Buying a property in Portugal is an exciting investment, but understanding the country's complex tax system can be daunting. There are several property taxes in Portugal, each with its own rules and regulations, and failing to pay them on time can lead to hefty fines and legal issues.
In this guide, we'll break down the Portuguese property taxes you need to know about and provide a comprehensive understanding of what each entails. We've got you covered from immovable property tax to rental taxes, wealth tax, how to pay stamp duty, and even agency fees.
Our Guide to Property Taxes in Portugal
Buying a property in Portugal can be a great investment. However, it is essential to understand the tax implications to make an informed decision. Here is a guide to the various property taxes in Portugal that every property buyer or owner should know about.
Immovable Property Tax (IMI)
The Immovable Property Tax, or as it's known in Portuguese, the Imposto Municipal sobre Imóveis (IMI), is an annual municipal property tax. It is levied on the property's taxable value on 31 December of the previous year. The IMI could be compared to the UK's council tax.
Property tax rates vary from 0.3 percent to 0.45 percent, with properties in urban areas falling within this range. Properties situated in rural areas are taxed at a higher rate of 0.8 percent. If a property has been re-valued after 2004, its annual tax rate will be between 0.2 percent and 0.5 percent, whereas if its valuation was done before 2004, the tax rate would be between 0.4 percent to 0.8 percent.
The property owner or the person holding the right to use the property pays the tax.
Exemptions on IMI tax
There are exemptions on IMI tax for certain properties, such as permanent residences for individuals aged 65 or over, properties in urban rehabilitation areas, or properties with a low taxable value.
Property Purchase Tax (IMT)
One of the most significant taxes is the Property Transfer Tax, also known as IMT (Imposto Municipal sobre Transmissões Onerosas de Imóveis). The Property Purchase Tax, also known as IMT, is a one-time tax levied on property purchases in Portugal.
The rate varies between 1 and 8 percent, depending on the property's value and intended use. In Portugal, the IMT (Municipal Property Transfer Tax) is levied on every real estate purchase, with the applicable rate varying based on the type and value of the property. This tax is calculated based on the value indicated in the deeds or the rateable value, with the higher of the two being used. Before acquiring the property, the tax must be paid.
Exemptions on IMT taxes
Certain exemptions are available on the IMT tax in Portugal. For instance, no tax is payable if the property is purchased as the buyer's primary residence and is valued below €92,407.
Properties purchased for agricultural or tourism purposes may also be eligible for a reduced tax rate. IMT tax exemptions are available for properties purchased for permanent residence or in urban rehabilitation areas.
The exemption can also be granted if the property is purchased by a company that intends to use it as a headquarters or for economic development in that area.
Other circumstances regarding IMT
IMT is a tax that must be paid by anyone who purchases a property in Portugal. The amount of tax you'll pay depends on the property's purchase price. However, some exceptions and other circumstances can affect the amount of IMT you'll pay.
For example, if you're purchasing a property as your primary residence, you may be eligible for a reduced rate of IMT. Additionally, if you're purchasing a property in a low-density area, you may also be eligible for a reduced rate of IMT. It's important to note that IMT must be paid within 30 days of signing the purchase contract.
Stamp duty (IS)
Stamp duty, also known as Imposto do Selo (IS), is a tax that must be paid on certain legal transactions in Portugal. The IS is a tax levied on legal acts, documents, and transactions. The rate of IS depends on the type of transaction and the value of the property.
When it comes to property, stamp duty is usually paid on the purchase of a property, and the amount of tax is calculated as a percentage of the purchase price. The standard rate of IS is between 0.4 and 0.8 percent of the purchase price. However, there are different rates of IS for various legal acts and documents, such as mortgages, leases, and loans, and the rate is dependent on the type of deed and operation.
For example, the rate of IS on a mortgage is 0.6 percent of the total amount borrowed, while the rate of IS on a lease is 10 percent of the annual rent.
It's worth noting that if you are a non-resident and do not have a fiscal number (NIF) in Portugal, the IS rate is increased to 1 percent. Therefore, having a NIF before buying a property in Portugal can save you money. We can help you get a NIF hassle-free. Just fill out the online order form and we'll have a NIF sent to your inbox in two to three weeks.
It's also important to note that the IS is not deductible from your income tax return.
Rental Taxes
If you plan to rent out your property in Portugal, there are two main taxes you need to be aware of - Imposto sobre o Rendimento de Pessoas Singulares (IRS) and Imposto do Selo (IS).
The IRS is a tax levied on your rental income, and the rate depends on your total taxable income. Usually, rental income tax is charged at a flat rate of 28 percent. The rate of IRS ranges from 14.5 percent to 48 percent. If you are a non-resident, the rate of IRS is 28 percent on your net rental income.
It's also worth noting that if you rent out your property for short-term holiday rentals, you are required to register with the local authorities and pay a tourist tax. The tourist tax is a daily tax levied on each person who stays on your property and varies depending on the location and type of the rental property used.
Wealth Tax (AIMI)
The Wealth Tax, also known as AIMI (Adicional ao Imposto Municipal sobre Imóveis), an annual municipal property tax, was introduced in 2017 in Portugal.
It applies to individuals who own properties with a total value of over €600,000. The tax is calculated on the total value of the property, including land and buildings, at a rate of 0.7 percent for individuals with properties valued between €600,000 and €1 million and 1 percent for properties valued over €1 million.
It's important to note that properties held by companies or other legal entities are also subject to AIMI, regardless of their value. For companies, the rate is 0.4 percent on the total value of properties held.
However, there are a few exemptions to this tax. For example, properties used as the owner's primary residence are exempt from AIMI, as are properties classified as "rural" for tax purposes. If you own multiple properties in Portugal, the total value of all your properties will be taken into consideration when calculating your AIMI liability. If the total property value exceeds €1 million, you will be subject to the higher 1 percent rate.
The deadline for AIMI payments is usually in September, and non-compliance can result in late payment fees and other penalties.
Capital Gains Tax
This is a tax on the profits made from the sale of a property. Capital Gains Tax is a tax on the increase in value of an asset, in this case, a property.
The rate for non-Portuguese residents is currently set at a withholding tax of 28 percent on the gross capital gain made from the sale of a property. This can vary depending on a number of factors, including the length of time the property has been owned and the property's value.
For example, if you bought a property in Portugal for €200,000 and sold it for €300,000, you would make a profit of €100,000. You would then be subject to Capital Gains Tax on this amount, which would be €28,000 (28 percent of €100,000). Note that you will only be taxed on the profit you make, not on the total sale price of the property.
Exceptions to Capital Gains Tax in Portugal
There are some exceptions to this Portugal property tax. If you are a Portuguese tax resident and you sell your primary residence, you may be exempt from paying this tax.
However, there are some conditions you must meet to qualify for this exemption. For example, you must have owned and lived in the property for a certain amount of time and reinvest the proceeds from the sale in another primary residence within a certain timeframe.
Another exception is for properties that were purchased before 1989. These properties are not subject to Capital Gains Tax in Portugal.
Agency Fees
When buying or selling a property in Portugal, you will likely work with a real estate agent. The agency fees for real estate transactions in Portugal can vary. Only sellers pay these agency fees, not buyers.
As of July 2008, you can deduct agency fees as a sales cost from any capital gains you earn from the property's sale. Clarifying the agency fees with your real estate agent before signing any contracts is important. You should also ask if the agency fee is included in the sale price or if it will be an additional cost.
Inheritance Tax
The Portuguese inheritance law requires a 10% tax, known as Imposto de Selo, to be paid on the value of assets located in the country. These assets can include real estate, movable assets (such as cars or boats), as well as copyrights, shares, or works of art. If the assets are located outside Portugal, they are subject to the tax laws of the country where they are located.
The tax rates for inheritance taxes in Portugal are progressive and depend on the value of the inherited assets. The tax rates vary from 10 percent to 40 percent. However, there are exemptions and deductions available that can reduce tax liability.
One of the most significant exemptions is for close family members. Spouses, children, and parents are exempt from inheritance tax in Portugal. As such, there is usually little to no inheritance tax in Portugal.
However, you usually have to pay 0.8 percent stamp duty if you are an immediate family member. Non-immediate family members have to pay a 10 percent stamp duty.
It is also important to note that Portugal has signed double tax treaties with many countries. These double taxation treaties aim to avoid double taxation of the same income or asset in two different countries. If the deceased had assets in another country with which Portugal has a double tax treaty, the tax paid in that country can be used as a credit against the inheritance tax liability in Portugal.
Fiscal Representation
Fiscal representation in Portugal is a mandatory requirement for non-residents who own property in the country. This means that non-residents are required to appoint a fiscal representative who will act as their intermediary with the Portuguese tax authorities.
The fiscal representative is responsible for submitting tax returns on behalf of the non-resident property owner and for ensuring compliance with all applicable tax laws and regulations. Failure to appoint a fiscal representative can result in penalties and fines.
You'll also need fiscal representation as a non-EU/EEA/Swiss citizen looking to obtain a NIF. We offer fiscal representation services, just get in touch.
Who We Are and How We Can Help You
We offer NIF, tax representation, and bank account services.
You need a NIF to carry out any financial activity in Portugal, including buying and selling a house. Having a NIF is essential for any property-related transactions in Portugal. You also need a NIF to pay taxes and submit a tax return. We can get you a NIF and have it sent straight to your inbox.
We can also help you open a Portuguese bank account, another essential when buying or selling property in Portugal. You can do this online from the comfort of your home, and we can set you up with a bank account with one of Portugal's leading banks.
We also offer fiscal representation services, serving as an intermediary between you and the tax authorities and ensuring that you know how to pay tax.
Related articles
If you're thinking about buying or selling property in Portugal or are thinking about relocating to Portugal, the following blog posts are designed to help you with your journey:
- The Foreign Account Tax Compliance Act (FATCA) Portugal
- Tax Management Services
- A Guide to Non-Habitual Tax Residency (NHR Portugal 2023)
- NIF Lawyer Portugal
- How to Open a Bank Account in Portugal
Frequently Asked Questions about Portugal Property Taxes
Do you pay property tax in Portugal?
Yes, property tax is applicable in Portugal. The specific taxes that you may be required to pay will depend on the circumstances surrounding your property ownership, including factors such as the value of the property, your residency status, whether you're generating any rental income and the type of transaction that you are engaging in (such as buying, owning, or selling a property).
What taxes do you pay when buying property in Portugal?
When buying property in Portugal, you may be required to pay several taxes and fees, including:
- Stamp Duty (IS)
- IMT (a type of Property Transfer Tax)
- Agency Fees (if you use a real estate agent)
- Notary Fees
- Legal Fees
It is important to note that the specific taxes and fees that you may be required to pay can vary depending on the circumstances surrounding your property transaction.
Additionally, exemptions or reductions may apply in certain situations, such as when buying a property for your primary residence or when the property is located in a specific area designated for tourism development. It is highly recommended to seek professional advice to fully understand the taxes and fees that apply to your specific situation.
