Property Taxes

Portugal Property Tax: Advice and Examples

 


 

What Taxes are Applicable and How Much Will I Pay?

 
For most property buyers in the Algarve or indeed anywhere in Portugal, there are 3 important taxes that concern any property buyer here. As you'd expect in any country really, the taxes here are fairly relatable.
 

Portugal IMI (Council Tax)

 

The IMI tax is simple the annual property tax, or council tax, property rates that we have in Portugal. Covering the essentials for your properties areas, road works infrastructure, etc.. A fairly important tax, and compared to other countries like the UK, France or the USA, the costs are far lower.

 

There is a set rate dependent on your council, which varies from 0.3% - 0.45% (or 0.8% for rustic buildings) of the properties patrimonial value as determined by the aforementioned council. Typically this will be fairly low in comparison to the property purchase/sales price. For example, there are some villas in Vale do Lobo sea front with values as low as €200,000, which in reality has a market value of €2,000,000.

 

For example, a property in an urban zone of Loule Camara/council, with a patrimonial value of €200,000 would be:

€200,000 x 0.3% = €600.00 per year.

 

All area's rates are available per year directly on the financas website, you can check here if you'd like to get an idea of what you'll be paying. Finacas IMI rates 2019 Faro.

 

 

Income Tax in Portugal

 

Typically the only income tax one would pay here when you buy a property is on your rental income, should you decide to rent. For non-residents, this is a fixed 28%. Whilst setting up the rental of your property you will have the option to opt for a "simplified regime" of tax which eliminates any need for expenses to be itemised and instead automatically deducts 65% of your income as costs. In effect, this reduces your tax liability to around 10%.

 

Example of rental income in Portugal

 

  • Rental income €10,000.00
  • Automatic deduction for all expenses of 65%
  • Net taxable rental income = €3,500.00
  • Net rental income, €3,500.00, x 28% fixed rental income tax = €980.00 annual income tax.

 

For residents there is the option to include the rental income within their current income tax (IRS) returns, to determine whether this is beneficial or not it would be prudent to run a number of simulations with your accountant, or financial advisor.

 

Tax rates for 2020 are as follows:

 

Income

Portugal tax rate

Up to €7,112

14.5%

€7,112 – €10,732

23%

€10,732 – €20,322

28%

€20,322 – €25,0575

35%

€25,0575 - €36,967

37%

€36,967 - €80,882 

45%

€80,882 +

48%

 

 

Capital Gains Tax in Portugal

 
 

Capital Gains Tax, CGT, will always be payable on the sale of your property here in Portugal, assuming, of course, there is a profit made. The tax rate in Portugal for CGT is 28%. There are various deductions you can apply to this figure before the net amount it calculated however, so make sure to get invoice and receipts for any work you do on the house. Maintenance and improvements carried out in the 12 years prior to selling are off settable, as are you buying costs, depreciation, furniture and agency selling fees.

 

For residents, CGT is calculated slightly differently. Only 50% of the gain is taxed and the "income" is added to your IRS and taxed at your normal income tax rate. (14.5% - 48%).

 

Properties that are recorded as your primary residence do have an added incentive, whereby if you reinvest the proceeds from the sale of your main residence into another property (in the EU or Portugal) there is no CGT liability at all provided this is reinvested within 36 months after the sale, or 24 months prior.

 

 

Fiscal Representation in Portugal

 
Similar in most countries within Europe, it is quite common place that all non-resident property owners empower a tax resident entity to act as their "Fiscal Representative". This person or company is responsible for dealing with the non-resident's tax affairs and to avoid local tax office fines and penalties for late or missed payments in the absence of the nonresident.
 
This used to be a service provided by lawyers, and typically would be done for you when you bought your property by your appointed lawyer. However, with the law's becoming more stringent and time-consuming most law firms are no longer willing to provide this service and will recommend a company that specialises in tax and can provide an all-inclusive service. The duties of your fiscal representative are typically as follows:
 
  • Obtaining a fiscal number and card, this is mandatory to buy a property, open a bank account, apply for a mortgage, signing any contracts or title deeds, utility connections, etc.
  • Preparation of Tax Returns, for assessment of property income (i.e. rentals) or capital gains in event of a sale.
  • Payment of council tax (IMI) This is payable by every property owner in Portugal.
  • Register the property at the local tax office upon completion
  • Appraise the valuation performed by the Inland Revenue on the property, which will determine the Property Rate-able Value (VPT), and request a valuation if necessary. This will determine your yearly IMI, or council tax.

 

As there are quite large fines in place for nonpayment, or late payments of the property taxes and income taxes this is now an essential part of the buying process and must be completed before the signing of Promissory Contracts.
 
The costs of employing a fiscal representative vary, however, a figure of €200 per person per annum is normal.
 
 
Whatever your reason for buying a property here in Portugal is, make sure you have the very best advice you can. IRG Property has many years of experience in all kinds of property transactions, with clients from all over the world. We're able to give you a fantastic base to start your property search from in the right way. Want to know how we can help you, then get in touch now!
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