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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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