Everything you could ever need to know about the different taxes and fees involved in the sale or purchase of a property in Portugal. IMI (Municipal Property Tax), IMT (Property Transfer Tax), stamp duty, capital gains, legal expenses – what does each one exactly entail? Who has to the pay them? When should they be paid?
As a PURCHASER:
IMT (Property Transfer Tax), as the name implies, is applicable whenever property ownership is transferred. This tax is paid by the purchaser before signing the final deed of sale, seeing as the original copy of proof of payment needs to be shown to the notary at the time of the property exchange.
The tax is paid on the higher of the property’s values, whether the purchase price or the - VPT (its rateable value, attributed by tax authorities). The rateable value, incidentally, in most cases is much lower than the purchase price. The IMT will vary according to whether you are buying a permanent residence or a second home, or property for letting.
No IMT is charged on the purchase of shares of a white-listed company (additional info at the end of the article).
Example: Purchase of a property for permanent residence, at a value of EUR 250,000.
EUR 250,000 x 7% = EUR 17,500
Amount to deduct = EUR 9,087.19
Total IMT to pay = EUR 17.500 - EUR 9,087.19 = EUR 8.412,81
Example: Purchase of a property as a second home, at a value of EUR 450,000.
EUR 450,000 x 8% = EUR 36,000
Amount to deduct = EUR 11,035.25
Total IMT to pay = EUR 36,000 - €11,035.25 = €24,964.75
Certain purchases can benefit from tax exemptions. Such cases include: the purchase of urban properties for urban rehabilitation purposes or the purchase of properties that have been listed as being of national / public / municipal interest, or also, within the framework of Portugal’s RFAI (Investment Promotion Tax Regime) for companies making major investments, among others.
Stamp duty is applied on a range of actions in Portugal, whether not subject to IVA (VAT) or exempt from it, including contracts, deeds, bank mortgages and financial transactions, among others. The rate varies according to kind of operation. When you buy a property, stamp duty is charged at a rate of 0.8% of the ‘highest value’ of the property (purchase price or VPT - its rateable value, attributed by tax authorities). It is the purchaser’s responsibility to pay this duty prior to the signing of the final deed, so that they can show proof of payment to the notary.
No stamp duty is levied in the event of the purchase of a white-listed corporate ownership of property.
Example: Purchase of a property at a value of EUR 500,000
Total stamp duty to pay = EUR 500,000 x 0.8% = EUR 4,000
When buying a property, it is advisable to seek legal advice from a lawyer. Their help will prove essential in the completion of the transaction as faultlessly and smoothly as possible. The lawyer will check ownership, the vendor’s solvency of the vendor, obtain land registry certification, check any legal restrictions on building, analyse the preconditions and restrictions associated with the purchase, among other tasks. If buying shares in a property-owning company, the lawyer will also undertake to do the due diligence of the company, its assets and legal situation. (Read more about the role of a lawyer when purchasing property in Portugal).
Legal fees normally vary between 0.75% and 2% of the purchase price of the property.
NOTARY & REGISTRATION FEES
Following the purchase of the property, the local tax office will need to be informed and the purchase needs to be registered at the Land Registry Office (your lawyer will take care of this). Registration fees, in addition to notary fees, are paid by the purchaser and should come to around EUR 1,000.
In the capacity of PROPERTY OWNER, the taxes due include the following:
IMI is levied on the property’s fiscal value (“rateable value of properties” VPT), which takes into consideration several criteria such as property age, size, commodities and location. The property tax is fixed annually by each municipality and ranges from 0.3% to 0.8%.
Good news for property owners in ‘The Golden Triangle’: Loulé council has announced it will drop the IMI rate it uses to the minimum 0.3% in 2017, as opposed to 0.38 used previously.
IMI is paid annually, either:
Some exemptions are available (e.g.: a property purchased for permanent residence can be exempt from 3 to 6 years, depending on the assessed values - Article 46, no. 1 of the EBF [Fiscal Benefit Statute]) with relevant deadlines. Furthermore, the information appearing in this article does not in any way represent a comprehensive statement of the issues discussed. To this end, we recommend you obtain further advice as to your personal case.
The former 1% tax on “luxury property” has been abolished, to be replaced by the AIMI (in addition to the IMI). The new tax will be applied to the entire VPT (the property’s rateable value, which is not the same as the purchase price of the property) on all residential properties and plots for construction valued above EUR 600,000 owned by a taxable person (thus excluding industrial or tourist properties).
Simplifying the matter, a property owner, whose entire asset VPT (residential/ building plots) is more than EUR 600,000 will pay a rate of 0.7% on the amount exceeding EUR 600,000 (e.g.: if the VPT is EUR 700,000, the property owner will pay 0.7% on EUR 100,000). It should be noted that individuals have a guaranteed deduction*** of EUR 600,000 to the total VPT or of EUR 1,200,000 if the taxable persons – married or common-law partners – choose joint taxation. As such, they will only pay AIMI if the final value, following deductions, exceeds the EUR 600,000 limit (or EUR 1,200,000 in the latter case). When the entire VPT value is more than EUR 1,000,000, the rate applied is 1%.
Thus, if on the one hand AIMI now penalises a new spectrum of property owners (anyone who owns properties valued at EUR 600,000 - EUR 1,000,000) which weren’t previously within the scope of ‘luxury’ taxation, on the other, it is now more favourable to property owners with properties valued above the one-million-Euro limit. This is because, property owners formerly taxed at 1% on the total VPT, are now taxed at 0.7% on the VPT up to EUR 1,000,000 and at 1% on the value over this threshold.
In the case of properties of companies registered in tax havens (Gibraltar, San Marino, etc.) the penalisation of 7.5% has been kept as in former legislation.
But not everything is doom and gloom! There’s good news for corporate bodies: the rate applied is 0.4%**** on the entire VPT (and not only on the exceeding amount as in the case of individuals) but… this means that for properties owned by white-listed companies (Delaware, Malta, etc.), the tax rate has gone down from 1% to 0.4%!
In addition to usual costs such as water, gas, electricity, garden/pool maintenance, alarm, insurance (…), which vary considerably depending on your use/supplier/location, owners of a property located within a condominium / resort will have to pay the respective fees for the correct maintenance of the site and its facilities. The Golden Triangle is home to many condominiums, and we felt it appropriate to compile some generic information on the most important of them. Visit our running costs tab to find out more about condominium fees.
If you decide to SELL your property, find out what are the main costs you can expect to pay:
Capital Gains Tax is due on transfer of properties, over the difference between the selling price and the acquisition value (or construction value), adjusted according to the inflation rates, and net from documented costs incurred with the property acquisition (property transfer tax, notary and registration fees), selling (real estate agent commission) and capital improvements (within the last 12 years previous to sale). Therefore, it is extremely important to keep all the receipts***** when constructing or refurbishing a property.
The rates are 28% for non-resident individuals****** and 25% for non-resident companies. An EU resident may choose to be taxed as a Portugal resident, but you will have to declare your worldwide income to calculate the marginal rate of tax that will apply to the gain.
Portuguese residents pay tax on 50% of the gain. Inflation relief is available after 2 years. The gains will be added to their other income for the year and taxed at the income tax scale rates where they belong (varying from 14,50% to 48% in 2016).
If you are resident under the NHR Regime (Non-habitual Resident), a gain is "exempt with progression" in Portugal if it may be taxed in the country of source. However, this means that such gains are added to your overall tax bill, and then the tax on this is deducted from the overall liability. Effectively, this means the tax rate on any income or gains that are directly taxable in Portugal may be increased.
You can avoid the payment of this tax - wholly or partially - if the property being sold is your primary residence and the sale proceeds are reinvested in the acquisition, improvement or construction of another primary residence in Portugal, within the EU or EEA (European Economic Area) within 36 months from the sale or in the period of 24 months previous to the sale.
There are other ways to reduce your tax liability depending on how the gains on your assets are calculated but you should take advice from an expert in tax on how this works.
It is important to ensure that you are dealing with a properly licensed real estate agency. You can always confirm the license number of the agency and its validity in the IMPIC website.
The real estate commission is normally 5% + VAT at the legal rate in force. As previously informed, this expense can be used to reduce your capital gains when selling the property.
There is a tax exemption for inheritances to close relatives (parents/children, spouses). On gifts, you will have to calculate a 0.8% stamp duty tax on the VPT value.
Inheritance or gifts to other individuals will be subject to a flat 10% stamp rate tax.
*Disclaimer: In preparing this site and its contents, every effort has been made to offer the most current, correct, and clearly expressed information possible. However, since inadvertent errors can occur and since relevant laws and regulations often change, the information may be neither current nor accurate. The content accuracy, opinions expressed and other links provided by these resources are not investigated, verified, monitored or endorsed by YLP. Furthermore, the information contained on this site is provided as a general and abstract overview and should not be taken as an authoritative statement of Portuguese law and practice. The information on this site does not constitute a comprehensive or complete statement of the issues discussed. No action should be taken or omitted to be taken in reliance upon information on this site. Readers should always seek specific and professional legal advice.
**Additional IMT Rates: for rustic plots the rate applied is 5%; in urban property not exclusively for residential purposes (e.g. commercial and building plots) the rate is 6.5% and in for properties purchased by ‘tax haven’ residents, the rate applied is 10%. No IMT is charged on the purchase of shares of a white-listed company (additional info at the end of the article).
***This deduction does not apply to: corporate bodies whose assets are composed more than 50% of properties not involved in farming, industrial or commercial activities; corporate bodies whose activity involves the purchase and sale of real estate; simple asset management companies, subject to the tax transparency regime; taxable persons in debt to the Tax and Social Security authorities; bodies within clearly more favourable tax regimes.
****Note: in the case of properties for the personal use of capital holders, of board members or of any management bodies, the same rate as individuals is applied, i.e., 0.7% and a marginal rate of 1% on the part of the rateable value the exceeds €1 million.
*****Please note that invoices must have proper information to be considered "legal invoices" in Portugal, such as invoice number, date, name and fiscal number of the client as well as of the service/product provider, etc.
****** For UK residents, the gain would also be taxable in the UK, but under the double tax treaty, any tax paid in Portugal can be credited against the tax due in the UK.