The guide to spectacular property in and around ... - Quinta Properties

Portuguese Property
and Taxation
The Facts about Tax
Portugal, like any other country in
Europe, has an array of taxes that
relate to property. Some are
connected to possession of the property,
others to different forms of related
income, while still others to its
transmission. What was that proverb
about Death and Taxes?
Non-Residents and Fiscal
Representation
Under current Portuguese legislation, it
is mandatory in most instances for nonresidents
with income arising in
Portugal to have Fiscal Representation.
The Fiscal Representative is obliged to
see that the non-resident meets
compulsory compliance commitments.
As the liaison between the taxpayer
and the Finanças, the Fiscal
Representative can also help guide the
non-resident through Portuguese
bureaucracy.
I. Inheritance Tax
Let’s start with the good news.
Portugal abolished Inheritance Tax as
of 1 January 2004. All family members
(spouse, children, grandchildren,
parents and grandparents) are exempt
from tax on gratuitous transfers due to
either Gift or Inheritance. All others
are assessed Stamp Duty at a flat rate
of 10%.
II: Municipal Property Transfer Tax
IMT, formerly called ‘Sisa’, is levied
when property is bought and sold: the
transfer for consideration of ownership
rights or of partial ownership on real
estate (immovable property). The taxable
person is the one who acquires
the property.
Rates: for buildings intended exclusively for housing purposes in 2006
Percentage Rates – 2006
Amount liable to Transfer Tax Marginal Rate Tax Band Adjustment
(Euros) (% of purchase price) (Reduced by)
up to €85,000 0 -
over €83,500 - €114,800 2% €1,670
over €114,800 - €156,500 5% €4,246
over €156,500 - €260,900 7% €8,244
over €260,900 - €521,700 8% €10,853
over €521,700 single rate of 6% -
Assessment and Collection
Payment must be made prior to the Deed of transfer at the local tax office.
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III. Stamp Duty
One must also pay Stamp Duty on
deeds, contracts, documents, titles,
books, papers and financial operations.
This tax is paid by the purchaser.
The Stamp Duty is levied on the value
of each taxable deed or
operation at a tax rate which varies
according to the type of deed or
operation. For real property, a Gift or
Sale is assessed at 0.8%.
IV. Individual Income Tax – ‘IRS’
If you have income arising in Portugal
related to your Property, you (or your
fiscal representative) must report any
earnings on an annual income tax
declaration (‘IRS’). Non-residents can
then claim a foreign tax credit in their
home jurisdiction, usually offsetting the
Portuguese assessment.
• Other Urban Property, such as
building plots: 6.5%
• ‘Rustic’ Property
(agricultural land): 5.0%
• When a company listed in one
of the Black-Listed
jurisdictions
acquires a property in
Portugal: punitive tax rate
of 15%
• When a company listed in a
White-Listed jurisdiction
acquires a property in Portugal
the same rates apply as shown
in the table to the left.
• If one purchases the shares of
a Maltese of Delaware
company, there is no property
purchase tax in Portugal.
‘Letting’ as a Business
Residents who engage in tourist related
business activities are eligible for privileged
treatment under the ‘Simplified
Regime’. If you let out furnished
accommodations to tourists on a
short-term basis, you are only taxable
on 20% of your invoiced income and
enjoy an 80% exclusion. Beware, however,
that there are accessory requirements,
such as licensing of premises,
VAT reporting when income exceeds
€10,000 per annum and Social
Security deductions as of the second
year of business. All in all, although
there are a few hurdles to overcome,
this mode of business operation can be
highly advantageous. Being fully compliant
usually means only a very modest
tax burden.
Rental Income and Non-Residents
Since non-residents are not eligible for
the ‘Simplified Regime’, the simplest
way to declare rental income is under
Category F, Rental Income. As of 2005,
non-residents benefit from a special tax
rate of 15% for this type of income.
The tax paid in Portugal should be eligible
for a foreign tax credit in the
home jurisdiction.
If you rent out a house or an apartment
in Portugal, you will need to
declare the income first on a
Portuguese income tax return. Even if
your ‘renters’ were foreign holiday
makers and you were paid outside of
Portugal, you still need to declare the
income to Finanças. Tax paid in
Portugal should be eligible for a foreign
tax credit in the jurisdiction of tax residence.
Be sure to consult the
appropriate Double Taxation Treaty
on how to deal with any potential
conflicts.
CGT for Individuals
When you sell a property in Portugal,
the notary who performs the deed is
required to report the transaction to
Finanças. Stated more bluntly, if you
don’t report the sale, he will, and they
will come after you.
How to calculate the gain
Although it is Finanças, not you, who
does the actual calculation, it may be
worthwhile knowing what you will
have to pay. Let’s suppose that you sell
your home in 2005 that you had origi-
nally purchased in 1994. Calculate your
Capital Gains as follows:
Step 1: From the sale price, subtract
any selling costs (commissions, notary
fees, etc.)
Step 2: From the purchase price, add
qualifying expenses (closing costs, legal
fees, etc.), then multiply by the Inflation
Adjustment Coefficient
Step 3: Add to the purchase price
any documented capital improvements
in the past 5 years.
Conclusion: The difference between
the adjusted purchase and sales prices
is your net taxable profit.
Proper invoices can be a major
problem. Many contractors give only
informal receipts that are not valid for
tax purposes. If this dilemma reaches
significant proportions in your instance,
specific tax advice may be in order.
Taxation: Resident vs. Non-Resident
As with all aspects of taxation in most
countries, tax breaks exist for residents
(who are the voters) that do not exist
for non-residents (who cannot vote).
Those that make their permanent
residence home outside of Portugal
pay a flat tax of 25%, more than any
resident higher rate taxpayer would
pay. Residents receive a 50%
exemption before the gain is added to
their other income and taxed at
marginal rates. If the property is your
principal residence, then you can roll
over your profit into a new property.
You have a three year window to do
so: up to one year before the sale and
as much as 2 years after. If you reinvest
less than the full amount, the
exemption will be on a pro rata basis.
In the event that you do not fulfil your
declared intentions, an assessment will
be made on the entire non-reinvested
balance plus interest.
Non-resident companies, whether
‘Black-Listed’ or ‘White-Listed’ are
assessed at the flat rate of 25%.
If you use a Portuguese company such
as a Nominee Company, to hold your
property, the CGT rate on the sale of
the company (holding the property)
drops to only 10%.
V. Property Tax – ‘IMI’
At the heart of the 2003 Property Tax
Reform is the new ‘VPT’ Evaluation
System (‘Valor Patrimonial Tributário’).
Comprised of five basic components,
this calculation is based on ‘market
value’ rather than ‘potential rental
income’ as in the previous system. This
‘market value’ is calculated taking
the following into consideration:
Constructed Area and Implantation,
Type of Usage, Age, Location, and
Quality of Construction. The best and
simplest way to do this is to use the
Finanças simulator on the internet. As a
guideline your annual property tax
(IMI) may be levied at up to 0.72% of
the ratable value for privately owned
properties and properties registered in
a white-listed corporate structure.
ie: with domicile in Malta, Delaware
or indeed the UK. For properties
registered in a corporate structure,
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