Portugal: the tax haven for foreign pensioners
Find out what are the tax benefits you will have if you retire in Portugal.
Portugal property taxes
If you're buying a holiday home in Portugal, you're going to end up making the Portuguese treasury very happy. Though taxes overall are not particularly onerous, you do need to build them into your budget - particularly when you're looking at running costs.
Unless you're moving to Portugal lock, stock, and barrel, you'll be taxed as a non-resident. The rules are that to be resident, you either have to spend more than 183 days in a tax (calendar) year in Portugal, or your Portuguese property has to be your primary address (for instance, if you travelled widely and didn't have another home).
|Expenses when you buy a house in Portugal|
|Translation of documents (if not done yet)|
|Property Transfer Tax (IMT), rates applied|
|Stamp Duty Tax (0,5-08%)|
|Deed registration fee (1%)|
|The IMI (for the first time all the sum)|
Portugal's taxes on property transfer rank it among the higher cost jurisdictions in Europe (slightly below Spain, and above France). The first tax you will have to pay when buying a house in Portugal is the Property Transfer Tax (Imposto Municipal sobre a Transmissão Onerosa de Imóveis or IMT), that depends on the following criteria:
type of the property (urban or rural)
its location (mainland or autonomous regions)
purchase purpose (primary residence or second home)
The Property Transfer Tax in 2018 was set at 5% on rural property, and 6.5% on urban properties.
However, there are different, tiered rates which apply to exclusively residential urban property. For permanent main residences, no tax up to EUR 92,407, 2% up to EUR 126,403, and then 5-8% above that. Thus you can exempt paying this tax if you buy a cheap property. If the property is valued at EUR 574,323 or more, you can forget the tiered system - a 6% flat rate is applied. (It's also worth noting that urban property acquired for rehabilitation is exempt, but there are quite tight conditions attached.)
You need to keep in mind that the Azores and Madeira are considered as autonomous regions of Portugal and the Property Transfer Tax is calculated at a different rate: no taxes are applied to the properties purchased at less than EUR 115,509; you’ll pay 2% if the property price is up to EUR 158,004 and 5% - if it’s up to EUR 215,435. 7-8% are applied for properties priced between EUR 215,435 and 717,904.
But there are a lot of people who buy a house in Portugal as a secondary residence or holiday home. In this case you will pay 1% for any property priced below EUR 92,407 in continental Portugal or EUR 115, 509 in autonomous regions. All other IMT rates are the same.
In addition to the transfer tax, you'll pay stamp duty (Imposto de Selo) which adds another 0.8% to the tax bill or 0,5-0,6% if the property is financed by mortgage, depends if the payments are done within 5 years (0,5%) or more(0,6%), so that the total will usually come in at between 5.8% and 7.3%. You'll also want to allow 1% for the deed registration fee; though technically that's not a tax, it's still one of the obligatory transfer costs.
New property is also subject to VAT at 19%. Normally, the VAT is included in the advertised price, but it is worth checking that this is the case - it will only take a few minutes and could literally save you thousands of euros.
|All yearly payments for a property owner|
|The IMI (0,3-0,8%)|
|Light/water/gas (up to EUR 100 per month)|
Once you own your Portuguese home, of course, you're committed to paying local taxes. This comes in the shape of the IMI (Imposto Municipal sobre Imóveis), calculated as a percentage of the tax valuation of the property. You're responsible for the tax if you own the property on the last day of the tax year.
IMI runs at 0.3-0.4% of the property's value for urban homes, and 0.8% for rural properties, but the rate depends on the municipality. You'll generally pay in April, though amounts larger than EUR 250 can be paid in two instalments, EUR 500 and more can be split into 3 monthly payments.
If you have an urban property that's worth more than EUR 600,000 (EUR 1.2m for couples who submit a joint tax return) you'll also pay an additional property tax (AIMI), basically a wealth tax. AIMI is calculated at 0.7% of the property's value.
Note that with property taxes, Portugal imposes a special, higher rate of tax on properties owned by residents of blacklisted tax havens such as Bermuda, Barbados, Monaco, Andorra, or the Cayman Islands. If you actually live in a blacklisted country, it may be worth while buying and holding your property through an EU-domiciled company, instead.
If you rent out your holiday home, you'll have to pay tax on your rental income to the Portuguese authorities. This is charged at a flat rate of 28%, and you can't deduct your mortgage payments - but you can subtract your maintenance and repair costs, insurance premiums, local taxes you've paid, and property management costs. Remember that you'll remain liable to tax on your rental income at home, as well, though a double taxation treaty means you'll only pay extra if your local tax rate is more (you won't pay twice).
For low income households whose annual income is less than EUR 15,295 the property value they pay taxes for doesn’t exceed EUR 66,500. Note that property address should be the same as tax address, thus it’s mostly for residents (in case you’re planning relocation). Another option for tax benefit you can consider when moving to Portugal is 3 years free of the IMI for people buying their primary residence in Portugal.
As with the IMT buildings that are subject to urban rehabilitation can be free of the IMI within 3-5 years – the period for the rehabilitation.
For companies under the Investment Support Tax Regime the first 10 years can be free of the IMI payments.
When you sell a Portuguese property, you'll be liable to capital gains tax on your profit. Non-residents pay at 28% on the entire profit; Portuguese residents, on the other hand, only have to pay tax on half the total gain that they've made, and they're taxed on it as normal income, so that they pay the marginal income tax rate applicable.
There is a neat little wrinkle here for EU/EEA residents, who can elect to be taxed on the Portuguese basis. Then they will only pay tax on 50% of the total gain, at the Portuguese income scale rates, which go from 14.5% up to 48%. This is a complex choice, as under this alternative your entire (worldwide) income needs to be taken into account to find which marginal rate you should pay.
|Expenses when you sell a house in Portugal|
|Capital gains tax (up to 28%)|
|Land certificate (if it’s not ready yet) – EUR 30|
|Building register – EUR 10|
|Energy certification (depends on the municipality, but good if it’s already available when you buy a house)|
If the sale represents the majority of your income for the year, choosing the Portuguese basis could be in your favour - but if you have significant income elsewhere, or capital gains on the sale of shares or a family business, you could end up paying more than 28% with this option. Do your sums carefully, and take advice from a tax specialist if you feel doubtful.
If you're a Portuguese resident, you'll be exempted from capital gains tax if you are selling your home, but only if you reinvest all the proceeds in another EU/EEA located property which is intended to be your main home. If the new investment has a lower price, then you will have to pay that tax on the amount you are now making.
Whatever kind of home you buy, and whatever its value, the Portuguese government will be happy to take your tax payments. But of course, you will get something in return - hours of sunshine, great wine and food, lovely scenery, and the chance to live in a country that really knows how to hold a party!