Portugal

Buyers Guide

As with all tax systems, the rules in Portugal are complex, and you are strongly advised to seek professional advice from tax specialist. However, here is guide as to what you can expect.

CAPITAL GAINS TAX

For non-residents on a sale of the property Portuguese capital gains tax (CGT) is payable at 25% of the gain.

VAT

VAT registration is compulsory, irrespective of tax residence, whenever taxable supplies are made in Portugal. The standard rate of VAT is 21%. Services relating to Portuguese real estate, such as estate agency, brokering and related professional services, are subject to VAT at the standard rate.

STAMP TAX

Transfers of real estate are also subject to stamp tax at 0,8% on the fiscal value of the property as defined by the IMI Code.

TAX ON RENTAL INCOME

Rental income earned by non-residents without a permanent establishment in Portugal is subject to tax at 15%.

PROPERTY TAX

IMT is a property transfer tax, and needs to be paid prior to final completion. There is a different scale for rustic land (without planning permission), for non-residential property and for urban land.

LOCAL TAX

Portuguese council tax is known as Imposto Municipal sobre Imóveis (IMI). A complex formula is applied to properties which includes variables such as location, plot size, built area, number of bedrooms and bathrooms, swimming pool, garage, garden area and so on.

WHAT OTHER COSTS ON TOP OF THE PURCHASE PRICE CAN I EXPECT?

You may be looking into your budget to purchase a property. You should be aware of the following costs (estimated) :

▪ Notaries and registration fee – 1.5% of the purchase price;

▪ IMT – up to 6.5% (depending on the type of property and price);

▪ Lawyer’s and surveyor's fees are usually subject to agreement. Fees are subject to VAT/IVA (at present 21%)

Your lawyer will give you a detailed breakdown as part of his/her quotation. If you are considering taking out a mortgage, the bank may charge an arrangement and survey fee, as in the UK and other European countries.

DO I HAVE TO BE IN PORTUGAL TO COMPLETE THE TRANSACTION?

In the event that you will not be able to attend the signature of the promissory contract and the “escritura”, you can give your lawyer a power of attorney to sign all necessary documents on your behalf. Lawyers in Portugal are responsible for chasing up all information required by their clients. Any information you need can be requested direct from our office in Portugal, the developer or from your appointed legal representative.

IN WHOSE NAME SHOULD I PURCHASE THE PROPERTY?

There are a number of ways to purchase the property :

▪ In your name;

▪ In the joint names of you and your wife or co-purchaser(s);

▪ In the names of your adult children or in the name of somebody who will eventually inherit the property from you;

▪ In the name of a UK limited company, or a company incorporated in an approved jurisdiction.

SHOULD I MAKE A WILL FOR MY PROPERTY IN PORTUGAL?

It is strongly recommended that once you have purchase a property in Portugal in your own name, you instruct your lawyer to prepare a will.

You are allowed to have a will for your Portuguese assets only, without replacing the main will you may have in your own country. Most common types of will are also signed at the Portuguese Notary and are strictly private and confidential.

IS THERE INHERITANCE TAX IN PORTUGAL?

Subject to the submission of appropriate documentation to the tax authorities, there will be no inheritance tax due in respect of Portuguese properties bequeathed to parents, children or between spouses in the event of the death of the property owner or one of the joint owners in respect of married couples. Note that Inheritance Tax, where applicable, is now know as Stamp Tax in Portugal.

WILL THE PROPERTY I PURCHASE BE FREEHOLD?

Yes.

ARE MORTGAGES EASILY AVAILABLE IN PORTUGAL?

Yes, although loans will only be advanced after your ability to repay has been established. As a private buyer, you will have to be prepared to supply evidence of income and all expenditure before lenders will be prepared to make an advance. In other words, they will wish to see that you have sufficient spare income each month with which to make repayments. If you are buying as a company, full accounts showing sufficient clear profits after tax to make the repayments will be required. Normally you will be able to borrow up to 75% of valuation.

WHAT IS THE COST OF LIVING IN PORTUGAL?

The cost of living in Portugal is lower than the UK. A couple with no mortgage could easily live on £200 per week and still eat out regularly. This certainly makes any pension or benefits you receive go further.

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