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Taxation of Portuguese property
The taxation system resembles that in the rest of the EC. Purchase of
real estate by non-residents does not require prior authorization by the
Portuguese foreign Trade Institute, nor is it subject to restriction by
that body. Foreign Exchange controls no longer apply to such transactions.
There is a double taxation treaty in existence between Portugal and the
United Kingdom.
Local taxes (Contribuicao Autarquica)
This is an annual municipal property tax calculated upon the registered
value of the Portuguese property and also influenced by the location and
the local services of the Portuguese property. For rural properties it
is 0.8%, and for urban properties it is between 1.1% and 1.3%.
Personal Taxes
As a non-resident property owner in Portugal, you may be liable for income
tax, value added tax wealth tax, capital gains tax and inheritance tax.
Individual situations vary and it is best to seek specialist advice from
a tax consultant who has knowledge of the Portuguese tax system.
Unlike other countries where "income tax" and "capital
gains tax" are seperate, in Portugal there is a single income tax
for all individuals. It covers:
- Employment Income
- Self-Employment Work Income
- Commercial and Industrial Profits
- Agricultural Income
- Investment Income
- Income from Property
- Pensions
- Capital Gains
- Other Income
An individual is deemed Resident in Portugal if more than 183 days per
calendar year are spent in Portugal. If an individual is deemed Resident
then their Worldwide Income is subject to IRS within Portugal. If an individual
is Non-Resident then only Income from Portuguese sources is taxable within
Portugal. The current rates of IRS range from 12% - 40%, although in certain
cases there are other special taxes which may be levied.
Income Tax
Non-residents are obliged to make an annual return for income tax if
they receive income from letting property. For non-residents, income on
rental profits are taxable in Portugal at a flat rate of 25%. Unlike other
countries, which allows a deduction for tax purposes of mortgage interest
against rents, you would not be entitled to a deduction for Portuguese
tax purposes for mortgage interest costs relating to the purchase of the
property in Portugal. In Portugal only repairs and maintenance expenses
can be claimed as a deduction.
For Portuguese residents, your Portuguese rental income is added to any
other income you may have, and your total income then calculated on a
sliding scale as shown in the following table.
Income Bracket |
Tax Rate |
Up to €4,100 |
12% |
€4,100 - €6,200 |
14% |
€6,200 - €15,375 |
24% |
€15,375 - €35,363 |
34% |
€35,363 - €51,251 |
38% |
Above €51,251 |
40% |
Capital Gains Tax
As mentioned above, a capital gain in Portugal is added to regular income
and the appropriate income tax rates (stated above) are applied. In calculating
a capital gain, account is taken of the rate of inflation from the date
of purchase until the date of sale.
When the proceeds of the sale are re-invested in the purchase of other
permanent assets (another Portuguese property or shares, etc.), only 20%
of capital gains tax need be paid in the current year. The balance of
80% of the profit is deferred to the following years. On the sale of real
estate that is the vendor's primary residence, 50% of the gain is added
to the regular income for income tax purposes. If the proceeds are invested
in the purchase of alternative real estate for a residence within a short
period as defined in law (currently two years), the capital gain is exempt
from tax.
For non-residents on a sale of the property Portuguese capital gains
tax (CGT) is payable at 25% of the gain.
Under the double tax treaty with Portugal, if you are tax resident in
a country that has entered into such an agreement with Portugal, the agreement
allows you to credit any capital gains tax paid in Portugal against any
capital gains tax payable in your tax domiciled country.
Inheritance and Gift Taxation (Imposto sobre as sucessoes e doacoes)
Taxation is levied upon Inheritance of a Portuguese property or if you
give the Portuguese property away. The relevant rates vary depending upon
the value of the Portuguese property and on the relationship between the
parties. The gift and inheritance tax rates are as follows:
|
Up to €70,000 |
From
€70,000
to
€275,000 |
From
€275,000
to
€700,000 |
From
€700,000
to
€1,375,000 |
From
€1,375,000
to
€3,450,000 |
From
€3,450,000
to
€6,850,000 |
Over
€6,850,000 |
In favour of minor children |
- |
4% |
7% |
10% |
14% |
18% |
23% |
In favour of spouses and other descendants |
- |
6% |
9% |
12% |
16% |
20% |
25% |
In favour of ascendants or between brothers and sisters |
7% |
10% |
13% |
16% |
21% |
26% |
32% |
Between 3rd degree collaterals |
13% |
17% |
21% |
25% |
31% |
38% |
45% |
Between any other persons |
16% |
20% |
25% |
30% |
36% |
43% |
50% |
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