In Portugal, when someone talks about wealth taxation, they are usually referring to taxes on the ownership and transfer of real estate - or other high-value assets.
In a nutshell, these are the main wealth taxes we have:
- IMI or Municipal Property Tax
- IMT or Municipal Property Transfer Tax
- IS or Stamp Duty
- AIMI or Additional to IMI
But there are other important details that have an impact on your income. In this article, I'm going to explain what they are, understand what kind of assets are subject to tax, find out how each tax is calculated and how long you have to pay each one to the state.
But before we start, I want to make sure you understand what property rights are in Portugal - so that we're aligned on what "patrimony" means.
The concept refers to "full ownership", i.e. the full right to use, enjoy and dispose of the property. It is when this full ownership occurs that the owner faces a tax liability.
What property taxes are there?
Let's look at each concept in detail:
IMI or Municipal Property Tax
This type of tax is levied on the taxable value of real estate.
In short: on December 31 of each year, anyone who owns a property - the so-called taxable person - is subject to this payment. The tax applies even if you bought it on December 30 or 31 of that year.
On values: in the case of urban property, payment varies between 0.3% and 0.5%, to be set annually by each municipality. Rural properties, on the other hand, are subject to a rate of 0.8%. Please note: payment must be made on pre-established dates, which you should be aware of:
- ≤ 250€ - One annual payment in April
- ≥ 250€ e < 500€ – Duas prestações em abril e novembro
- < 500€ – Três prestações em abril, julho e novembro
If the owners reside outside the European Union, a representative with tax domicile in national territory can be appointed who is responsible for these obligations. Use services such as the tax portal or the normal tax office to activate this option.
For the curious, this is the formula for calculating the amount payable:
- IMI rate x Taxable Asset Value (VPT)
If you want to determine the VPT of your home, check the value on the land registry, which is available on the Finance Portal.
And are there any exemptions?
Yes: the Municipal Property Tax (IMI) code provides for the possibility of municipalities granting a discount to families with children. The deduction is fixed and determined according to the number of children:
- 1 child: 2o€
- 2 children: 40€
- 3 or more children: 70€
Are there any changes to IMI for vacant buildings?
In the case of buildings that have been vacant for more than a year or are in ruins, this rate is increased threefold . For dilapidated buildings, there will be a 30% increase, unless this condition is the result of a calamity or natural disaster.
The increase for buildings in areas of urban pressure also applies to those that are vacant or in ruins. Very recently, for these cases, the deadline was two years - but now it's changed!
This increases the tax rate by 12 times. But beware: the amount can increase even more, by resolution of the municipal assembly, by 25% or 50% according to specific conditions.
Are there changes to IMI in areas of urban pressure?
Yes: municipalities can set an increase in the rate to be applied to buildings or parts of buildings located in areas of urban pressure of up to 100% if they are used for local accommodation; and up to 25% when they are not rented or occupied, if they were intended for housing.
Please note: this surcharge can rise by a further 50% whenever the taxable person is a legal person or an equivalent figure from a fiscal point of view.
Let's now dive into Municipal Property Transfer Taxes...
IMT or Municipal Property Transfer Tax
This type of tax is levied on the transfer, for consideration, of the right to ownership of real estate or parcels such as:
- Use and housing
- Right of way
- Usufruct, among others.
According to the Portuguese model, IMT is levied on the value of the purchase and sale contracts or on the taxable value of the property - whichever is greater. The rates vary but, in the case of residential properties, they are between 0% and 6%, according to the rules of the municipality where they are located.
For those who want to protect their income and are looking for a quick list of acts subject to IMT according to the tax and customs authority, here is the list below.
What is subject to IMT?
I'll give you a quick list that you can consult in case of doubt:
- Purchase and sale of real estate: whenever there is a transfer of ownership via contract of a property against payment, as in the purchase and sale, IMT will be applied;
- Paid donations: when a property is donated for payment, i.e. when there is an onerous value associated with the donation, IMT is also levied on the transaction;
- Exchange of properties: when two owners exchange properties, they are also liable to pay IMT, as the transaction is considered to be onerous;
- Assignment of contractual position: when there is an assignment of a contractual position relating to a property purchase contract, IMT may be applied;
- Acquisition of quotas or shares representing real estate: in some situations, the national system provides that the acquisition of quotas or shares in companies that own real estate in Portugal may also be subject to IMT.
Remember that in the autonomous regions, depending on the value and type of use (own permanent home, secondary home or building land) the rate may vary!
And are there any exemptions?
Yes: exemptions and reductions may be authorized, depending on the specific conditions of the buyer and the circumstances of the transaction. I'll explain!
For example: a property owned by a Portuguese company - usually a limited company - may be exempt if there are two shareholders who buy into the company. This mechanism is normally used for the acquisition of commercial properties such as:
- Hotels
- Guesthouses
- Local accommodation
- Or other types of real estate investment
IS or Stamp Duty
Fun fact: this consumption tax has existed since 1660 and is the oldest in the Portuguese tax system. It only affects acts that are not subject to VAT and applies to all official acts, from:
- Contracts
- Documents
- Financial securities
- Purchase of goods
- Renting
- Gambling and betting
- Financial transactions
- Insurance
And finally: other papers, facts or legal situations not subject to VAT, including free transfers of goods.
In the case of property purchases, Stamp Duty is levied on the value of the purchase contract or on the taxable value of the property - whichever is greater. Expect a rate of 0.8% under current law.
Please note: Stamp Duty applies at a rate of 1% whenever the taxable value of an urban residential property is equal to or greater than 1 million euros.
It is important to remember that IS can be levied on operations outside the country, such as:
- Credit operations and respective interest and commissions, carried out by foreign-based entities to Portuguese entities;
- Insurance taken out by companies in other member states of the European Union on risks located in Portugal.
But... when do you pay Stamp Duty?
The tax is charged when the act is carried out. For example, in the case of a personal loan, it is included in the amount of the first installment. In the case of mortgage loans, it is charged when the property is deeded over.
But allow me to be a little more specific...
IS in housing and consumer credit
In the specific case of mortgage loans, these taxes have to be paid in two stages:
- When the deed is done;
- And when the loan is made available in the current account.
At the time of the deed, this tax applies 0.8% to the purchase price of the property. For example: if the property costs 200,000 euros, you are liable to pay 1600 euros. On the amount of the credit, the tax applies according to the term:
- From 1 to 5 years: 0.50%
- +5 years: 0.60%
Remember that this family of taxes also applies to the commissions demanded by banks on mortgage loans. In this case, we're talking about taxes in the order of 4% on commissions for opening the study, the dossier and the like.
Finally, with regard to consumer credit, this tax applies depending on the financing period:
- < 1 ano: 0,12%
- ≥ 1 year: 1.5%
And are there any exemptions?
Yes: this type of taxation is exempt from the law. Upon evaluation, I'll give you a list of the situations that justify exemption from this tax:
- Life insurance premiums;
- Games organized by IPSS (Private Social Solidarity Institutions);
- Guarantees for stock exchange transactions in securities and derivatives;
- Reporting securities on the stock exchange;
- Treasury operations with a maturity of one year or less;
- Home loan interest;
- Transactions between financial institutions.
Taxable Asset Value
By law, payment of this family of taxes is the responsibility of the buyer. It must be paid before the deed is signed and, if the property is transferred abroad, it must be paid the following month.
It is registered on the property's land registry. If you are about to carry out an operation involving transfers, remember that this type of matrix is updated annually on December 31st.
You can do this at any tax office; or, if you don't want to go to the trouble of going there, you can do it online via the tax office portal or at a ready house counter.
How is the tax value of rural properties calculated?
In Portugal, the VPT of rural properties is calculated based on the base value of rural properties, which is determined per hectare and set by the government based on factors such as:
- Location
- Quality
- Type of soil
- Productive suitability of the land
For the curious, this family of taxes is calculated using the following formula:
Taxable Patrimonial Value (VPT) = Total Area of Rustic Property (hectares) × Base Value of Rustic Property (VBPRT)
Remember that the VPT of rural properties is used to determine the amount to be paid as part of the Municipal Property Tax (IMI). The rates applicable to rural properties are set by the municipalities and can vary between 0.8% and 1.5% of the VPT.
Inheritance
How much stamp duty do you pay?
The inheritance is subject to Stamp Duty at a rate of 10%. To calculate the tax payable on the inheritance, the rate is multiplied by the taxable value of all the assets received. The value of each type of asset is determined according to specific rules.
In the case of a property, for example, the value corresponds to its taxable value (VPT). Imagining a property with a VPT of 200,000 euros, the amount of Stamp Duty payable would be 20,000 euros (200,000 euros x 10% = 20,000 euros).
How can inheritance tax be paid?
Stamp Duty can be paid in full or in installments, as explained in the Stamp Duty Code. If the head of the couple chooses to pay in cash, they must inform the tax office within 15 days. In this case, they are entitled to a discount of 0.5% per month on the value of each of the installments into which the tax would have to be divided, excluding the first. Payment must be made by the second month following notification.
If the amount to be paid is more than 1,000 euros, it can be paid in installments, up to a maximum of 10. Each monthly payment cannot be less than 200 euros.
Fees for rights of way
Electronic Communications Law
(Republished - Repealed by Law no. 16/2022 - In force until 14-11-2022)
TITLE VII - Fees, supervision and inspection
CHAPTER I - Fees
Article 106 - Fees for rights of way
1 - Fees for rights of way must reflect the need to guarantee the optimum use of resources and be objectively justified, transparent, non-discriminatory and proportionate in relation to the purpose for which they are intended, and must also take into account the regulatory objectives set out in Article 5.
2 - Rights and charges relating to the deployment, passage and crossing of systems, equipment and other resources of companies providing publicly available electronic communications networks and services, at a fixed location, in the public and private municipal domains may give rise to the establishment of a municipal right of way fee (TMDP) and the remuneration provided for in Decree-Law no. 123/2009, of May 21, for the use of infrastructures suitable for hosting electronic communications networks that belong to the public or private domain of local authorities.
3 - The TMDP complies with the following principles:
a) The municipal right of way fee (TMDP) is determined based on the application of a percentage on the total monthly billing issued by companies offering publicly available electronic communications networks and services, at a fixed location, to all end customers in the corresponding municipality;
b) The percentage referred to in the preceding paragraph shall be approved annually by each municipality by the end of December of the previous year to which it is to apply and may not exceed 0.25 %.
4 - In municipalities where the TMDP is levied, companies offering publicly available electronic communications networks and services at a fixed location shall be responsible for its payment.
5 - The State and the Autonomous Regions shall not charge companies providing publicly available electronic communications networks and services any fees or any other charges for the installation, passage or crossing of systems, equipment and other physical resources necessary for their activity, on the surface or underground, in the public and private domains of the State and the Autonomous Regions.
Wealth taxes: what exceptions are there?
We are now going to look at specific cases of exceptions or extinct taxes that you should be aware of in order to safeguard your income and not fall into default.
Offshores
Remember that there are higher rates if the buyer belongs to the category of legal person resident in a country, territory or region subject to a clearly more favorable tax regime.
In this scenario, the services dictate the following figures:
- Real Estate Transfer Taxes IMT - +10%
- Municipal Property Tax - +7.5%
- Stamp Duty - + 7.5% (on urban buildings worth more than 1 million euros)
Property Income
These are the kind of taxes that involve more technical terminology and have an impact on the IRS of those involved - and therefore on the individual's annual income. If you feel that this section is confusing, I recommend that you ask your accountant for support and clearer explanations.
I promise to be quick!
Rents from rural, urban and mixed properties are also taxed under the IRS. Remember that, regardless of withholding tax, property income is taxed separately, at a rate of 28%; or taxed at the general IRS rate that corresponds to taxable income, between 0% and 44%.
For property owners: maintenance, repair and IMI expenses are deductible for IRS purposes, as long as they are duly documented.
Final considerations
On the surface, this is what you need to know right now. But beware: in an upcoming article we'll explain everything you need to know about a topic closely related to this one: capital gains on the sale of real estate. Remember to come back to our blog to find out!
