Property tax in Portugal includes transfer tax (IMT) and stamp duty. Remember to factor these taxes and more into your property purchase.
Transfer tax (IMT)
A transfer tax is paid by the buyer on the purchase of a Portugal resale property. The rate payable depends on the use of the property and whether it is your main or second home.
The buyer is eligible to pay stamp duty at the standard rate unless the sale is subject to VAT, which is charged on new buildings. Stamp duty is also charged on residential buildings worth €1m or more.
Annual Municipal property tax (IMI)
Annual Municipal property tax is charged to the relevant property owner on 31st December of that year. This tax is based on the registered value of the property and is set by the local authority according to type, location and age.
Tax on rental income
Rental income from your property in Portugal is taxable whether you’re a Portuguese tax resident or not. If you’re a tax resident in another country, you can also be taxed on your rental income there. However, Portugal’s double tax treaties with a number of countries mean that if, for example, you’re a UK tax resident, tax paid in Portugal can be credited against tax due in the UK.
Looking ahead…Capital Gains tax
If you sell your property in Portugal, capital gains tax is payable. For UK tax residents, under the terms of the double tax treaty, tax paid in Portugal can be credited against tax due in the UK.
Tax rates and exemptions vary according to your use of a Portugal property as a main home, holiday home or investment. Another factor affecting your Portugal tax rate brings us to our next point - the benefits of being a non-habitual tax resident in Portugal.
What are the benefits of being a non-habitual tax resident in Portugal?
If you’re a non-habitual tax resident in Portugal, you can receive certain tax free income in Portugal and the country of the income source for ten years.
You’re eligible for non-habitual resident (NHR) status when you become a Portuguese tax resident, spending more than 183 days in Portugal during the 1st January-31st December tax year. You can also apply if you own property in Portugal where you intend to live permanently as on 31st December of that year, if you haven’t been a Portuguese tax resident in the previous five years.
NHR status is a legitimate way to earn, save and invest without paying inheritance tax in Portugal, taxes on the disposal of assets or pension income; a particular advantage for retirees.
If you move from a country that has a double tax treaty with Portugal, you can be exempt from tax on income earned in that country, such as investments and salary. NHR also means that if you work in Portugal and receive an income from a ‘high-value’ profession you’ll only be taxed at a flat rate of 20% of your Portuguese income - however high. Valued professions include architecture and dentistry.
Important: This information is for guidance purposes only and is subject to change. Winkworth International recommends that prospective buyers of Portugal property always obtain professional legal advice.