Property tax in Portugal for non residents

In some circumstances, you will have to contribute to the country's budget only when you obtain or sell a property. But there are particular cases when you have to pay taxes that result from the ownership of the property or the income that it brings into your pocket. Of course, this process is exhausting and can easily tangle your thoughts. So, here is a concise manual on Portugal's property taxes for foreigners without unnecessary complications to intertwine your calculations.

Portugal's Tax Policy

Originally, the country's policy was designed to be endearing to foreign investors. However, due to the alarming inflation rate and skyrocketing housing prices, the government is forced to shift from expansionary to contractionary fiscal policy, meaning that certain tax benefits will be amended or abolished, and tax rates will go up. Still, if you transfer your assets with a wise strategy in mind, you can nullify a large part of the potential financial damage.

Three pillars that Portuguese tax residency lies upon:

• If you spend more than 183 days per year (not necessarily in consecutive order) or reveal the intention to use your home there as a permanent residence, you will automatically be viewed as a tax resident by the country's tax authorities (Finanças). In case you do none of the above, you are a non-resident, and you are obliged to pay taxes on the income you receive in Portugal (there are some more exceptions, but this is a general rule).
• All types of commercial companies are considered resident legal entities and have a duty to pay corporate income tax.
• Moreover, if you're married you are bound by law to be together in good times, bad times, and taxation.

Acquisition Process

Of course, you have to obtain your property before the government becomes interested in its value. The most common way is to buy it. But it can also be presented to you as a gift or inheritance.

Property Transfer Tax (IMT)

Property purchase or ownership transfer tax (IMT, Imposto Municipal sobre as Transmissões Onerosas de Imóveis) is the one a buyer needs to pay before the deal is financially complete. Thus, it is not the sum that is casually deducted during the transaction or something like that. So, what's the algorithm here?

1. Determine your property's value, using either a price stated in the deed or a rateable value of properties (VPT, Valor Patrimonial Tributário). Unfortunately, the law does not work in your favor here. Thus, you'll have to stick to the higher one.
2. Submit the information to the local tax service or via the Internet and wait ‘till the central tax service completes the assessment of your IMT.
3. Transfer the necessary amount immediately or on the following business day.
4. Keep calm and enjoy worry-free ownership.

The calculation process here can pose quite a challenge because the rate and, thus, the amount you'll have to send to the country's budget differs depending on specific parameters.

*Certain activities are regarded as similar to the property ownership transfer (e.g., purchasing a company's shares).

**This list includes countries & jurisdictions that Portugal labels as tax havens. For companies, this is also an important factor to consider. If the real estate is bought by a company from a whitelisted jurisdiction, the same rates apply (as in the table above). Yet, if it's a firm from a blacklisted jurisdiction, a flat rate of 15% is applicable.

Inheritance & Gift Tax

Wouldn't it be nice if suddenly a rich auntie decided to leave you her Portuguese villa or your kids agreed to repay you for your love and care with lifetime ownership of a cozy apartment near the beach? Luckily, in these scenarios, you won't have to pay any taxes. Yet, the process of accommodating the deal is not as effortless as it seems. You might still have to pay:

• Stamp duty (10%);
• Administration fees, especially when the heirs are not of Portuguese descent because you'll need to translate and notarize a multitude of documents.

Pleasant Bonus

Tax-free status is not limited to the housing sector. It also applies to assets like:

• stock dividends;
• personal goods;
• or social security allowances.

Ownership

So, you've got what you wanted. You enjoy seafood, walk in the sunshine, and take gorgeously designed trams in Lisbon, but you must not forget to pay your taxes. The one on the property you own and the other on the income you gain.

Property Tax (IMI)

Provided that you own a real estate object in Portugal on the 31st of December of the fiscal year in question, you are obliged to pay the municipal property tax (IMI, Imposto Municipal Sobre Imóveis). As you can see from its title, it is collected by your municipality to take care of public infrastructure. At least, you can observe and enjoy the results with the rest of the local community. The rates are regulated by municipal assemblies and can fluctuate significantly.

Sidenote

Essentially, you have to use rateable value (VPT) to perform your computations.

The tricky part is that it might take more than one installment to complete the payment.

Wealth Tax (AIMI)

In case you own a considerable share (€600,000) of local property, municipal authorities will impose an additional tax burden on you - property wealth tax (AIMI, Adicional Imposto Municipal Sobre Imóveis). Both residents and non-residents are charged equally.

Helpful Tip

Because you are taxed as a couple, you can be charged only if the joined value of your real estate is €1,200,000 or more. It is a nice bonus of being married, isn't it?

Income Tax (IRS)

Naturally, all residents must submit a part of their income in a country's budget as tax payments (employment, business, pension, etc.). Non-residents share with the authorities only the part of their income that comes from Portugal. In this scenario, only finances gained from property ownership are relevant to the topic.

Rental Income

It is quite common to acquire a building or a single apartment and then search for long-term tenants or Airbnb it. In case this is the option you seek to explore, your net rental income will be subjected to a 15% flat rate tax.

Tourist Tax

If you plan to take the hospitality industry by storm with your cool accommodation, you also need to write down that you have to collect a tourist tax. This one the government designed to regulate the negative impact on the destinations that attract the largest number of visitors, such as Porto & Lisbon. Technically, you won't have to take that money from your profits. Yet, it is your responsibility to make sure that this nightly fee is included in the bill.

*Generally, 13 y.o. or older (the ‘lowest' border can be 10, 16, or even 18).

**This rate is defined by the popularity of your location. For instance, in Porto guests will pay €2 overnight, while in Braga a night of sleep will cost them only €1.50 extra.

***There is a limit that sets the maximum number of nights that tourists can be charged for (it varies from 3-5). For instance, in Santa Cruz (Madeira) it won't matter whether visitors stay for 5 or 35 nights. In any case, the maximum amount that they have to part ways with will be €5 per person.

Corporate Tax (IRC)

Essentially, if your company generates its profits in Portugal, they become taxable income. However, all the firms are regarded as Portuguese tax residents. Hence, this topic is another story that deserves a more detailed explanation. Still, here are rates that are normally attributed to this tax in case you want to make approximate calculations.

When It's Time to Go

When you're selling property in Portugal, taxes are inevitable. You can't just pull off an Irish goodbye and vanish. The country's authorities have to check whether this deal has been profitable and levy your income if it was.

Capital Gains

Calculating capital gains tax in Portugal for a property that you originally acquired can be a rather daunting process:

1. Disclose the essential information about the real estate's purchase (e.g., price and tax return).
2. If you tried to fix the impairment of the property through refurbishment or maintenance, do not forget to submit tangible proof of your expenses.
3. Combine all the funds that you invested in this property and then subtract the sum from the money you'll receive after the selling process is complete. This number is what the authorities consider your capital gains, and it will be added to your annual income.

Sidenote

Other investment activities also entail the responsibility to pay this tax. Yet, that's a subject of a different conversation.

*One of the perks of being a resident is that you are entitled to levy only 50% of your capital gain. Plus, after two years of ownership, you become eligible for inflation relief.

Additional Expenditures: the Ones You Always Forget

In most cases, people tend to label taxes as ‘important stuff', forgetting that there are other fees that need to be accounted for. This approach might lead to some very unfortunate outcomes.

Stamp Duty

Tax on stamps (IS, Imposto de Selo) is a confirmation that the necessary sum has been paid before the papers, such as the following, became legally effective:

• contracts & deeds;
• loans & mortgages;
• documents & titles.

It is transferred by the buyers and its rate fluctuates from 0.4% to 0.8%.

*The requested amount is paid to the notary during the process of finalizing the deed of sale.

Agency Fee

Generally, on average, agents ask for 5-10% commission for their services + VAT. Yet, these numbers cannot be described as accurate predictions. But it can help you cope with approximate computations.

In Portugal, this extra cost is paid by the seller. Thus, in case you are selling your real estate, you can use it to deduce your capital gains.

Tricks Worth Learning: Tax Benefits & Exemptions

Of course, tax evasion is a crime. Yet, no one said you cannot turn to legal provisions to save some money.

Non-Habitual Residents Program

Naturally, taxes are a substantial part of the budget's income. Therefore, many countries incentivize obtaining not only geographical but also tax residency. With this purpose in mind, Portugal invented its non-habitual residents (NHR) program.

In a Nutshell

This is a way to lower the tax burden for those expats who express eagerness to obtain Portuguese tax residency. It grants permission to enjoy the privilege of not paying taxes on your foreign income (including wealth, inheritance, and capital gains) for the first 10 years of your residence. Still, not everyone is eligible for this status. You need to be a high-net-worth individual or entrepreneur who specializes in activities that are viewed as high-valued.

Recent Changes

As Portuguese society becomes more irritated with the pilgrimage of foreigners to their land, regulations start to become less attractive. For example, pensioners have recently lost their tax breaks and are now subjected to a 10% income tax. Within the guidelines of the contractionary fiscal policy, new restrictions are bound to happen soon.

Other Exemptions & Reductions

*Note that your kinship or relationship should be supported with legal documents. Your wife who you live together with but are not officially married to or stepchildren who were not properly adopted will be unable to access their inheritance.

**Elderly people who are retired or reached the age of 65 in a pension income fund or insurance contract.

Word of Advice

Do not forget to check whether your current country of tax residence has a double tax treaty (DTT) with Portugal. If it does, you can refrain from paying tax on the same income twice.

Tax Return

Not all the variations of income tax are automatically deductible (although the majority of them are). Thus, you have to dedicate your efforts to submitting your tax returns from time to time. Portuguese authorities expect you to make this process your annual ritual, whether you want it or not. Luckily, it can effortlessly complete the procedure online during April and May.

Paperwork: Averting Crisis

To avoid chaos and keep all the transactions in order, expats should be identified and monitored. That's why there are certain things without which you will not be able to exist within the country's fiscal framework:

• valid passport;
• Portuguese bank account;
• tax identification number (NIF).

In addition, the government wants to observe how responsible non-resident taxpayers (either individual or corporate) are when it comes to fulfilling their fiscal duties. Therefore, you will have to search not only for a tax calculator but also for a knowledgeable fiscal representative.

FAQ

How can I pay my real estate tax in Portugal from the UK?

If you are not currently present in Portugal, you can turn to several payment methods:

• tax authority's online platform;
• direct debit;
• bank transfer.

You can learn more about the available options here. Still, keep in mind that for the successful completion of the procedure, you'll need your tax identification number (NIF) and a Portuguese bank account. Plus, of course, initiate the process in advance.

Should I pay any rental taxes in Portugal?

In case you are an owner of a Portuguese property, and this real estate brings you money, yes, this is your legal obligation to send 15% of your net income into the state's budget.