Real estate in Portugal: what taxes to pay to avoid problems with the law

Property Transfer Tax, or Imposto Municipal sobre Transmissoes (IMT). A municipal tax on the purchase of the real estate, which is paid in a single payment. The tax rate is often revised and depends on the value, type, purpose and location of the property.

IMT must be paid at the local tax office after signing the preliminary contract, but not less than three days before the final transaction.

Stamp duty. A one-time tax on the purchase or sale of real estate. The rate is 0,8% of the transaction amount.

Annual municipal tax, IMI. Paid after the purchase of the real estate. The rate is 0.3—0.5% of the value of the urban property and up to 0,8% of the value of the rural property. Municipalities independently calculate the tax rates, which vary from locality to locality.

The deadline for payment is the last day of the tax year, which ends in April. If the amount of tax exceeds €250, it is allowed to pay twice a year: in April and November.

Taxes are exempt from payment:

1. Low-income households: up to €15,295 if the value of the building does not exceed €66,500.

2. Owners of buildings that are to be renovated at the expense of the city. But they will be taxed after 3 to 5 years.

Wealth Tax. Real estate worth more than €600,000 is subject to the AIMI (Imposto Municipal Sobre Imóveis) tax. It is an additional tax in IMI, the rate is on average 0,7% of the value of the property.

For married couples who file a general tax return, the calculation of the wealth tax begins on properties worth €1.2 million or more.

Income tax. In Portugal, income tax is made up of different income of a citizen or resident, such as salary, pension, renting out real estate. The tax rate is calculated on a progressive income scale.

How to get a beneficial tax status in Portugal

Investors who have received a residence permit in Portugal can get an exceptional tax regime. It allows to pay income tax at a flat rate of 20% for the first 10 years of residency.

Income from renting out real estate is also taxable. The amount is added to the resident’s total annual income, which is already taxable.

Capital Gains Tax. When selling real estate, residents of Portugal pay tax on 50% of the profits. For example, if a resident sells an apartment for €60,000, the tax will be charged only half of €30,000.

The amount of profit is also added to the total to the annual income of the citizen. The entire income is then taxed at the appropriate rate of the income tax scale.

No tax is due if the citizen or resident sells his or her primary residence and invests all of the income into the purchase of a new property, which will become the new primary residence. But if it turns out to be cheaper, the tax must be paid on the difference between the sale and purchase price.

Pensioners and residents who are over 65 years old can reinvest the capital gains into a pension fund or insurance company within 6 months of selling the property.

Inheritance tax. The tax was abolished for spouses, children, parents, and grandchildren in 2004. If an inheritance is received by a distant relative or a person who is not a family member, the tax applies and is charged at the rate of 10%.