Undertaking property transactions in a tax efficient way in a foreign country is a challenge that will require local assistance. The use of a qualified professional able to provide a comprehensive service and who will keep you informed about important changes, and that will able to guide through saving tax on the long term will certainly add value to your investment.
When buying the property you will be subject to the following taxes:
IMT – Property Transfer Tax:
IMT is payable, as a rule, on the transfer of properties located on Portuguese territory and is due by the purchaser. It is levied on the purchase price or the property rateable value (determined by the tax office), whichever is higher. To determine the IMT multiply the property value by the % rate indicated and deduct the respective amount.
Imposto de Selo – Stamp tax
Stamp Tax is charged on a variety of deeds, contracts, documents, titles and financial operation, being payable by the entity that has the economic interest on the deed or contract.
When you purchase a property, Stamp Tax will be levied on the property purchase price declared on the deed or on the VPT assessed by the Portuguese Revenue, whichever is higher (just as happens with IMT).
The applicable rate on the acquisition of Real Estate is 0,8%. In case you contract a credit facility to purchase your property, stamp duty will also apply, with rates varying from 0,04% to 0,60% of the finance used, depending on the term.
Stamp tax also applies on donations and inheritances, except for inheritance from immediate relatives: spouse, cohabitant (according to the Portuguese rules) children, grandchildren, parents and grandparents, which are tax exempted.
While owning a property the following taxes must be considered:
IMI – Municipal Property Tax
IMI is an annual municipal tax due to the municipality where the property is located. This tax is calculated by applying a given rate to the property rateable value (VPT). IMI is due by the property owner on the 31st December, and is paid in arrears, twice a year (50% in April and 50% in September) or in a single installment in April if the annual value is lower than 250€.
IRS and IRC – Income Tax
Rental income or Capital Gains arising from immovable property located in Portuguese territory are subject to income tax in Portugal. To calculate the correspondent tax, several aspects must be taken into account as follows:
Any other activities in Portugal or income received from any other Portuguese source or simply if you stay longer than 183 days in Portugal, may trigger additional tax obligations, therefore it is indispensable that you consult an accredited tax adviser.