Real Estate in Portugal: Everything You Need to Know About Taxes

Taxes and Expenses of Owning Real Estate in Portugal: From Purchase to Sale

Portugal is one of the European countries successfully developing its residency by investment program (commonly known as the "Golden Visa"). Every one of our clients who purchase real estate in Portugal faces questions about taxes and future expenses related to property maintenance. The goal of this article is to provide answers.

General Overview of the Portuguese Real Estate Market

The Portuguese real estate market is one of the most dynamic and attractive in Europe. For example, in 2019, prices rose by 7.7% in real terms, according to Instituto Nacional de Estatistica. This growth is driven by two main factors:

• The cost of housing here remains lower than in most EU countries. According to Global Property Guide, in early 2020, the average price was €1,312 per square meter. In comparison, in "expensive" European countries (e.g., the UK, Switzerland, Austria, Germany), this figure is 2-4 times higher.
• In recent years, Portugal has been among the countries considered the most comfortable and attractive for living. At the beginning of 2020, the American magazine International Living ranked Portugal as the best country in the world for quality of life.

While housing costs may be low, taxes, especially when purchasing property, can be quite high. In this article, we will analyze this with specific figures, covering each stage: purchase, ownership, and sale of property.

Taxes and Expenses When Purchasing

Property Transfer Tax (IMT)

IMT is a mandatory tax when purchasing real estate. It is calculated as a percentage of the taxable value of the asset or the value stated in the contract, minus the fee.

It's impossible to know in advance exactly what percentage of the transaction amount you will need to pay or if you'll need to pay it at all. However, it is known that this amount will range from 1% to 8% of the cadastral value. The tax amount mainly depends on the following factors:

• The region where the property is located (mainland or island regions);
• The area (urban or rural);
• The value of the property at the time of purchase;
• The purpose of the property (for the buyer's actual residence or other uses).

On average, in rural areas, the tax is approximately 5%, while in cities, it is around 6%. The calculation of IMT becomes more complicated for urban residential properties, as the rate increases with the appraised value. If the property is purchased for renovation purposes, it may be possible to avoid paying this tax, though meeting several complex conditions is required.

On the Azores and Madeira, IMT calculations differ from mainland Portugal. Specifically, for expensive real estate, the tax reaches the maximum level of 8%.

Stamp Duty (Imposto de Selo)

The stamp duty is paid by the buyer at the time of the transaction. The payment is collected by the notary. The general rate for stamp duty is 0.8%. In the case of a mortgage, the stamp duty is calculated based on the loan amount and ranges from 0.5% to 0.6%.

Registration Fee

Strictly speaking, this is not a tax but rather a payment to the state for registering you as the property owner. This fee equals 1% of the cadastral value.

Notary Services

Typically, notary fees in Portugal are 1% of the stated price of the property, but in some cases, especially for purchases exceeding €500,000–600,000, the percentage may increase based on prior agreements between the parties.

For convenience, it is generally estimated that all related taxes and fees at the time of the transaction will add 6-9% to the purchase price for the buyer.

The Property is Purchased. What Taxes and Other Payments Will the Owner Face?

Once you own the property, you will need to pay a property tax, known as the municipal tax (IMI, Impuesto Municipal sobre Imóveis). The rate depends on whether the property is in a city or rural area. In cities, it is about 0.8%, while in rural areas, it ranges from 0.3% to 0.45%.

This tax is paid to the local municipal authorities, so the rate can vary slightly depending on the municipality. The highest taxes are in Lisbon and its resort suburbs.

This tax is payable in May, at the end of the tax year. If the amount is between €100 and €500, the payment can be split into two installments; if the tax exceeds €500, it can be paid in three installments.

For those with higher incomes, there is an additional property tax (AIMI). It applies only to residential properties in cities valued at over €0.6 million. For married couples filing jointly, the taxable value doubles to €1.2 million. The AIMI tax rate is 0.7%.

Rental Income Tax

In Portugal, rental income is taxed at a rate of 28% on the gross income generated from renting out the property. Utility payments, depreciation, and repair expenses (if verified by receipts) can be deducted from the gross income when calculating the tax.

Utility Bills and Maintenance

In rental situations, these are usually paid by the tenant. Costs depend on the size of the property and the municipality. On average, it's estimated that utility costs are around €1–1.2 per square meter monthly. For a small 80 m² apartment, the monthly costs are approximately:

• Electricity: €40-50;
• Water: €10-15;
• TV and internet: €25-30;
• Trash and sewer: €5-8;
• Gas (if centralized): €20-25 (many homes use bottled gas in Portugal).

Housing Insurance

Insurance is not mandatory in Portugal, though it is commonly arranged. The cost ranges from €200 to €500 per year.

Selling the Property. What Taxes and Fees Should You Expect?

Capital Gains Tax

If the selling price of the property is higher than the purchase price, the difference is subject to a capital gains tax of 28% if the seller is not a Portuguese resident. Citizens and residents only pay tax on half of the profit, according to a progressive scale.

Tax on Property Sale

This tax is equal to 0.4% of the cadastral value of the property. It is paid the year following the sale.

Conclusion

This article provides an overview of all the taxes and payments related to owning property in Portugal, from purchase to sale. Given that this information may change, we recommend monitoring updates on our website, GARANT estate, or consulting our company's experts for specific assistance.