Take into account Property Tax in Portugal if you are thinking about buying a House or a Land there, it is important to understand the costs involved - including government taxes. The first step before buying a property is to get a NIF (Portuguese Fiscal Identifier Number) to be able to sign the public deed and to facilitate the payment of the relevant taxes. In addition, you will need to pay notary fees for this operation.
1. Specific Property Tax in Portugal you will be facing
You also need to pay specific taxes for your property. These taxes are obligatory when you purchase a property in Portugal. They are namely the Municipal property tax (IMI), property transfer tax (IMT), and the tax on stamps or Stamp Duty (IS). Each is different and has its own calculation methods.
2. Municipal Property Tax (IMI)
Every year you will have to pay a property tax that’s called IMI - Immovable Property Tax that is a Municipal Tax. This Property tax is calculated base on the Patrimonial Value that the Tax office gave to your property that you can check before buying in Caderneta Matricial of the Property from the tax Office. The Owner as this and you can also get it online on the tax office website. Property tax rates range from 0.3% to 0.45%. While properties in rural areas are taxed at 0.8%, properties in more urban areas are taxed within the mentioned range.
3. Property Transfer Tax (IMT)
The IMT (Imposto Municipal sobre as Transmissões Onerosas de Imóveis) tax is collected every time a house is purchased in Portugal. The rate is variable according to the type and value of the property. The tax is calculated by the value declared in the deeds or on the rateable value - whichever is higher. You must pay this tax before you buy the property. You can calculate the IMT rate as follows:
- IMT = (Value of the deed or rateable value (the higher of the two) x Rate to apply) – tax abatement
The following three criteria are important for the calculation of this tax:
- Property type : Urban or rural
- Location of the house : Mainland Portugal or its autonomous regions
- Purpose of buying : Principal or secondary residence.
IMT rates applied to private property purchases of primary residences
4. Exemptions on IMT taxes
As seen from the table above, if the property is in mainland Portugal, and its value does not exceed €92.407, you do not pay any IMT, unless it is a second home or for letting (1%). In the same way, if it’s in an autonomous region and its value does not exceed €115.509, no IMT tax applies to the property. Additionally, the following circumstances also allow for tax exemptions.
- Purchase of properties for resale by real estate trading companies
- Purchase of properties for urban rehabilitation
- Purchase of property or autonomous fraction of urban property as a tourism complex, to which has been attributed tourism utility
- Purchase of real estate by real estate investment funds for residential lettings
- Cooperation arrangements of restructuring operations
- Purchase of buildings regarded as of national, public, or municipal interest
- Eligible investments under the Investment Promotion Tax Regime (RFAI). In this case, either an exemption or reduction of IMT is possible.
For Rural land the IMT is 5% of the property value.
5. Stamp Duty (IS)
Stamp duty is applied on a range of conveyance operations in Portugal, whether or 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.
6. Rental Taxes
After you buy a property, if you want to rent it out, you must pay tax on the rental income. The flat rate is 28%, and it applies to the net rental income.
7. Real Estate Agency Fees
In Portugal, only sellers pay agency fees, not the buyers. 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.
8. Fiscal Representation in Portugal
For all non-resident individuals or companies having assets based in Portugal, it is a legal necessity to assign a fiscal representative. Non-resident taxpayers gaining taxable income in Portugal must also assign a fiscal representative to guarantee that they obey the tax obligations in Portugal. A fiscal representative is responsible for any tax calculations regarding the individual or company’s tax obligations. They include properties, bank accounts, income, and all tax bills.
9. Legal Advice
When buying a property, it is advisable to seek legal advice from a lawyer to deal with property tax in Portugal. 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.
10. Notary And 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).