Under Portuguese legislation, non-resident individuals are taxed in Portugal on income arising from Portuguese sources only and are liable to a number of other property related taxes outlined below.
Individuals living more than 183 days in Portugal in a given tax year (1 Jan – 31 Dec) are considered as residents for tax purposes. Non-residents may also be liable for Portuguese property tax on the same source of income in their home country of residence, where taxes are levied on worldwide income. Relief for double taxation may apply.
Personal Income Tax (PIT) – (Imposto sobre o Rendimento das Pessoas Singulares). As a Portuguese non resident individual you are only liable to pay tax on income that arises on your activities in Portugal- for most non resident property owners they will only be liable to this tax if they rent out their property.
The rate of Income tax due on rental income earned by non residents is 15% after certain deductions.
N.B there is no deduction allowed for mortgage interest paid .
Tax Return and Filing Deadline Date
As a non-resident you are only obliged to pay Portuguese income tax if you rent out your property. The Portuguese income tax form must be submitted by 30th April – any balance of tax payable must be paid within 30 days of a notice of assessment being received.
Taxes payable when purchasing a property are as follows:
Portuguese Property Transfer Tax is the equivalent of Stamp Duty. The rates range from 0 – 6.5% depending on the value of the property. Any urban property with a value under €83,000 (€85,000 from 2007) is exempt from this tax. This tax is due within 1 month of the transfer date.
VAT is not charged on rent received for residency purpose. It's charged on purchase and transfer of a property at a rate of 21%.
Ongoing Portuguese property taxes are as follows:
Local Property taxes (IMI) - (Iimposto Municipal sobre Imoveis) This is an annual municipal property tax payable based on the ratable valuation of the Portuguese property which takes into consideration the local services of the Portuguese property. A Waste Collection Fee ( taxa de Conderacao de Esgotos) is also payable in 2 installments, the first in October, the second in March.
Other applicable taxes are as follows:
Capital Gains Tax - Any gain i.e the difference between the indexed acquisition cost of the property and the selling price obtained is taxed at 25%- it is treated as income in your Income tax return. When the proceeds of the sale are re-invested in the purchase of another Portuguese property or shares, only 20% of the capital gains tax needs to be paid in the current years.
Portuguese Capital Acquisitions Tax - this is the tax levied upon either the inheritance/gift of Portuguese property. The rates depend on the value of the property and the relationship between parties. This was abolished in 2004 if the beneficiary is a close relative. 10% is charged for couples who are not married or non relatives.
Non-Resident property owners may be liable to declare Portuguese rental income as worldwide income within their annual tax return.
If resident in the UK or Ireland you will have to declare any income received in Portugal in your annual resident tax return. There is a double taxation agreement between Portugal, the UK and Ireland so double taxation relief applies in some cases. Please contact us for further details regarding double taxation relief and/or filing your Resident Tax Return.
Property Tax International can organise the completion and filing of your Portuguese tax returns in addition to advising on your property tax obligations in your home country.