Investors looking to buy commercial properties in Portugal will be faced to deal with tax payment in different stages of their investment cycle. There are 3 main groups of taxes that apply to real estate investment: taxes on acquisition, on ownership and disposal of a property. Please note this article refer only to acquisition of commercial properties. Residential properties have different tax structure.

Taxes on Acquisition

• Property Transfer Tax – acquisition of commercial properties in Portugal, including land for development, is subject to Property Transfer Tax at a flat rate of 6.5%. The amount of tax is calculated on the property purchase price or its tax registered value, whichever is higher.
• Stamp Duty – this tax is levied at a rate of 0.8% on the higher of the property purchase price or its tax registered value. Financing and guarantees related to the property, like mortgages, are also subject to a 0.4% stamp duty tax.
• Value Add Tax – As a general rule, the transfer of property in Portugal isn’t subject to value added tax. However, the “exemption waiver” of VAT is possible and may be useful in case the construction has been carried out in the property and VAT paid therein is to be recovered by the respective developer.
• Notary and Land Registry Fees – In Portugal, the transfer of real estate ownership is documented through a public deed (escritura pública), a notary public (notário) must be involved. The notary fee covers their services in ensuring the legality and accuracy of the deed. These fees typically range between €500 and €1,000 per transaction and can be deducted as an expense. Once the public deed is finalized, the property transfer must be registered with the relevant Land Registry Office (Conservatória do Registo Predial). This registration process incurs a flat fee of €270. According to market practice, the buyer is responsible for paying both the notary fees and the land registry fees.

Taxes on Ownership

Property owners in Portugal are subject to an annual tax called the Municipal Property Tax (Imposto Municipal sobre Imóveis – IMI). This tax is levied on the property’s registered tax value, not the market value. The payment deadline is December 31st of each year.

IMI tax rates are set annually by individual municipalities across Portugal. These rates typically range between 0.3% and 0.45% for urban properties and land designated for development. Rural properties, including farms, agricultural land, and rustic buildings outside urban areas, are subject to a higher rate of 0.8%.

Taxes on Rental Income

The tax treatment of rental income in Portugal depends on investor residency status:

• Non-Residents: Rental income earned in Portugal by non-resident individuals and companies is subject to a flat tax rate. This rate is 28% for individuals and 25% for companies. You are considered a non-resident if you spend less than 183 days per year in Portugal or if your fiscal address is not located there.
• Residents: Rental income for resident companies is subject to Portugal’s corporate income tax rate of 21%. For resident individuals, rental income is taxed under the personal income tax regime, with a rate of 28%.

Taxes on Property Disposal (Sale)

Portugal applies a capital gains tax to profits earned from selling property. The tax rate depends on investor residency status:

• For non-resident individuals and companies, capital gains are taxed at a flat rate. This rate is 28% for individuals and 25% for companies.
• For resident companies, capital gains are subject to Portugal’s corporate income tax rate of 21%. Resident individuals pay capital gains tax under the personal income tax regime, with a rate of 28%.

The amount of capital gains subject to taxation is calculated by subtracting the following from the sale price of the property:

• Acquisition costs (including the original purchase price)
• Sale costs (e.g., agent fees)
• Any capital expenditure made within 5 years prior to the sale (improvements, renovations, etc.)

Important Note: It’s always recommended to consult with a tax professional to ensure you understand your specific tax obligations when selling property in Portugal.

Wealth, Inheritance & Donations Taxes

Portugal does not currently have a wealth tax. This means investors are not taxed simply for owning assets like property in Portugal.
Portuguese tax system levy a stamp tax on both donations and inheritance of property:

• Donations: Transferring property ownership through donation is subject to a stamp tax of 0.8% of the property’s value.
• Inheritance: Inheriting property is subject to a stamp tax of 10% of the property’s value.

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Looking to invest in commercial real estate in Portugal? Contact us today for a free consultation and discover how we can help you unlock the exciting prospects of Portuguese commercial real estate market.

Phone/WhatsApp | +351 968 656 255
Email | info@prima-carta.com

Prima Carta, a Portuguese commercial real estate broker, empowers international investors to capitalize on Portugal’s flourishing property market. We specialize in Lisbon city and its surrounding neighborhoods, providing comprehensive support throughout the entire investment journey. Our clientele includes private investors, family offices, real estate private equity firms, and institutional investors seeking lucrative investment properties in Portugal.

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Considering investing in already leased commercial property in Portugal? Understanding the legalities of leasing is crucial, especially from the perspective of an overseas investor. This guide provides an overview of key aspects of commercial lease agreements in Portugal, specifically geared towards investors who are acquiring properties with existing tenants. It’s important to note that this information applies solely to commercial properties and does not cover residential leases.

Duration

Commercial leases in Portugal are flexible regarding duration. Parties can freely agree on a term between 1 year and 30 years. If no specific term is stated, the lease defaults to a 5-year term. Leases exceeding six years must be registered with the Land Registry Office.

The agreement can address termination rights, break options, and lease renewal terms. It can also specify rules for maintenance and repairs on the property.

Rent Value and Updates

Rent is typically calculated per square meter of leased space and is usually payable monthly in advance. A security deposit or bank guarantee, equal to a set number of monthly rents (most common is two months), is standard practice to ensure the tenant meets their obligations.

Rent is generally charged without VAT. However, both parties must meet specific requirements to request a waiver from the VAT exemption. The current VAT rate for leasing purposes is 23%.

The lease agreement can specify phased or variable rents, along with mechanisms for rent updates. An annual update based on the official price consumer index is most common, but alternative criteria can be agreed upon.

Operating Expenses

The tenant covers charges for utilities like water, electricity, and internet related to the property’s use. They are only responsible for other expenses if explicitly outlined in the lease agreement.

The landlord typically handles property tax and insurance fees. Unless otherwise agreed, the landlord is responsible for structural property repairs, while the tenant is usually responsible for ordinary maintenance.

Maintenance, Repair, and Reinstatement at End of Lease

The tenant generally needs written landlord consent for any works on the property, except in emergencies. However, the tenant is obligated to perform routine maintenance to keep the property suitable for its intended purpose. 

The tenant can make improvements with the right to compensation upon removal, provided it doesn’t damage the property (unless otherwise agreed). The landlord is responsible for maintaining common areas in the building, with exceptions outlined in the lease.

The lease should specify the condition in which the premises will be returned at the end of the term, considering reasonable wear and tear.

Assignments, Transfers of Lease & Subleases

Assigning the lease requires the landlord’s prior written consent, except in cases where the tenant’s entire business undertaking is transferred, which automatically transfers the lease agreement. The landlord has a pre-emption right in such situations.

Subletting the property, in whole or part, requires the landlord’s prior written consent. Failure to obtain consent can lead to lease termination. The sublease rent cannot exceed the original lease rent plus 20%, unless otherwise agreed with the landlord.

Termination

The landlord can only terminate the lease early for specific reasons, such as the tenant defaulting on rent for three months or more. The law outlines some grounds for termination, and the lease agreement can specify additional events constituting a default.

Commercial leases offer more flexibility for break options during the lease term. The agreement can allow for automatic renewals at set intervals, with recent legal changes requiring the landlord to wait at least 5 years before opposing the first renewal. Non-renewable leases are also possible.

Sale of Leased Property

The sale of a leased property does not affect the existing lease. All rights and obligations simply transfer to the new owner. However, for leases exceeding two years, the tenant has a pre-emption right to purchase the property. The tenant must be notified of the sale and its terms to exercise this right.

Looking to buy commercial real estate in Portugal? Contact us today for a free consultation and discover how we can help you unlock the exciting prospects of Portuguese commercial real estate market.

Get in touch with us!
Phone/WhatsApp | +351 968 656 255
Email | info@prima-carta.com

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