property in Olhão

Property Tax Guide for Expats and Investors Looking at Eastern Algarve Property

Portugal continues to become a magnet for expats and investors chasing lifestyle, opportunity, or both. Owning or buying property in Portugal involves certain tax obligations that should be clearly understood before any transaction takes place.

This guide outlines the main taxes that apply to property purchases and ownership for expats and investors.

Note: tax rates, scope and exemptions may vary. The information provided regarding taxes reflects our current understanding of the laws and practices, which are subject to change. Consult a professional for personalised advice.

Municipal Property Tax (IMI)

The IMI (Imposto Municipal sobre Imóveis) is an annual tax charged by local municipalities. It applies to the registered taxable value of the property. For urban properties, rates generally range between 0.3% and 0.8%. Some exemptions may apply, such as for permanent residences or new builds, but these are temporary and subject to conditions.

Stamp Duty (Imposto do Selo)

Stamp duty is a one-time payment of 0.8%, based on the higher of the sale price or the property’s tax-assessed value. It is paid at the time of purchase and is required in all property transactions.

Capital Gains Tax

When a property is sold, capital gains tax applies.

Non-residents are taxed at a flat rate of 28% on any capital gains.
Residents are taxed according to a progressive income scale. Rates can reach up to 48% for high-income earners.
Allowable deductions may include property improvements, legal fees and agent commissions. However, note that the deductions must be related to the sale or purchase of the property and typically apply to the capital gain calculation.

Wealth Tax (AIMI)

The AIMI (Adicional ao IMI) applies to individuals or entities with property holdings in Portugal valued above €600,000. The tax is charged as follows:

0.7% on property value between €600,000 and €1 million
1% between €1 million and €2 million
1.5% on values above €2 million

This tax is based on the sum of the taxable values of all properties owned, excluding those used for commercial, industrial, or rental purposes.

Residency and Tax Implications

Tax residency in Portugal is established after 183 days of presence in a calendar year. Tax residents are subject to tax on worldwide income, while non-residents are taxed only on Portuguese-source income.

Rental income

Non-residents pay a flat 28% on rental income from Portuguese property.
Residents are taxed under a progressive income rate system, which may be up to 48%, depending on income levels.

Double Taxation Treaties

Portugal has treaties with many countries to avoid double taxation, which means you can often avoid being taxed in both Portugal and your home country. It’s essential to verify if a treaty exists between Portugal and your home country and to consult with an accountant familiar with international tax law.

Summary

Getting to grips with Portugal’s property taxes might not be the most exciting part of buying a home, but it’s one of the most important. Taking the time to understand what’s involved or getting advice from someone who does, can save you from making costly mistakes later.