PORTUGUESE PROPERTY TAX – TAX FREE ASSETS FOR 3 YEARS

Portuguese property tax – Portugal is a country in the European Union (EU). With an abundance of natural resources and a temperate climate. This place is a potential land for sustainable development, especially in the real estate industry. In recent years, the development of investment in real estate is a trend, especially for businessmen who are looking to invest abroad. Portugal is a perfect choice for those who want to grow their business and get a visa in the real estate sector. So how is Portuguese property tax calculated? We would like to invite you to learn about this content below.

When do investors have to pay taxes in Portugal?

In Portugal, the tax year is the same as the calendar year. That is, from January 1 to December 31 every year will be considered a tax year for people. If the investor lives in Portugal for less than 6 months in a tax year, the investor can be considered a non-resident.

In this case, the investor only needs to pay tax on the income earned in Portugal.

Portugal property taxes and how they are calculated – Portuguese property tax

In Portugal, there are four main types of property tax: real estate purchase tax (IMT), registration tax (IS), property tax (AIMI), and real estate tax (IMI). Each type of tax has its own calculation method.

Real Estate Purchase Tax (IMT)

The IMT (Imposto Municipal Sobre Transamissoes) tax is a tax payable every time you buy a house in Portugal. Rates can vary depending on the type and value of the property. Tax is charged on the value declared in the document or on the assessable value. The investor must pay this tax before purchasing the property. The IMT rate can be calculated as follows:

IMT = Deed value or net value tax (the higher of these two values) x Application rate – tax reduction

The following three criteria are important to calculate this tax:

• Type of real estate: Urban or rural
• Location of the house: Mainland Portugal or autonomous regions.
• Purpose of purchase: A main place of residence

Example of IMT tax calculation: Investor is looking to purchase real estate worth EUR 200,000 in Mainland Portugal as a permanent residence. With a fixed tax rate and deduction of 7% and € 9,087.19 respectively. The IMT tax value is calculated as follows:

IMT= 200,000 x 7% – 9,087.19 = 4,912.81 .

Other cases related to IMT:

• Purchase of shares of an authorized listed company: No IMT.
• Commercial & Construction lots: Fixed rate is 6.5% IMT.
• Agricultural land & carpentry land: Fixed rate is 5% IMT.
• Real estate purchased by a company residing in the whitelisted jurisdictions: The IMT rate is the same as in the investor above.
• Real estate purchased by a company residing in blacklisted jurisdictions: 15% IMT.
• Buy shares of a blacklisted company: 8% IMT.

Registration Tax (IS)

As a buyer, the investor needs to pay the stamp duty (Imposto de Selo) on the deed, contract, bank mortgage and loans, documents and ownership. Rates will be varied by the type and value of the property. The rate depending on the type of deed is from 0.4% to 0.8%.

When buying a house, the investor must pay the registration tax to the notary while signing the deed. This registration tax rate is 0.8%.

When the investor mortgages, the investor also needs to pay the registration tax. If the repayment term is over 5 years, the registration tax is 0.60%. However, if less than 5 years, the tax is 0.5%.

There is no mandatory stamp duty on corporate asset ownership transactions.

Property Tax (AIMI)

Property tax (Adicional Imposto Municipal Sobre Imóveis) is effective from 2017. This tax applies to owners with shares in real estate in Portugal with a value of more than €600,000. The exchange rate is stable regardless of residency status. This ratio is 0.4% out of the total assets held by companies. In addition, for individuals, the rate is 7%. If the investor owns a property worth more than €1 million, the rate will be 1%.

Real estate Tax (IMI)

In Portugal, the investor is required to pay property tax (Imposto Municipal Sobre Imóveis) as the owner of a real estate. Tax rates are varied from city to city. City councils will determine their own tax rates. Real estate taxes finance Portuguese municipalities and are used to maintain public infrastructure. If the property is owned on the last day of the respective tax year, the investor must pay IMI tax. So, how can investors calculate IMI tax? Simply multiply the value of the property tax (TPV) by the applicable rate.

Property tax rates in urban areas range from only 0.3% to 0.45%. While real estate in rural areas is taxed at 0.8%.

If an asset was revalued since 2004, the rate would be between 0.2% and 0.5%. If a property is valued before 2004, the ratio will be between 0.4% and 0.8%.

When is Portuguese property tax exempted?

To find out if the Portuguese property tax is exempt, it is necessary to look at the value of the property the investor possesses in Portugal. The property is in mainland Portugal and the value of the property does not exceed €92,407 then the investor does not have to pay any IMT.

In the same way, if the property is located in an autonomous region and the value of the property does not exceed €115,509, that property will not be applied IMT.

In other cases, if the property is used for the purpose of permanent residence or rental, the property tax is exempted for three years.

In addition, the following cases also allow tax exemption:

• Buying properties for reinvestment of real estate companies
• Buy urban renovation property
• Purchase of real estate or part of an autonomous municipality for the purpose of building a tourist complex that has been designated as a tourist facility
• Buying real estate from a real estate investment fund for living purposes
• Restructuring cooperation agreement
• Purchase of buildings deemed in the national, public or municipal interest
• Investments are eligible under the Investment Incentive Tax Scheme (RFAI). In this case, the IMT may be waived or reduced.

Conclusion – Portuguese property tax

In the current era, international real estate investment is the choice that brings a lot of development potential for investors. Portugal is a developed country with many good remuneration regimes, suitable for long-term development. Learning the Portuguese property tax will help investors understand more about the European real estate market.

With more than 35 years of experience, Portico & Bridge is a leading international real estate investment consultant. With a team of more than 50 professionals from around the world, we are always ready to assist you.

For more information, please contact Portico & Bridge for detailed support.

Call us now at 0909.898.758.

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