When purchasing a house in Portugal, you will encounter various acquisition costs, including notary fees and administrative expenses. Additionally, you are required to pay specific property taxes, which are mandatory when buying real estate in Portugal. These include the Immovable Property Tax (IMI), Property Purchase Tax (IMT), and Stamp Duty (IS). Each tax has distinct calculation methods and rates.
Who needs to pay taxes in Portugal?
Portugal’s tax system distinguishes between tax residents and non-residents, each governed by different rules and obligations.
Tax Residents: If you stay in Portugal for more than 183 days or have a permanent residence there, you are considered a tax resident. As a tax resident, you are taxed on your worldwide income.
Non-Residents: If you spend less than 183 days in Portugal and do not have a permanent residence, you are classified as a non-resident. Non-residents are only taxed on the income earned within Portugal. However if you are not a resident but you buy a property in Portugal, you still need to pay taxes.
Immovable Property Tax (IMI)
In Portugal, property owners must pay the Municipal Property Tax (Imposto Municipal Sobre Imóveis, or IMI). The tax rate varies by municipality, with each municipal assembly setting its own rate. IMI funds local municipalities and is used to maintain public infrastructure. Property owners are liable for IMI if they own the property on the last day of the respective tax year.
- Urban properties: The rates typically range from 0.3% to 0.45%
- Rural properties: Flat rate of 0.8%
You can IMI tax details cost using IMI Calculator.
IMI is usually paid in one, two, or three installments, depending on the total amount due. Payment deadlines typically fall in April, July, and November.
Property Purchase Tax (IMT)
The IMT (Imposto Municipal sobre as Transmissões Onerosas de Imóveis) tax is levied each time a property is purchased in Portugal. The rate varies based on the type and value of the property. The tax is calculated using either the value declared in the deeds or the rateable value, whichever is higher. This tax must be paid before the property is purchased.
Exemptions on IMT taxes
The Imposto Municipal sobre as Transmissões Onerosas de Imóveis (IMT) is a property transfer tax in Portugal applied when real estate is bought. However, there are several exemptions and reductions available that can benefit property buyers:
- For primary residences valued up to €92,407, buyers are exempt from paying IMT.
- If you sell your primary residence and reinvest the proceeds in another primary residence in Portugal within 36 months, you may be exempt from IMT.
- Purchases of land designated for agricultural purposes may qualify for IMT exemptions.
- Properties purchased for qualifying forestry projects can also be exempt from IMT.
- Properties acquired by the Portuguese state, municipalities, or public institutions for public utility purposes are exempt from IMT.
- Non-profit organizations that purchase property for their activities may be exempt from IMT.
- Properties located in officially designated urban rehabilitation areas (ARUs) and acquired for the purpose of rehabilitation may qualify for IMT exemptions or reductions.
Stamp Duty (IS)
As a buyer, you are required to pay stamp duty (Imposto de Selo) on deeds, contracts, bank mortgages and loans, documents, and titles. The rate varies based on the type and value of the property, typically ranging between 0.4% and 0.8%.
When purchasing a house, you pay stamp duty to the notary when signing the deed of sale, with the rate set at 0.8%.
For mortgages, stamp duty is also applicable. If the repayment period is more than five years, the stamp duty rate is 0.6%. For repayment periods of less than five years, the rate is 0.5%.
Wealth Tax (AIMI)
Portugal doesn’t implement a conventional wealth tax; however, it incorporates a similar concept through the Adicional Imposto Municipal Sobre Imóveis (AIMI). It is an annual property tax in Portugal that is levi on the combined fiscal value of all residential properties own by a taxpayer as of January 1st of each year worth above €600.000.
There are three levels of AIMI Tax in Portugal:
- 7,0% on properties valued between €600,000 and €1M
- 1,0% on properties valued between €1M and €2M
- 1,5% if the total properties value is over €2 million
Rental Income
If you are a tax resident in Portugal, your rental income is taxed as part of your overall income, with progressive tax rates ranging from 14.5% to 48%. Non-residents, on the other hand, are taxed at a flat rate of 28% on their Portuguese rental income. Property owners can also benefit from certain deductions, including maintenance costs, municipal property tax (IMI), and insurance premiums, which can be subtracted from the total rental income to reduce the taxable amount.
Capital Gains Tax
Capital Gains Tax (CGT) on real estate in Portugal applies to the profits made from selling property. The taxation process and rates vary based on whether you are a tax resident or a non-resident of Portugal.
For Tax Residents: When you sell a property, 50% of the capital gain is subject to taxation. This taxable amount is added to your overall income and taxed according to the progressive income tax rates, which range from 14.5% to 48%.
For Non-Residents: Non-residents are taxed at a flat rate of 28% on the entire capital gain from the sale of real estate in Portugal.
Exceptions to Capital Gains Tax in Portugal
There are several exceptions and exemptions to Capital Gains Tax (CGT) on real estate in Portugal that can benefit property owners. Here are the key ones:
Residents: If you sell your primary residence and reinvest the proceeds in another primary residence in Portugal or within the EU/EEA within 36 months, you may be exempt from CGT on the gains.
Age 65 and Older: Tax residents aged 65 or older can also be exempt if the proceeds are reinvested in a pension fund or an eligible insurance policy within six months.
Pre-1989 Purchases: Properties purchased before January 1, 1989, are exempt from CGT, as they fall under previous legislation that did not impose CGT on such properties.
Inheritance and Donations: Transfers of property through inheritance or as a donation to close family members are generally exempt from CGT. However, there might be other taxes involved, such as stamp duty.
Example of Capital Gains Tax Calculation
- Acquisition Cost: €200,000 (purchase price)
- Selling Price: €300,000
- Improvement Costs: €20,000
- Sale Costs: €10,000
Capital Gain: €300,000 (selling price) – €200,000 (purchase price) – €20,000 (improvement costs) – €10,000 (sale costs) = €70,000
- For Tax Residents: 50% of €70,000 = €35,000, which is then taxed according to progressive income tax rates.
- For Non-Residents: €70,000 is taxed at a flat rate of 28%.
Inheritance Tax
Portugal eliminated its inheritance tax back in 2004, but inheritances are still subject to a stamp duty (Imposto do Selo). This duty applies a uniform rate of 10% on inherited or gifted assets within Portugal.
How can we help?
At Portugal Residency Advisors, we recognize that navigating the complexities of residency and taxation requires a strategic and thorough approach. To provide our clients with the highest standards of service, we partner with top-tier tax firms, ensuring a synergistic collaboration that enhances your financial experience.
Frequently Asked Questions about Property Taxes in Portugal
What is the Municipal Property Tax (IMI) in Portugal?
The IMI (Imposto Municipal sobre Imóveis) is an annual tax on the value of property in Portugal. Rates range from 0.3% to 0.45% for urban properties and up to 0.8% for rural properties. Each municipality sets its rates within these ranges.
How is the IMI calculated?
IMI is calculated based on the “taxable value” of the property, determined by the tax authorities. This value might differ from the market value. The rate applied depends on the municipality where the property is located.
When do I have to pay IMI?
IMI payments are typically due in one, two, or three installments, depending on the total amount. Payment deadlines are in April, July, and November.
What is the Property Purchase Tax (IMT) in Portugal?
The IMT (Imposto Municipal sobre as Transmissões Onerosas de Imóveis) is a one-time tax paid when you purchase property. Rates depend on the property’s type and value, with different scales for urban and rural properties, and primary versus secondary residences.
When do I have to pay IMT?
IMT must be paid before the property transfer is registered. Typically, this occurs during the signing of the purchase deed.
How is the IMT calculated?
The IMT is calculated based on the purchase price or the property’s taxable value, whichever is higher. Progressive rates apply, which means the final amount can vary significantly depending on specific conditions like the property’s value and use.
What is Stamp Duty (Imposto do Selo) in Portugal?
Stamp duty is applied to various legal documents, contracts, and transactions, including property purchases and mortgages. The rate for property transactions is 0.8% of the purchase price or taxable value.
Is there a Stamp Duty on mortgages?
Yes, if you take out a mortgage, an additional stamp duty applies. For loans with a repayment period over five years, the rate is 0.6%. For shorter-term loans, the rate is 0.5%.
How is Capital Gains Tax (CGT) on real estate applied in Portugal?
Capital gains tax is applied on the profit made from selling a property. For tax residents, 50% of the gain is taxed at progressive rates (14.5% to 48%). Non-residents are taxed at a flat rate of 28% on the entire gain.
Are there any exemptions from Capital Gains Tax?
Yes, there are exemptions. For example, reinvesting the proceeds from selling a primary residence into another primary residence in Portugal within 36 months can exempt you from CGT. Also, properties purchased before 1989 are exempt.
Can I deduct expenses from my rental income?
es, property owners can deduct certain expenses from their rental income. These include maintenance costs, IMI, insurance premiums, and other related expenses.
Do non-residents have to pay property taxes in Portugal?
Yes, non-residents must pay property taxes in Portugal, including IMI and IMT. Non-residents are also subject to a flat rate of 28% on rental income and capital gains from property sales.
How can I ensure I’m paying the correct amount of property tax?
Consulting a tax advisor or legal professional can help ensure you are paying the correct amount of property tax. They can assist with understanding applicable rates, deductions, and exemptions.
