Property tax regulation in Portugal have been changed during last several years. The ratable value of properties (VPT) being the value attributed by the tax authorities to properties for tax purposes and is the base used to calculate property taxes or in certain cases determine the minimum taxes applicable to property transactions.
Previously the VPT was very low and in general a huge discrepancy existed between the ratable and market values. To rectify this situation and increase tax revenues, the Portuguese tax authorities implemented in 2003 a deep reform to property tax laws which has resulted in the gradual increase in the ratable value of all properties, bringing them more in line with actual market values and consequently increasing taxes payable whilst reducing and controlling tax evasion.
To update the VPT the legislator created a formula in which the new VPT is more objectively calculated and achieved:
VPT = VC x A x Ca x CI x Cq x CV, where:
1 - VPT = Ratable value attributed by tax authorities to the property ;
2 - VC = Base value of properties built (value of construction per sq m fixed annually by tax authorities plus value of sq m of implantation ground 25% of such value) – presently 1603;
3 - A = Gross area of construction – sum of the total area of construction including terraces, garage, parking places and storages;
4 - Ca = Purpose of the property i.e. commerce, ser vices, residential;
5 - CI = Location – coefficient fixed ever y three years by the municipality and can vary between 0,4 and 3,5;
6 - Cq = Quality and comfort – factors that can increase or decrease the value like existence of swimming pool or non-existence of lift in a building with more than three floors;
7 - CV = (Vetustez) Age criteria applicable in accordance with age of the property. Older properties lower coefficient;
All properties sold since 2003 have been revalued in accordance with this new formula. All other properties were subject to a process of general revaluation which ended in 2013. In the vast majority of the situations the increase of the ratable value of the properties, led to an increase in the IMI payable. Upon receipt of the tax authority’s notification with the new ratable value, areas and coefficients applicable should have been checked as mistakes did happen. Although the time limit given by the tax authorities to submit a claim is 30 days from receipt of the notification, the tax authorities accept they will make amendments in cases where there is a clear mistake in the elements used to make the valuation.
Properties for habitation and plots of land for construction are updated every three years based on factors corresponding to 75% of the currency devaluation coefficients fixed annually by the government; for income tax purposes this can also be revalued at the request of the owner within three years from the last revaluation. This is an opportunity to rectify any mistakes found.
Here is a summary of the taxes applicable to buying, owning, selling or inheriting properties in Portugal:
IMT - Paid on the acquisition of a property
Paid on the acquisition of a property. This tax is payable by the purchaser prior to completion of the transaction. On properties for habitation the rate varies according to the purchase price of the property and can go up to 6%. On rustic land the rate applicable is 5%, on plots of land or other type of properties the applicable rate is always 6.5%*. The minimum amount on which the IMT can be paid is the VPT even if the sales price is lower.
Notary, stamp duty and registration fees
Notary, stamp duty and registration fees – these have to be paid by the purchaser prior to signing the notarial deed and the registration of the property into the buyer’s name. The stamp duty on the purchase is 0.8% of the sales price. The minimum amount on which the stamp duty can be paid is the VPT even if the sales price is lower. Notary and registration fees and expenses will not exceed EUR 1,000.
IMI - Annual Property Taxes
Annual Property Taxes – Payable yearly in arrears usually in two installments although as from 2012 (rates paid in 2013) it can be paid in three instalments (April, July and November), for annual IMI invoices above EUR 500. This tax is based on the VPT and can vary between 0.3% and 0.5%. Within this limit the rate is fixed annually by the council of the area where the property is located. In the Council of Loulé the rate applicable for 2015 is 0.39%. The IMI for rustic properties remains at 0.8%*.
Stamp Tax - (IS)
To increase tax revenue and meet the impositions of international entities controlling Portugal’s economic restructuring in 2012, the Portuguese government introduced a new annual tax on Portuguese properties with residential purposes (including plots of land for housing) with a VPT of over EUR 1m. The new tax increases the total annual property tax payable to a maximum of 1.5% of its ratable value, which though high, is still substantially lower than other European countries like Spain, Greece and France, where annual property taxes can go up to 3.6%, 2.1% and 2.2% respectively**. This tax has been applicable since 2013, relating to 2012 at the rate of 1% of the VPT*. The payments of this tax are to be made within the same time limits of the payment of the IMI and based on the same VPT used to calculate the IMI.
Capital Gains Tax
On a sale of a property there is currently a capital gains tax to pay at a rate of 28% for non-resident individuals and 25% for companies (non-residents). This tax is calculated on the difference between the sales price and either the purchase or construction price of the property (if applicable) index linked or its first ratable value index linked whichever is the highest. It is important when building a property to make sure that you receive proper invoices from the builders of the amounts paid so that you have the possibility to offset these costs against capital gains tax payable when the property is sold. There are other costs that you can use to offset against this tax such as invoices of certain refurbishments made to the property in the past twelve years, taxes, notary and registration fees paid at the time of acquisition of the property, and the real estate agent fee.
Did you know? Invoices you use to offset against your CGT no longer expire after three years, you can use them for up to 12 years.
If the property you are selling is your main residence and if you reinvest the proceeds of the sale within 36 months in the acquisition, construction or refurbishment of another property designated as your main residence, within the EU territory or in a territory belonging to the European economic area with whom Portugal has agreements for the exchange of information in tax matters. You can avoid the payment of this capital gains tax totally or partially depending on the value you reinvest.
This tax is not presently applicable in Portugal to inheritance or gifts occurring between close relatives. i.e. parents/children and spouses although on gifts you have to calculate a 0.8% stamp duty based on the VPT. Any other situations of inheritance or gift will be subject to stamp duty at a rate of 10% of the VPT.
Tax Department Lottery
In 2014 the government introduced a tax department lottery (e-fatura) whereby the individual taxpayers who request a proper invoice detailing their fiscal number when acquiring any assets and/or services will be included in a draw and may win prizes (presently cars). With this measure the government is aiming to fight fiscal evasion. More information on this can be obtained at www.portaldasfinancas.gov.pt
* Please note the values mentioned above for IMT, IMI and IS will increase significantly and not benefit from limitation of tax payable for two years if the Company owning the property is domiciled in a 'blacklisted jurisdiction'.
** In Expresso – economy supplement 02/02/2013. Please note this is general information and for specific advice you should contact a lawyer or tax advisor.