Here is some guidance when buying, or already owning, a property in Portugal:
|Personal Income Tax for Residents||12% – 42%|
|Personal Income Tax on Non-Residents||25% 15% on rental income|
|Property Tax for Non-Residents||Nil|
|Capital Gains Tax on Real Estate||Residents:50% exemption and balance at marginal rates on properties over 75,000E and Non-Residents: 25%|
|Inheritance Tax||Immediate Family: exempt; Others: 10%|
|Property Transfer||Tax 0 – 6% (IMT)|
Those with their permanent residence outside Portugal pay 25%. Residents receive a 50% exemption before the gain is added to their other income and taxed at low rates. If the property is your principal residence, you can roll over your profit into a new property within a three-year period: up to one year before the sale and 2 years after.
If you re-invest less than the full amount, the exemption will proportional. If you do not fulfil your declared intentions, an assessment will be made on the non-reinvested balance plus interest.
Non-resident companies are assessed at 25%. If you use a Portuguese company such as a Nominee Company, to hold your property, CGT on the sale of that company is 10%.
How to Calculate the Gain
If you sold your home, bought in 1999, in 2005, CGT liability would be per these steps:
1: Sale price, minus any selling costs (commissions, notary fees, etc)
2: Purchase price plus qualifying expenses (purchase costs, legal fees, etc)
3: Subtract any documented capital improvements in the past 5 years. (Obtaining proper invoices can be difficult, as many contractors give only informal receipts not valid for tax purposes. If this reaches significant proportions, specific tax advice may be needed.)
4: The difference between the adjusted purchase and sale prices is the nett taxable profit.
If you sell your principal residence and fully reinvest the proceeds in a new home, CGT is waived. This is to be extended to new home reinvestment anywhere in the European Union.
Portugal abolished Inheritance Tax for family members on 1 January 2004.