A local tax expert will guide you through the intricacies of the Portuguese tax system. Below is a general guide to familiarize you with the principles of tax in Portugal.
IMT, a municipal tax, replaced the old SISA system of transfer taxes in Portugal in 2003. Tax is calculated taking into account the cost of the property, its size, intended use, location and age. Evidence of payment of this tax must be presented prior to signing the deed of sale.
Imposto de Selo
This tax affects to the administrative costs involved on the purchase that are charged by the administration, being its rate an 0.8 % of the purchase price, and it must be paid at the same time as the IMT, prior completion
Capital Gains Tax
Capital gains are bracketed with income tax in Portugal, without the need for separate rates for capital gains.
Non-residents pay tax at a flat rate of 25%, which is calculated from the difference between the declared purchase and selling prices.
+Residents must pay income tax at 50% on the gain and this is stretched over five years. Exemption is however given if your capital gain is from a permanent home or if you have re-invested the money into another property within two financial years from the date of sale.
Inheritance tax is not charged if you receive property from direct members of your family. However, other beneficiaries, including unmarried partners, will be charged between 0 to 50% on their inheritance. Tax rates can vary widely, depending upon the family relationship between all parties and the value of the property.
Value Added Tax (VAT) is payable on property purchase in Portugal and is usually around 17%, with lower rates applicable on the islands of Madeira and the Azores.
VAT registration is compulsory, irrespective of your tax residency, whenever you acquire any taxable product in Portugal. Services relating to Portuguese real estate, such as estate agency, brokering and related professional services, are all subject to the standard rate of VAT, currently set at 21%.
Tax on Rental Income
Income tax will be charged if you let out your property. Double taxation agreements are in operation to prevent your paying tax in two countries. Tax on Portuguese rental income is calculated on a sliding scale, from with 40% downwards.
A form of council tax, or IMI (Imposto municipal sobre imóveis), is charged to all property owners and is calculated on the value of your property. IMI can range from 0.2 to 0.5% of the property value for new builds and 0.4 to 0.8% for older properties.
All Portuguese residents are liable for payment of income tax in Portugal. If you own a main residence in Portugal and/or live in it for at least 183 days, the tax authorities will consider you to be a resident. The tax year in Portugal is the year ending on December 31st.
If you are employed in Portugal, your employer will deduct tax at source each month from your salary.