Overview

Nonresidents in Portugal are taxed on income earned within the country, while residents are taxed on their global income under a progressive system. Property transactions incur transfer and stamp taxes, and annual municipal property tax applies. Capital gains on property sales are also subject to taxation, with different rules for residents and nonresidents.

Rental Income Tax

If you rent out property in Portugal, you must comply with tax regulations. Resident Individuals Residents in Portugal are taxed on rental income under a progressive tax system ranging from 14.5% to 48%. However, they can opt for a flat tax rate of 28% instead. Deductible expenses include maintenance, repairs, municipal taxes, insurance, and other costs directly related to rental income. Non-Resident Individuals Rental income earned by nonresidents is taxed at a flat rate of 28%, deducted at source. The taxable amount is calculated as gross rental income minus allowable expenses such as maintenance, repairs, insurance, and municipal taxes. However, mortgage interest from the property's purchase is not deductible. Resident Companies Companies based in Portugal pay corporate income tax at 21% on rental income and capital gains. Business expenses related to income generation are deductible when determining taxable profits. Non-Resident Companies Foreign companies earning rental income or capital gains in Portugal are subject to a 25% tax rate, with income-related expenses deductible from taxable earnings.

<table>
    <tbody>
        <tr class="blue-row" >
            <td colspan="3"><strong>Monthly income, €</strong></td>
        </tr>
        <tr>
            <td>1500</td>
            <td>6000</td>
            <td>1200</td>
        </tr>
    </tbody>
    <tbody>
        <tr class="blue-row" >
            <td colspan="3"><strong>Tax rate, %</strong></td>
        </tr>
        <tr>
            <td>28.00</td>
            <td>28.00</td>
            <td>28.00</td>
        </tr>
    </tbody>
</table>

Corporate Taxation

Companies are taxed on income and capital gains at rates ranging from 14.70% to 21.00%, with income-related expenses deductible when determining taxable earnings.

Property Transfer Tax (IMT) in Portugal

The IMT (Imposto Municipal sobre Transmissões Onerosas de Imóveis) is a municipal property transfer tax paid by buyers when purchasing real estate in Portugal. The rate depends on the property’s value and type of use (e.g. main residence vs secondary residence). For non-residents buying residential property, the typical range is 2% to 8%.

Current IMT Rates for Residential Property (Primary Use):

<table>
    <tbody>
        <tr class="blue-row" >
            <td><strong>Property Price (€)</strong></td>
            <td><strong>Tax Rate</strong></td>
        </tr>
        <tr>
            <td>Up to €97,064</td>
            <td>0%</td>
        </tr>
        <tr>
            <td>€97,064 – €132,774</td>
            <td>2%</td>
        </tr>
        <tr>
            <td>€132,774 – €181,034</td>
            <td>5%</td>
        </tr>
        <tr>
            <td>€181,034 – €301,688</td>
            <td>7%</td>
        </tr>
        <tr>
            <td>€301,688 – €578,598</td>
            <td>8%</td>
        </tr>
        <tr>
            <td>€578,598 – €1,050,400</td>
            <td>6%</td>
        </tr>
        <tr>
            <td>Over €1,050,400</td>
            <td>7.5%</td>
        </tr>
    </tbody>
</table>

Capital Gains Tax

In Portugal, capital gains tax applies to the sale of property and other assets, with individuals taxed at 28% and corporations at 25%. For nonresidents, property sales are subject to a flat 28% tax rate. The taxable amount is calculated by deducting the adjusted acquisition cost (considering depreciation and inflation), transaction fees, and eligible improvement costs incurred within the last five years from the selling price. To reduce tax liability, individuals reinvesting their capital gains into fixed assets, such as real estate, within the year of sale, the previous year, or up to two years afterward, will have only 50% of the gain taxed. Nonresidents are required to appoint a local tax representative in Portugal, with written confirmation of acceptance. Failure to do so may result in a fine of up to €5,000. The representative handles tax filings and ensures compliance with Portuguese tax obligations. Additionally, nonresidents cannot transfer Portuguese-sourced income abroad unless they prove that all related taxes have been fully paid or secured. Non-compliance with this rule can result in fines of up to €25,000.

Transaction Costs

<table>
    <tbody>
        <tr class="blue-row" >
            <td><strong>Description</strong></td>
            <td><strong>Cost Range</strong></td>
            <td><strong>Who Pays</strong></td>
        </tr>
        <tr>
            <td>Property Transfer Tax</td>
            <td>2-8%</td>
            <td>Buyer</td>
        </tr>
        <tr>
            <td>Legal Fees</td>
            <td>1.25%-2%</td>
            <td>Buyer</td>
        </tr>
        <tr>
            <td>Real Estate Agent Fee</td>
            <td>3%-6%</td>
            <td>Buyer/Seller</td>
        </tr>
        <tr>
            <td>Notary Fee</td>
            <td>0.2%-1.2%</td>
            <td>Buyer</td>
        </tr>
    </tbody>
</table>

Municipal Property Tax (IMI)

Overview: IMI is an annual tax levied by local municipalities on property owners, based on the Taxable Asset Value (Valor Patrimonial Tributário, VPT) of their properties.

Rates:

Urban Properties: Rates typically range from 0.3% to 0.45%, depending on the municipality.
Rural Properties: A flat rate of 0.8% applies.

Calculation: The IMI amount is calculated by multiplying the VPT by the applicable tax rate.

Payment Schedule:

IMI is typically paid in one, two, or three installments, depending on the total amount due, with payment deadlines usually falling in April, July, and November.

Additional Property Tax (AIMI)

Overview: AIMI is an additional tax applied to property owners whose total VPT of urban properties exceeds certain thresholds.

Rates and Thresholds:

Individuals:

0.7% on the VPT between €600,000 and €1,000,000.

1% on the VPT between €1,000,000 and €2,000,000.

1.5% on the VPT exceeding €2,000,000.

Married or Cohabiting Couples Opting for Joint Taxation:

A combined exemption of €1,200,000.

Companies:

A flat rate of 0.4% on the total VPT of urban properties.

Calculation: AIMI is calculated by summing the VPT of all applicable properties owned as of January 1st each year, subtracting the relevant exemption, and applying the corresponding tax rate to the remaining amount.

Payment Schedule:

AIMI is assessed by the Portuguese Tax Authorities in June and must be paid in one installment during the month of September.

Exemptions:

Urban properties classified as commercial, industrial, or for services are exempt from AIMI.

It's essential for property owners in Portugal to stay informed about these taxes to ensure compliance and accurate financial planning.

Property Taxes in Portugal

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