REALWorld Law

What taxes are payable in relation to the purchase of real estate via the various types of corporate vehicle available and who is responsible for the payment of these taxes?

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 13 Mar 2025

What taxes are payable in relation to the purchase of real estate via the various types of corporate vehicle available and who is responsible for the payment of these taxes?

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. An IMI surcharge (designated as “AIMI”) may apply for urban property(ies) with a VPT exceeding EUR600,000 – the rates range between 0.4% (for individuals) or 0.7% (for legal entities) and a maximum rate of 1.5%. These rates are applied on the properties’ aggregate VPT. For real estate directly owned by entities domiciled in a tax haven jurisdiction, the applicable AIMI rate is 7.5%.

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 (extendable for an additional 2-year period), if the property’s value (for tax purposes) does not exceed EUR125,000. To benefit from this exemption, the income of the buyer’s household cannot exceed EUR153,300.

IMI exemptions are also available regarding buildings classified as being of national, public or local interest and buildings subject to rehabilitation (specific legal rehabilitation criteria must be observed). Other special exemptions and reductions may apply.  

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.

Last modified 13 Mar 2025

What taxes are payable in relation to the purchase of real estate via the various types of corporate vehicle available and who is responsible for the payment of these taxes?

Besides taxes, there are no other costs or charges payable in relation to the ownership of real estate in Portugal.

Last modified 13 Mar 2025

What taxes are payable in relation to the purchase of real estate via the various types of corporate vehicle available and who is responsible for the payment of these taxes?

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 13 Mar 2025

What taxes are payable in relation to the purchase of real estate via the various types of corporate vehicle available and who is responsible for the payment of these taxes?

Rents from urban, rural or mixed properties are classified as taxable income for Portuguese corporate income tax (IRC) purposes. If the investor is private, individual rents will be treated as taxable income for personal income tax (IRS) purposes.

Please note that the taxation of profits from the sale of property is referred in Taxation of disposals.

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:

Indirect investment through a corporate entity

The income of resident corporate taxpayers is subject to IRC at the general rate of 20% (in mainland Portugal). A reduced rate of 16% 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). If these entities qualify as startups, as defined under the applicable Portuguese legal framework, the reduced tax rate should be of 12.5 percent.

The income of resident corporate taxpayers may also be subject to a municipal surcharge of up to 1.5%, which is levied by many Portuguese local authorities.

A state surcharge is also applicable at rates ranging between 3% and 9% when the corporate taxable income is higher than 1.5 million EUR (the latter rate applies on taxable income exceeding 35 million EUR)..

Taxable income for IRC purposes is calculated on the basis of the net accounting profit as adjusted for tax purposes.

Direct investment through a permanent establishment

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.

Direct investment without a permanent establishment

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. Regarding 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.

Additionally, it should be noted that a special tax regime should be applicable for undertakings for collective investment (UCI) (including, among others, Real Estate Investment Funds [REIFs] and Real Estate Investment Companies [REICs]), and SIGIs (a special type of real estate investment company, subject to a significantly relaxed regulatory framework) that allows, among other particularities (e.g. exemption from state and local surcharges), for income qualifying as investment income, rental income and capital gains to generally not be subject to IRC at the level of the fund. 

Taxation of Investors:

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). Notwithstanding, the investor may choose to aggregate his or her income, in which case the general progressive tax rates (from 13% to 48%, plus solidarity surcharges) apply;

• Corporate investors – are subject to IRC at a provisional withholding tax rate of 25% (unless the relevant beneficiaries benefit from an exemption from IRC which excludes investment income, in which case the withholding is treated as a final tax).

• Non-resident investors who receive income distributed by real estate investment funds or by real estate investment companies, are subject to withholding tax at the rate of 10% (certain exclusions may, however, apply, as a result of anti-abuse provisions).

Last modified 13 Mar 2025

What taxes are payable in relation to the purchase of real estate via the various types of corporate vehicle available and who is responsible for the payment of these taxes?

Income generated by investment can be transferred on the following terms:

Direct investment through a permanent establishment

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.

Direct investment without a permanent establishment

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.

Indirect investment through a corporate entity

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:

Portuguese-resident corporate shareholders

• Provisional withholding tax
• Distributions of dividends to Portuguese-resident corporate shareholders may be made without withholding tax if the participation exemption regime applies, and such equity was held by the shareholder in the year preceding the distribution. If the shareholder has its registered office in Portugal (ie is a Portuguese corporate entity) or if its management is located on Portuguese territory then it is deemed to be tax resident.

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:

1. the taxpayer holds shares representing at least 10% of the share capital or voting rights of the entity distributing the dividends;
2. the relevant holding is maintained uninterruptedly during at least one year;
3. the taxpayer does not fall within the tax transparency regime;
4. the entity distributing the dividends is subject to and not exempt from IRC or any identical tax at a rate not lower than 60% of the Portuguese tax (for 2020 this will be 12.6%); and
5. the entity distributing profits is not resident in a country, territory or region with a preferential tax regime.

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.

• 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 €35 million the surcharge rises to 5%. Above €35 million the surcharge rises to 9%. Taxable income for IRC purposes is calculated on the basis of the net accounting profit as adjusted for tax purposes.

Corporate shareholders not established in Portugal (definitive withholding tax)

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:

1. in a Member State of the European Union;
2. in an EEA country which has agreed to administrative cooperation;
3. in a State with whom a DTA has been entered into.

Besides the requirements regarding the tax residency of the shareholder further conditions need to be met; notably

1. the taxpayer must hold shares representing at least 10% of the share capital or voting rights of the entity distributing the dividends before the dividends are made available;
2. the referred holding must be maintained uninterruptedly during the year preceding the distribution;
3. the entity distributing the dividends must not fall within the tax transparency regime;
4. the shareholder must be subject to and not exempt from a corporate income tax mentioned in the EU Parent Subsidiary Directive, or to a corporate income tax similar to IRC, at a rate not lower than 60% of the Portuguese tax (for 2022 this will be 12.6%).

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:

• the company to which the profits are distributed holds at least 25% of the share capital of the company distributing the dividends (direct holding), for at least two years;
• in the terms set out in the DTAs entered into by Portugal and Switzerland with third countries, the company is not deemed to be tax resident in that third country; and
• both companies are subject and not exempt from Corporate Income Tax and both companies are limited liability companies.

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 13 Mar 2025

What taxes are payable in relation to the purchase of real estate via the various types of corporate vehicle available and who is responsible for the payment of these taxes?

The income generated from real estate ownership is only subject to taxes. No other cost or charges are payable.

Last modified 13 Mar 2025

What taxes are payable in relation to the purchase of real estate via the various types of corporate vehicle available and who is responsible for the payment of these taxes?

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 13 Mar 2025

What taxes are payable in relation to the purchase of real estate via the various types of corporate vehicle available and who is responsible for the payment of these taxes?

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:

Real estate assets held by a foreign investor through a corporate vehicle

• Sale of real estate by the corporate vehicle

A corporate vehicle established under Portuguese law is subject to IRC in accordance with the rules prescribed in the chapter “Taxation of income – Indirect investment through a corporate entity”. Only 50% of the capital gains are 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.

• Sale of shares in a corporate vehicle

Capital gains of non-residents arising from the disposal of shares in a Portuguese-based property company should be subject, as a rule, to a IRC rate of 25%.

For individuals, the applicable PIT rate is, as a rule, of 28%. Notwithstanding, short-term net capital gains (defined as those arising from securities held for less than 365 days) may be subject to progressive PIT rates (subject to certain requirements)). Notwithstanding the above, reductions of the capital gains may be applicable (eg if the participations are held in a company recognized as a micro or small company, subject to certain additional requirements).

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.

Real estate assets held by foreign investors through a PE 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 are 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.

Real estate assets held by foreign investors directly without a permanent establishment in Portugal

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 (in the latter case, applied over 50% of the gain).

Last modified 13 Mar 2025

What taxes are payable in relation to the purchase of real estate via the various types of corporate vehicle available and who is responsible for the payment of these taxes?

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 13 Mar 2025