HERE IS A SUMMARY OF THE TAXES APPLICABLE TO BUYING, OWNING, SELLING OR INHERITING PROPERTIES IN PORTUGAL
The VPT, or rateable value of properties, is the value attributed by the tax authorities to properties for tax purposes and is the base used to calculate property taxes, or in certain cases, to determine the minimum taxes applicable to property transactions. The VPT of properties for habitation and plots of land for construction is updated every three years, based on factors corresponding to 75% of the currency devaluation coefficients fixed annually by the government. For income tax purposes, this can also be revalued at the request of the property owner within three years of the last revaluation.
IMT Property Purchase Tax – Paid on the acquisition of a property, this tax is payable by the purchaser prior to completion of the transaction. On properties for habitation the rate varies according to the purchase price of the property and can go up to 6%. On rustic land (non urban) the rate applicable is 5% and on plots of land for building or other types of properties the applicable rate is 6.5%. The minimum amount on which the IMT can be paid is the VPT, even if the sales price is lower.
Stamp duty, notary and registration fees
These have to be paid by the purchaser, prior to signing the notarial deed and the registration of the property into the buyer's name. The stamp duty on the purchase is 0.8% of the sales price. The minimum amount on which the stamp duty can be paid is the VPT, even if the sales price is lower. Notary and registration fees will usually not exceed EUR 1,000.
IMI Annual Property Tax – Payable yearly in arrears in two or three instalments, depending on the value. This tax is based on the VPT and can vary between 0.3% and 0.45%. Within this limit, the rate is fixed annually by the council of the area where the property is located. In the Council of Loulé, the rate applicable for 2017 is 0.30% down from 0.38%. The IMI for rustic (nonurban) properties remains at 0.8%.
To calculate the IMI, we apply the following rates to the VPT:
NEW AIMI - ADDITIONAL MUNICIPAL PROPERTY TAX
AIMI (known as an additional IMI) was created in 2016 to compensate for the termination of the IS tax which taxed property owners 1% of the VPT if that figure was EUR 1 million or more. The AIMI does not apply to all types of property as the law excludes: rustic land (non-urban) properties and properties registered as commercial, industrial or service providing. Therefore, the AIMI will apply to the remaining properties, which include apartments, houses and plots for construction, amongst others. To calculate the AIMI, we use the combined total value of the VPT of all properties owned by each individual (except the properties excluded from AIMI) and apply the following rates to the sum of VPT obtained:
Example 1: A company owned property with a VPT of EUR 2m used to pay 1% IS (Stamp Tax) on the total amount of VPT, i.e. EUR 20,000 per year. With this new AIMI tax, this property owner will now pay a total of EUR 8,000 annually.
Example 2: An individual who owns 3 properties not excluded from AIMI with a total VPT of EUR 580,000. The owner has no AIMI to pay.
Example 3: An individual who owns 2 properties not excluded from AIMI with a total VPT of EUR 900,000 will pay the following AIMI: AIMI = (900,000 - 600,000) x 0.7% = EUR 2,100.
Example 4: An individual who owns 2 properties not excluded from AIMI with a total VPT of EUR 1,200,000 will pay the following AIMI: Value between 600,000 and 1,000,000 = 400,000 x 0.7% = EUR 2,800 Value above 1,000,000 = 200,000 x 1% = EUR 2,000. So, the total AIMI to pay is EUR 4,800.
Please note that property taxation increases if the company owning the property is domiciled in a 'blacklisted jurisdiction'. The rate applicable remains 7.5% both for IMI and AIMI.
Capital Gains Tax – Private Ownership
On the sale of a property, there is currently a capital gains tax to pay at a rate of 28% for non-resident individuals and 25% for companies (non-residents). This tax is calculated on the difference between the sales price and either the purchase or construction price of the property, if applicable, index linked or its first rateable value index linked whichever is the highest. There are costs that you can use to offset against this tax, such as refurbishments made to the property in the past 12 years, taxes, notary and registration fees paid at the time of acquisition of the property, and the real estate agent fee. If the property you are selling is your main residence, and if you reinvest the proceeds of the sale within 36 months, in the acquisition, construction or refurbishment of another property designated as your main residence, within the EU territory or in a territory belonging to the European Economic Area with whom Portugal has agreements for the exchange of information in tax matters, you can avoid the payment of this capital gains tax.
Capital Gains Tax – Corporate Ownership
Since January of this year, new legislation has been implemented with the 2018 budget, making the payment of capital gains tax in Portugal on the sale of the shares of capital or similar rights in any entities (which are not resident in the Portuguese territory) mandatory. Inheritance Tax – Between close relatives there is no inheritance tax in Portugal, i.e. parents/ children and spouses although on gifts you have to calculate a 0.8% stamp duty based on the VPT. Any other situations of inheritance or gift will be subject to stamp duty at a rate of 10.8% of the VPT.
Inheritance Tax – Between close relatives there is no inheritance tax in Portugal, i.e. parents/children and spouses although on gifts you have to calculate a 0.8% stamp duty based on the VPT.
Any other situations of inheritance or gift will be subject to stamp duty at a rate of 10.8% of the VPT.
NB: Percentages are on the VPT, the rateable value, not current market values.
Please note this is general information and for specific advice you should contact a lawyer or tax advisor.