Portuguese Taxes

The taxation system resembles that in the rest of the EC. Purchase of real estate by non-residents does not require prior authorization by the Portuguese foreign Trade Institute, nor is it subject to restriction by that body. Foreign Exchange controls no longer apply to such transactions. There is a double taxation treaty in existence between Portugal and the United Kingdom.

Taxation of Portuguese property

Local taxes (IMI)

This is an annual municipal property tax calculated upon the registered value of the Portuguese property and also influenced by the location and the local services of the Portuguese property. For rural properties it is 0.8%, and for urban properties it is between 1.1% and 1.3%.

Personal Taxes

As a non-resident property owner in Portugal, you may be liable for income tax, value added tax wealth tax, capital gains tax and inheritance tax. Individual situations vary and it is best to seek specialist advice from a tax consultant who has knowledge of the Portuguese tax system.

Unlike other countries where "income tax" and "capital gains tax" are seperate, in Portugal there is a single income tax for all individuals. It covers:

An individual is deemed Resident in Portugal if more than 183 days per calendar year are spent in Portugal. If an individual is deemed Resident then their Worldwide Income is subject to IRS within Portugal. If an individual is Non-Resident then only Income from Portuguese sources is taxable within Portugal. The current rates of IRS range from 12% - 40%, although in certain cases there are other special taxes which may be levied.

Income Tax

Non-residents are obliged to make an annual return for income tax if they receive income from letting property. For non-residents, income on rental profits are taxable in Portugal at a flat rate of 25%. Unlike other countries, which allows a deduction for tax purposes of mortgage interest against rents, you would not be entitled to a deduction for Portuguese tax purposes for mortgage interest costs relating to the purchase of the property in Portugal. In Portugal only repairs and maintenance expenses can be claimed as a deduction.