Investments in real estate can be performed individually or structured through vehicles such as commercial companies, real estate investment funds, property investment companies.
Last modified 22 Mar 2024
The following taxes may apply to the purchase of real estate, depending on the structure of the deal.
Asset deals:
Share deals:
Municipal Property Transfer Tax (IMT) will be calculated on the price of the transaction or on the VPT (value of the real estate assessed by the Tax Authority), whichever is higher.
IMT is calculated using the following formula:
(Taxable value x Rate) – Threshold deduction = IMT to be paid.
IMT is charged at the following rates:
|
Taxable value (€) |
Rate |
Threshold deduction (€) |
|
Up to 101,917 |
0 |
0 |
|
Above 101,917 to 139,412 |
2% |
2,038.34 |
|
Above 139,412 to 190,086 |
5% |
6,220.70 |
|
Above 190,086 to 316,772 |
7% |
10,022.42 |
|
Above 316,772 to 633,453 |
8% |
13,190.14 |
|
Above 633,453 to 1,102,920 |
6% |
0 |
|
Above 1,102,920 |
7.5% |
0 |
|
Taxable value (€) |
Rate |
Threshold deduction (€) |
|
Up to 101,917 |
1% |
0 |
|
Above 101,917 to 139,412 |
2% |
1,019.17 |
|
Above 139,412 to 190,086 |
5% |
5,201.53 |
|
Above 190,086 to 316,772 |
7% |
9,003.25 |
|
Above 16,772 to 607,528 |
8% |
12,170.97 |
|
Above 607,528 to 1,102,920 |
6% |
0 |
|
Above 1,102,920 |
7.5% |
0 |
To discourage the purchase of real estate in Portugal through offshore companies, IMT is levied at a rate of 10% if the buyer is a company established in a country, territory or region with a preferential tax regime. Further, as of 1 January 2021, the same punitive tax rate applies, when the acquirer is an entity dominated or controlled, direct or indirectly by a company established in a country, territory or region subject to a preferential tax regime. In these cases, no exemptions are made available.
Since 2016 the acquisition of real estate by open-end or privately placed closed-end Real Estate Investment Funds or Retirement Savings Funds are no longer exempt from IMT (until 31 December 2018 it was still possible to challenge the 2016 repeal of the exemption with respect to Real Estate Investment Funds; this interpretation has been followed in numerous arbitration decisions).
However, the property deals may be exempt from IMT or may benefit from tax reliefs in the following cases, among others:
Real estate owned by open-ended or publicly offered closed-end Real Estate Investment Funds (REIFs), pension funds, or retirement funds no longer benefit from a 50% IMI exemption.
The transfer of property is also subject to a flat rate of 0.8% of stamp duty. Stamp duty will be calculated on the price of the transaction or on the VPT, whichever is higher.
Although, as a rule, the transfer of property and shares in Portugal is exempt from VAT, transfers of property can be subject to the tax. A seller may waive the exemption if certain conditions have been met and they have complied with various formalities.
If the exemption is waived, VAT can be recovered in accordance with provisions in the Portuguese VAT code.
In the case of a share deal, as of 1 January 2021, IMT applies to the purchase of an equity position both in a private limited liability company (Lda.) and in a corporation (S.A.) which holds real estate assets located in Portugal if the following requirements are cumulatively met:
Until December 31, 2020, IMT could only apply with respect to private limited liability companies, but this tax applied in all cases resulting in a transfer of at least 75% of the share capital of the company.
If the purchase of shares involves a privately placed closed-end Real Estate Investment Funds, the transaction is subject to IMT if after the acquisition the acquirer holds 75% or more of the units in the fund.
In both cases – asset deals and share deals ― the buyer is responsible for the assessment and payment of IMT, as well as VAT (reverse charge mechanism), if applicable. IMT must be paid before the deed and the notary is obliged to confirm its payment.
Stamp duty, where applicable, is paid by the buyer (who normally also pays the notary's fees). The buyer must present the payment proof to the notary at the moment of the transfer signature. The tax is paid through a document issued by the tax authority (the buyer can issue the document in the tax authority website or request it in a tax authority service).
Also, the attribution of immovable property by means of reimbursement in kind of participation units, arising from the liquidation of privately placed closed-end real estate investment funds, is subject to IMT.
The same is applicable to the transmission of immovable property arising from the merger of the referred kind of Funds.
Last modified 22 Mar 2024
As a rule, the transfer of property and shares in Portugal is exempt from VAT.
Nonetheless, in the case of a transfer of property, a seller may waive the exemption if certain conditions have been met and they have complied with various formalities.
If the exemption is waived, VAT can be recovered in accordance with specific dispositions set out in the Portuguese VAT Code.
Last modified 22 Mar 2024
In Portugal, the transfer of real estate requires the payment of notary's fees, if the transfer was executed through public deed and also registration fees regarding the registry of the acquisition before the relevant Land Registry Office. In general, the acquirer pays these transaction costs.
Last modified 22 Mar 2024
IMI is a municipal property tax, payable by the owner or occupier of the property (excluding tenants), on the VPT (value of the real estate assessed by the tax authority) of urban and rural properties.
IMI is payable on the VPT of each property at rates which range between 0.3% and 0.8%, depending on the municipality and on the type of property.
Urban properties solely for the residential use of the buyer, as his primary domicile, may benefit from a temporary exemption from IMI for up to three years, if the property’s value (for tax purposes) does not exceed €125,000. To benefit of this exemption, the income of the buyer’s household cannot exceed €153,300.
IMI exemptions are also possible in the case of projects of economic importance, or buildings classified as of national, public or municipal interest.
These deals may also be exempt from IMI or may benefit from tax reliefs in the following cases, among others:
IMI is borne by the owners of property and it is collected by the municipalities according to the valuation of the property determined by the tax authorities.
The Portuguese State Budget for 2017 introduced the Additional to the IMI (AIMI). The AIMI is levied on the sum of the VPT’s of all dwellings owned or in relation to which the taxpayer has the right of use or the surface right.
In the case of individuals, €600,000 should be deducted from the sum of the VPT of all dwellings, being the AIMI levied on the residual value at a rate of 0.7% where the taxable value is less than €1 million, and of 1% marginal rate if and where higher. A marginal rate of 1.5% is applied when the taxable value is above €2 million.
In the case of companies, no deduction is to be applied, and the AIMI should be levied at a rate of 0.4%.
The value of real estate assets held by companies that are allocated to the personal use of equity holders, members of company bodies, or their spouses, ascendants and descendants is subject to a rate of 0.7%, where the taxable value is less than €1 million, a 1% marginal rate if higher than €1 million and less than €2 million and a marginal rate of 1.5% if higher than €2 million.
Urban property classified as “commercial”, “industrial” or “for services” and “others” are excluded from AIMI.
For dwellings owned by an entity established in a country, territory or region with a preferential tax regime the AIMI rate is 7.5%.
Dwellings covered by an exemption on IMI are also not subject to AIMI.
Last modified 22 Mar 2024
Besides taxes, there are no other costs or charges payable in relation to the ownership of real estate in Portugal.
Last modified 22 Mar 2024
Rents and the profit from sales of property (that can be treated as profit or capital gain) are the types of income that can be expected from ownership of real estate.
Last modified 22 Mar 2024
Rents from urban, rural or mixed properties are classified as taxable income for the purposes of Portuguese corporate income tax (IRC). If the investor is private, individual rents will be treated as taxable income for Personal Income Tax (IRS) purposes.
Whether generated through a resident corporate entity, a permanent establishment in Portugal or without a permanent establishment, rents from real estate located in Portugal are always subject to income tax. However, there are some peculiarities:
The income of resident corporate taxpayers is subject to IRC at the general rate of 21% (on the Portuguese mainland). A reduced rate of 17% may be applicable to the first €50,000 of taxable income (if the company is recognized as a small or medium-sized company, or as a small mid cap). To be recognized as small or medium-sized, the company must have fewer than 250 employees and its annual turnover must not exceed €50 million or its annual balance sheet total must not exceed €43 million. To be recognized as a small mid cap, the company must have less than 500 employees.The reduced rate mentioned above should be of 12.5% if the company qualifies as a start-up entity in accordance with the applicable Portuguese requirements.
The income of resident corporate taxpayers is also subject to a municipal surcharge of up to 1.5%, which is levied by many Portuguese municipalities, and a state surcharge of 3% applies to income varying between €1.5 million and €7.5 million. For income between €7.5 million and €35million the surcharge rises to 5%. Above €35 million the surcharge rises to 9%. The municipal surcharge and the state surcharge are applied on the income determined prior to deduction of losses.
A corporate entity is entitled to deduct costs related to maintenance and repairs, as well as general costs and municipal property tax (IMI), and other specific costs such as those incurred in connection with the construction or acquisition of the property and depreciation (excluding land).
Income attributable to a permanent establishment (PE) in Portugal is liable to IRC in the same way as a Portuguese-resident company at the rates mentioned above for resident corporations.
If the investor does not have a permanent establishment in Portugal, Income Tax (IRC or IRS) is only payable on income generated in Portugal.
Income derived from rents, is subject to Corporate Income Tax, at a rate of 25% for non-residents. As to the Personal Income Tax, the rate is of 28% for non-housing leases and 25% for housing leases (with potential reductions). The costs incurred by the taxpayer to obtain the rental income are tax deductible, except with respect to the following costs: financial costs, depreciation, furniture, fixtures, equipment and décor items, and the AIMI. A withholding tax of 25% may apply to non-resident individuals or corporations, if the lessee is an entity or individual required to prepare and to maintain audited accounts in Portugal, as is typically the case with a commercial lease.
Foreign investors must file an annual tax return with The Portuguese Tax Authority.
Decree-Law No. 7/2015 of 13 January 2015, which came into force on 1 July 2015, introduced the current tax regime for undertakings for collective investment (UCI), applicable to following entities:
Following a major trend in the taxation of investment vehicles in Europe, this law adopts the “exit taxation method”, whereby the taxation of income in the main is applied to the investors rather than the fund.
The SIGIs (a special type of real estate investment company, subject to a significantly relaxed regulatory framework) are also subject to the income tax regime applicable to UCIs (the SIGIs’ regime entered into force on February 1, 2019). The tax comments made below with reference to REIFs/REICs should also be read as applying to SIGIs.
In respect of income derived from REIFs/REICs, Non-resident Investors without a local PE will be subject to a withholding tax in Portugal at a rate of 10%.
Income derived from units in real estate investment funds and from shares in real estate investment companies are classified as income deriving from property for the purpose of this regime.
The fiscal regime governing REIFs can be summarized as follows:
Resident investors:
Individuals – are subject to IRS at a withholding tax rate of 28% for non-housing leases and 25% for housing leases (potentially reduced). This is generally a final withholding tax, which settles the investor’s tax obligation, provided that the income in question is obtained outside the scope of a commercial, industrial, or agricultural activity, unless the investor chooses to aggregate his or her income, in which case the general progressive tax rates (from 14.5% to 48%, plus solidarity surcharges) apply;
Non-resident investors who:
are subject to withholding tax at definitive rates of 25%, 28% or 35% – being the rates prescribed for the regime applicable to resident investors.
Certain reductions in the rates of Municipal Property Tax (IMI) may also apply.
Last modified 22 Mar 2024
Income generated by investment can be transferred on the following terms:
Once the profits have been taxed in Portugal, income can be transferred to foreign investors without any further taxation. This is because a transfer between a Portuguese PE and its head office is considered to be an internal transfer within the same corporate entity.
Any tax paid by the investor in Portugal usually receives a tax credit in its country of residence, under most double-taxation agreements ('DTA') entered into between Portugal and other states.
In Portugal tax may have to be withheld on the distribution of dividends to shareholders. Tax withheld (if mandatory) may be provisional for residents and definitive for non-residents. This depends on the investor’s status as follows:
In all other cases a 25% withholding tax applies and the amount received as dividends is also taken into account in determining the taxable profits for the accounting period of the Portuguese-resident corporate shareholder.
Definitive taxation
Distributions of dividends to Portuguese-resident corporate shareholders are exempt from IRC if certain conditions are met, notably:
If the conditions are not met, the amount received as dividends is also taken into account in determining the taxable profits for the accounting period of the Portuguese-resident corporate shareholder.
The income of resident taxpayers is subject to IRC at the general rate of 21% (on the Portuguese mainland). A reduced rate of 17% may be applicable to the first €50,000 of taxable income (if the company is recognized as a small or medium-sized company, or as a small mid cap). To be recognized as small or medium-sized, the company must have fewer than 250 employees and its annual turnover must not exceed €50 million or its annual balance sheet total must not exceed €43 million. To be recognized as a small mid cap, the company must have less than 500 employees. The reduced rate mentioned above should be of 12.5% if the company qualifies as a start-up entity in accordance with the applicable Portuguese requirements.
Profits distributed by a legal entity which is tax resident in Portugal (provided the entity is subject to and not exempt from taxation and is not a tax transparent entity), are exempt from IRC if the shareholder is resident:
Besides the requirements regarding the tax residency of the shareholder further conditions need to be met; notably
Additionally, profits distributed to a company deemed to be tax resident in Switzerland are exempt from IRC in the terms set out in article 15 of the EU-Switzerland Agreement if:
If the abovementioned requirements are not met, 25% of any dividend paid must be withheld by the Portuguese corporate vehicle except where a DTA is deemed applicable.
Most of the DTAs entered into by Portugal, following the OECD Model Treaty, establish that the applicable Portuguese withholding tax rate on dividend or profit distributions cannot exceed 15% or 10%, depending on the percentage of the participation in the corporate vehicle.
Dividends paid to shareholders established in a country, territory or region whose tax regime is deemed to be clearly more favourable will be subject to withholding tax at a rate of 35%.
Dividends deposited in accounts of fiduciary entities, which act on behalf of undisclosed third parties, will be subject to withholding tax at a rate of 35%.
Last modified 22 Mar 2024
The income generated from real estate ownership is only subject to taxes. No other cost or charges are payable.
Last modified 22 Mar 2024
If the income generated from real estate ownership is transferred to shareholders or partners, this income is only subject to taxes. No other cost or charges are payable.
Last modified 22 Mar 2024
Whether generated through a resident corporate vehicle, a permanent establishment (PE) of a non-resident entity or a non-resident entity without a PE, income from the sale of real estate may be subject to tax as follows:
A corporate vehicle established under Portuguese law is subject to IRC at 21% plus surcharges up to 9 % on any capital gains arising from the sale of real estate. Municipal surcharges of up to 1.5% may also apply. A reduced 17% tax rate applies on the first €50,000 of taxable income, with respect to small or medium-sized entities and to small mid cap (see definitions above). The reduced rate mentioned above should be of 12.5% if the company qualifies as a start-up entity in accordance with the applicable Portuguese requirements.
In the case of a Portuguese corporate vehicle, capital gains can be offset against other capital costs or losses. Only 50% of the capital gains need to be included in taxable income for IRC purposes if the sale proceeds from certain real estate assets are reinvested in the purchase of certain qualified assets.
Portuguese taxation on the capital gains of non-residents arising from the disposal of shares in a Portuguese-based property company applies as follows:
Certain domestic exemptions from Portuguese capital gains tax on the sale of shares by non-Portuguese-resident individuals or entities are available. However, these do not apply to the disposal of shares in Portuguese-resident companies where more than 50% of the company's assets consist of immovable property located in Portugal, or of shares in holding companies in which an affiliated or controlled company holds more than 50% of its assets in immovable property located in Portugal. Indirect transfer of shares may also be subject to capital gains tax in Portugal.
A PE is taxed on capital gains or business profits arising from the disposal of real estate in the same way as a Portuguese corporate vehicle.
Capital gains can be offset against other capital costs or losses. Only 50% of the capital gains need to be included in taxable income for IRC purposes if the sale proceeds from certain real estate assets are reinvested in the purchase of certain qualified assets.
Capital gains or business profits from the sale of real estate are subject to IRC at a flat rate of 25% or IRS at progressive rates, applied over 50% of the gain.
Last modified 22 Mar 2024
In Portugal, the transfer of real estate property, if executed by public deed, requires the payment of notary's fees. As a rule, the buyer is responsible for these fees.
Last modified 22 Mar 2024
What taxes are payable on the sale of real estate and can these be reduced or offset in any way?
Whether generated through a resident corporate vehicle, a permanent establishment (PE) of a non-resident entity or a non-resident entity without a PE, income from the sale of real estate may be subject to tax as follows:
A corporate vehicle established under Portuguese law is subject to IRC at 21% plus surcharges up to 9 % on any capital gains arising from the sale of real estate. Municipal surcharges of up to 1.5% may also apply. A reduced 17% tax rate applies on the first €50,000 of taxable income, with respect to small or medium-sized entities and to small mid cap (see definitions above). The reduced rate mentioned above should be of 12.5% if the company qualifies as a start-up entity in accordance with the applicable Portuguese requirements.
In the case of a Portuguese corporate vehicle, capital gains can be offset against other capital costs or losses. Only 50% of the capital gains need to be included in taxable income for IRC purposes if the sale proceeds from certain real estate assets are reinvested in the purchase of certain qualified assets.
Portuguese taxation on the capital gains of non-residents arising from the disposal of shares in a Portuguese-based property company applies as follows:
Certain domestic exemptions from Portuguese capital gains tax on the sale of shares by non-Portuguese-resident individuals or entities are available. However, these do not apply to the disposal of shares in Portuguese-resident companies where more than 50% of the company's assets consist of immovable property located in Portugal, or of shares in holding companies in which an affiliated or controlled company holds more than 50% of its assets in immovable property located in Portugal. Indirect transfer of shares may also be subject to capital gains tax in Portugal.
A PE is taxed on capital gains or business profits arising from the disposal of real estate in the same way as a Portuguese corporate vehicle.
Capital gains can be offset against other capital costs or losses. Only 50% of the capital gains need to be included in taxable income for IRC purposes if the sale proceeds from certain real estate assets are reinvested in the purchase of certain qualified assets.
Capital gains or business profits from the sale of real estate are subject to IRC at a flat rate of 25% or IRS at progressive rates, applied over 50% of the gain.
Last modified 22 Mar 2024