Tax Information & Benefits

Property Taxes

IMT
This tax is payable when you purchase either rural land or a house/apartment/building plot from a private owner. For residential property the rates range from 1%– 8% of the price of the property as declared in the Escritura de Compra e Venda (Deed of Conveyance).

Tax Brackets Deductions

• Up to €89,700 tax percentage is 1% (deduct €0)
• From €89,700 to €122,700 tax percentage is 2% (deduct €897)
• From €122.700 to €167,300 tax percentage is 5% (deduct €4,578)
• From €167,300 to €278,800 tax percentage is 7% (deduct €7,924)
• From €278,800 to €534,700 tax percentage is 8% (deduct €10,712
• From €534,700 tax percentage is 6% (deduct €0)

Please note: The figures quoted are 2009 values and do not apply to permanent residents in Portugal. This information may change every year.

The higher the property value, the higher the tax rate – a fact that has tempted some to under-declare the value of the property they are buying. Although the practice is widespread, it incurs severe penalties and could also have major implications for Capital Gains Tax at a later date, because the declared value on your purchase is the baseline that authorities use when assessing the capital gain made on the disposal of the property.  The most serious consequence is that the state and state authorities can compulsorily purchase your property, paying the price declared in the Escritura if the difference in declaration is more than 30%.

Imposto Sobre o Valor Acrescentado (IVA) or VAT
This is the Portuguese equivalent of VAT and is generally charged at a rate of 21% with basic essentials such as food charged at 5%.  The good news is that IVA is not charged on the purchase of property in Portugal although if you are building a property yourself all building materials will be subject to IVA.

Imposto de Selo (Document Tax)
As well as paying IMT you will also have to pay a document tax, or stamp duty (Imposto de Selo), normally at about 0.8% of the purchase price.

Land Registry Fees
These vary according to the location, type and value of the property. Rather than taxes, these are administrative fees, but are included here for completeness.

IMI
This is the main local property tax affecting owners of properties in Portugal.  The amount of tax is calculated according to the ‘valor tributável’ (official valuation of the property) registered in respect of all properties in Portugal.  The percentage of the value charged as tax varies from area to area. Until recently, the official values were extremely low, but are now rising rapidly, pursuant to a Portuguese Government policy that will relate official valuations more closely to the real value of the property.

Other municipal taxes and charges
Some municipalities raise additional taxation in relation to the services they supply to people in the area. These may include rubbish collection, street and beach cleaning, and so on.  These taxes are not generally high.

Capital Gains Taxes

The Portuguese do not have a separate system of assessing Capital Gains Tax. For people resident in Portugal for tax purposes, Capital Gains are treated as part of their taxable income for the year in which the gain is made.  For people who are not resident in Portugal for tax purposes, Capital Gains Tax is payable at a flat rate of 25% on the difference between the selling price and the original purchase price. Only 50% of the gain is taxable on the sale of real estate (apartments, houses, etc.) if you are resident in Portugal. If not, 100% is taxable.  Tax calculations are based on the prices declared in the Escritura (Title Deed).

Inheritance Tax

Like most countries, the Portuguese state likes to take a share of your assets when you die. How much they are entitled to take depends largely on how well you plan your affairs.  Some notable points are:

• In Portugal, a surviving spouse or other joint owner does not automatically inherit the deceased’s share in any property. If it is left by will or awarded by intestacy to the joint owner, the gift will be taxable.
  
• The amount of tax paid is determined not by the size of the whole estate, but by the size of each individual inheritance and the relationship between the beneficiary and the deceased. The tax is progressive – the more you inherit, the higher the rate of tax you will have to pay.
  
• On all other gifts or inheritances of Portuguese assets, stamp duty is charged at 10%. An estate of, say, €149,000 can therefore attract a large tax bill if it is all left to one person – especially someone who is not related – and little or no tax bill if it is shared among a number of close relatives.

Taking all these factors into account, there is scope for minimising the amount of tax payable on death. In general terms, dividing your assets between your husband/wife and children will usually produce the lowest tax bills. Let’s say your total estate is valued at €74,500. If it were left to a stranger – a non-related executor and trustee – would pay tax of about €7,450.  Penalties are imposed if the tax due is not paid within six months of the date of death. Where sizable tax payments could be a problem, the owner can dispose of the assets during his or her lifetime, more cheaply than on death.