Portugal Property Investment Taxes – An Overview
The Portugal Property Market
Since May 2013 Portugal has been listed by OECD as one of the top countries in the world to buy and own property. According to them, Portuguese price-to-rent ratio makes Portugal one of the most attractive property markets in continental Europe.
The transparency, high quality, considerable presence of both foreign occupiers and international consultants, combine to secure Portugal’s reputation as a very highly-developed property market.
The laws which govern rental agreements are favourable to property owners, meaning that the eviction of tenants that do not pay can be expedited.
Most specialists predict taht the current trends of risng property prices will continue for at least 2 or 3 years.
Lisbon, Cascais, and Sintra regions are the most lucrative property investment locations. Most schools and companies’ headquarters are located in these centres, and the Lisbon International Airport is the main hub for international flights.
Just behind the metropolitan regions is the Algarve in the south of Portugal, attracting millions of expatriates and tourists from all over the world.
The coastal nortwestern city of Porto has been attracting many international investors over the recent years, and property market there is noticably on the rise.
The interior regions of Portugal, traditionally overshadowed by the coastal areas, are now also attracting investors, fueled by the influx of tourist and new residents, drawn to the beauty of the Portuguese countryside combined with bargain asking prices.
– Commercial property sectors offers excellent opportunities, particularly car parkings and office spaces
– Rural property is also available for sometimes exceedingly low prices
– The versatility of its use makes residential property the most popular property category still, for both private use and both short and long term rentals
It may be done independently or by hiring an agent
Property Purchase and Taxes
Typically, a promissory contract is signed and a down payment is made, after which someone (normally your lawyer) is granted a power of attorney for to complete the exchange of final contracts and the property conveyance, once the required funds have been transferred to Portugal and all the paperwork is in order.
The stamp duty rate is 0.8%, while the transfer tax rates vary according to many factors, including the use or value of the property.
Some examples of services provided by real estate management companies include: collecting deposits and rent, coordinating maintenance and repairs, maintaining and paying for utility and service contracts, overseeing property tax payments, negotiating rental agreements, and managing all dealings with tenants.
The property type, legal structure of the investment, the type of rental, all affect management charges. All of these factors should be negotiated once the details are defined and before the contract is signed.
Taxation of Rental Income
For non residential landlords, the tax rate for net rental income is 28%.
Short-term rental taxation is a little more complex, and it is recommended that the potential investor seeks professional advice before entrering this business.
For the resident corporate landlord, the gross rental income and all business expensess concur to the company’s profit, which is taxed at the normal corporation tax rate (21% with a municipal charge of up to 1.5%)
Taxation of Capital Gains
Full tax exemption is granted to any capital gains accrued from the sale of a property by an individual, provided that the property is their main residence, and the gains are used to pruchase another main residence in the EU.
50% of the net capital gains are either included in a resident individual’s total taxable income and taxed at progressive rates, or are included in a resident taxable profit calculation.
Determine the best investment structure based on your goals
– Private direct ownership is the most practical and cost-effective solution for those seeking to simply own a property in Portugal
– For those who seek to invest a sizeable ammount in rental property market in Portugal, an EU company with a branch in Portugal is the most suitable investment structure, for the following reasons:
– While it will be taxed like a normal Portuguese company. The distribution of profits to the parent entity is not taxed.
– All business expenses will be tax deductible by the branch
– You can dispose of the parent entity rather than the property itself.