4 July, 2024

| Taxes, Finances & Legal

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.

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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.