rate is a flat 10%.
Stamp Duty (Imposto do Selo)
The purchase of property is also subject to Stamp Duty in Portugal. This is charged at a flat rate of 0.8% of the Taxable Value of the property and must also be paid before the completion of the sale and signing of the transfer deeds before a public notary
Ongoing taxes
Municipal Property Tax (Imposto Municipal sobre Imóveis)
Portuguese property is subject to municipal taxes, the proceeds of which revert to local authorities for financing the provision of public services. Municipal Property Tax is paid in arrears, meaning that the owner of a property on the 31st of December of any given year is liable for the Municipal Taxes on that property in the following year.
Each year, the Portuguese Government stipulates minimum and maximum rates that local municipalities can charge for Property Tax. However, it is up to the local councils to decide the exact rate (within the limits) that properties located within their jurisdiction shall pay.
In 2013 the national minimum and maximum rates for Municipal Property Tax were as follows:
The median rate charged by most municipalities where most foreigners decide to purchase property is currently 0.4%. For illustrative purposes we can therefore calculate that a property with a Taxable Value of €100,000 (common for a 3 bedroom apartment) would pay around €400 of Municipal Property Tax (or IMI) per year.
Income Tax (Imposto sobre o Rendimento de Pessoal Singulares or IRS)
The topics related to this tax deserve an article on their own, but for our current purpose of merely informing and providing the reader with an overview of the existing taxes, we shall keep things simple.
It is not uncommon for individuals that own a second or holiday home in Portugal to rent out their property during the periods when they do not occupy it themselves. This is a great way to offset costs and to generate some extra income. All rental income obtained from letting out a property located in Portugal should be reported to the Portuguese tax authorities, even if the payments have been generated, managed or received outside the country. Both Resident and Non-resident individuals currently pay tax at a fixed-rate of 25% on rental income, with several costs and expenses, such as the Municipal Property Tax, Insurance, Condominium and Management fees (to name a few) accepted for deduction. Resident individuals have the option of adding their rental income to their other yearly earnings and have it assessed together. If applicable, this income will them be taxed at sliding marginal rates.
The legal framework for handling and calculating this tax can prove to be somewhat complex; so it is advisable to consult with a professional service to guide you in this matter.
Capital Gains Tax (Imposto sobre Mais-Valias)
Non-residents are currently taxed at a flat rate of 28% on Capital Gains deriving from the sale of immovable property located in Portugal. Capital Gains or Losses must be declared by non-residents within 30 days after completion of the transaction and are calculated from the difference arising between the sale price and the original purchase price (adjusted for inflation) or the original Taxable Value (whichever is greater). Expenses that were incurred with the purchase and sale of the property, as well as any expenses related to improvements made within the last 5 years, may also be subtracted.
Residents benefit from a tax exemption on 50% of a Capital Gain, or even total exemption if the gain derives from the sale of a primary permanent residence and is entirely reinvested in the purchase of another primary permanent residence in Portugal or another country located in the European Union. Capital Gains that are applicable for taxation are added to resident individuals’ yearly earnings in order to determine the global and final tax rate.
This article is part of a series of 8 articles about buying property in Portugal. The other articles in the series cover the following topics:
Overview of Property-Related Taxes
Whether you are considered a resident or non-resident in Portugal, all your Portuguese property-related taxes are declarable and payable in that country. Double-taxation treaties that the Portuguese government has established with a long list of other countries should help to ensure that you avoid being taxed twice on the same income or interests.
Everyone’s tax situation is unique and it is always advisable to seek professional advice and guidance whenever decision-making is concerned, and until you are at least aware of the ins and outs of property ownership in Portugal, on a year-to-year basis. There is a lot of misinformation passed around by individuals that have often conveniently misinterpreted the rules. Avoid unnecessary problems and stress, not to mention hefty penalties, and keep yourself well-informed at all times.
Portuguese fiscal law foresees the evaluation of all immovable property for tax purposes. This amount calculated is known as the Taxable Value (Valor Patrimonial Tributário in Portuguese or simply VPT) and is based on factors such as size, location, use and amenities relating to quality and comfort. More often than not, a property’s Taxable Value is substantially lower than its real market value. The Taxable Value serves as the basis for calculation of yearly taxes and also upon transferring property whenever the declared sales price of a property is below this amount.
The following taxes are relevant to those planning to purchase and own property in Portugal:
- Property Transfer Tax
- Stamp Duty
- Municipal Property Tax
- Income Tax (on rental income)
- Capital Gains Tax
Upon purchase of a property
Property Transfer Tax (Imposto Municipal sobre as Transmissões Onerosas de Imóveis ou IMT)
The purchase of a house, or rather, the onerous transfer of real estate in Portugal, is subject to a property transfer tax. The amount due varies according to the amount agreed upon for the transaction, the type of property involved, and the intended use of the property (whether for primary permanent residence or to be used as a second or holiday home). This tax is actually payable prior to completion of the sale and signing of the transfer deeds before a public notary.
The applicable rates are as follows:
For urban dwellings that are to be used as a primary and permanent residence there is a tax exemption for the first €92,407. From this amount upwards the tax is calculated based on a marginal sliding percentage scale that starts at 2% and ends at a maximum amount of 6%* of the sales price.
The table below demonstrates exact figures:
| Base Property Price for Calculating Property Transfer Tax |
Marginal Rate (In Percentage) | Deductible Allowance from amount due | ||
| Up to €92,407 | 0% | €0.00 | ||
| From €92,407 to €126,403 | 2% | €1,848.14 | ||
| From €126,403 to €172,348 | 5% | €5,640.23 | ||
| From €172,348 to €287,213 | 7% | €9,087.19 | ||
| From €287,213 to €574,323 | 8% | €11,959.32 | ||
| €574,323 and above | 6% | €0.00 |
For all non-primary residences (this will be the case for anyone buying a second or holiday home, investment property, etc.) there are no tax exemptions and the following table applies:
| Base Property Price for Calculating Property Transfer Tax |
Marginal Rate (In Percentage) | Deductible Allowance from amount due | ||
| Up to €92,407 | 0% | €0.00 | ||
| From €92,407 to €126,403 | 2% | €924.09 | ||
| From €126,403 to €172,348 | 5% | €4,716.16 | ||
| From €172,348 to €287,213 | 7% | €8,163.12 | ||
| From €287,213 to €574,323 | 8% | €11,035.25 | ||
| €574,323 and above | 6% | €0.00 |
The autonomous island regions of Azores and Madeira have slightly lower rates. Other urban (but non-residential) property is taxed at a flat rate of 6.5%
The purchase of rural (non-urban) property is taxed at a flat rate of 5%.
* Whenever the purchaser (individual or company) is resident in a country, territory or region that the Portuguese government has listed as a “tax haven”, the rate is a flat 10%.
Stamp Duty (Imposto do Selo)
The purchase of property is also subject to Stamp Duty in Portugal. This is charged at a flat rate of 0.8% of the Taxable Value of the property and must also be paid before the completion of the sale and signing of the transfer deeds before a public notary
Ongoing taxes
Municipal Property Tax (Imposto Municipal sobre Imóveis)
Portuguese property is subject to municipal taxes, the proceeds of which revert to local authorities for financing the provision of public services. Municipal Property Tax is paid in arrears, meaning that the owner of a property on the 31st of December of any given year is liable for the Municipal Taxes on that property in the following year.
Each year, the Portuguese Government stipulates minimum and maximum rates that local municipalities can charge for Property Tax. However, it is up to the local councils to decide the exact rate (within the limits) that properties located within their jurisdiction shall pay.
In 2013 the national minimum and maximum rates for Municipal Property Tax were as follows:
- Urban Property – between 0.5% and 0.8% of Taxable Value
- Urban Property with a recently updated Taxable Value – between 0.3% and 0.05%
- Non-urban Property – fixed rate of 0.8% of Taxable Value
The median rate charged by most municipalities where most foreigners decide to purchase property is currently 0.4%. For illustrative purposes we can therefore calculate that a property with a Taxable Value of €100,000 (common for a 3 bedroom apartment) would pay around €400 of Municipal Property Tax (or IMI) per year.
Income Tax (Imposto sobre o Rendimento de Pessoal Singulares or IRS)
The topics related to this tax deserve an article on their own, but for our current purpose of merely informing and providing the reader with an overview of the existing taxes, we shall keep things simple.
It is not uncommon for individuals that own a second or holiday home in Portugal to rent out their property during the periods when they do not occupy it themselves. This is a great way to offset costs and to generate some extra income. All rental income obtained from letting out a property located in Portugal should be reported to the Portuguese tax authorities, even if the payments have been generated, managed or received outside the country. Both Resident and Non-resident individuals currently pay tax at a fixed-rate of 25% on rental income, with several costs and expenses, such as the Municipal Property Tax, Insurance, Condominium and Management fees (to name a few) accepted for deduction. Resident individuals have the option of adding their rental income to their other yearly earnings and have it assessed together. If applicable, this income will them be taxed at sliding marginal rates.
The legal framework for handling and calculating this tax can prove to be somewhat complex; so it is advisable to consult with a professional service to guide you in this matter.
Capital Gains Tax (Imposto sobre Mais-Valias)
Non-residents are currently taxed at a flat rate of 28% on Capital Gains deriving from the sale of immovable property located in Portugal. Capital Gains or Losses must be declared by non-residents within 30 days after completion of the transaction and are calculated from the difference arising between the sale price and the original purchase price (adjusted for inflation) or the original Taxable Value (whichever is greater). Expenses that were incurred with the purchase and sale of the property, as well as any expenses related to improvements made within the last 5 years, may also be subtracted.
Residents benefit from a tax exemption on 50% of a Capital Gain, or even total exemption if the gain derives from the sale of a primary permanent residence and is entirely reinvested in the purchase of another primary permanent residence in Portugal or another country located in the European Union. Capital Gains that are applicable for taxation are added to resident individuals’ yearly earnings in order to determine the global and final tax rate.
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