Three taxes are due and are to be considered at the purchase and sale of a property. The real estate transfer tax, the stamp tax and the capital gains tax.
The Real Estate Transfer Tax
Before selling a property, the tax office has to verify that the real estate transfer tax (Imposto Municipal sobre as Transmissões onerosas de Imóveis – IMT) has been paid. In some cases there can be an exemption to this obligation.
Agricultural properties (prédios rústicos) have a flat tax rate of 5 %. The tax registry states the prerequisites for a property to be agricultural.
Urban properties (prédios urbanos) do not have a flat tax rate. The tax rate depends upon the location and the value of the property.
You have to distinguish between main residences and secondary residences, onshore and offshore properties in order to calculate the tax properly.
Other specific buildings, such as office buildings have a flat tax rate of 6,5 %.
Here is a helpful overview of the current tax rates.
The Stamp Tax
The stamp tax/ duty (Imposte do Selo) has a tax rate of 0,8% of the purchasing price. As well as the land transfer tax the stamp duty has to be paid before the property is sold. A verification of the payment is necessary for the authentication of the sales contract.
The Capital Gains Tax
After the sale of the property the vendor has to declare his income in due time. He has to tax his gains (mais-valias). The declaration has to be issued even if the vendor did not make any profit.
Only buildings constructed or purchased after 1st January 1989 are burdened with the capital gains tax. Buildings constructed or purchased before this date are free of the capital gains tax. This exemption does only effect natural persons. In cases of notable reconstruction or maintenance works after 1st January 1989, the tax is due as well.
The proceedings in regard to the capital gains tax are quite complex, we advice to consult our team of experts.
Calculation of the Gains
The gain is the differential amount of the former purchase price and the current sales price as it is named in the contractual documents.
The former purchase price is adjusted with an official fixed inflationary factor. There is a yearly list of the current inflationary factors.
A building was bought for 100.000 € in 1998 and then sold for 300.000 € in 2009
100,000.00 € (purchase price in 1998) x 1.33 (inflationary factor)
= 133,000.00 € (adjusted purchase price)
Expenses of the vendor concerning the property can lower the gain. Building costs or changes on a building which raise its value, for example, can increase the former purchase price. Other expenses with a close connection to the property can lower the gain as well, e.g. the property acquisition tax, fees for the authentication, for the recording in the land register or brokerages.
Furthermore, expenses in relation to the sale of the property can be added to the purchase price to lower the gain. Be aware that you will need written evidence, e.g. vouchers/ official receipts to prove your expenses.
300,000.00 £ (sales price)
- 133,000.00 £ (adjusted purchase price)
- 2,300.00 £ (property acquisition tax)
- 700.00 £ (fees for authentication and recording in the land registry)
- 8,000.00 £ (renovation of the roof)
= 156,000.00 £ (gain)
Calculation of the Tax
The tax amount depends on whether the tax payer is a resident or a non-resident according to the Portuguese tax law.
A resident only has to tax half of his gain. The tax is progressive and lies between 10,5% and 45 %. A resident is someone who lives more than 183 days a year in Portugal.
A non-resident has to tax the entire gain with a fix tax rate of 25%. A non-resident is a person who lives less than 183 days a a year in Portugal.
In 2007 the European Court of Justice declared that this unequal treatment is against European Community Law. Therefore the Portuguese tax law now allows Union citizens to choose, if they want to tax their gain with the fixed tax rate of 25 % or with the progressive rate.