QUICK OVERVIEW OF PORTUGUESE REAL ESTATE

QUICK OVERVIEW OF PORTUGUESE REAL ESTATE

Introduction

 

There are special tax rates and rules for small and medium enterprises (SME’s) which are set out below. In Portuguese tax law an SME is an enterprise with fewer than 250 employees and either annual turnover of no more than €50 million or an annual balance sheet total of no more than €43 million.

Tax treatment of income and gains

Taxpayer

Basis of tax

Tax levied

Tax rates (202019)

Resident individual

 

 

Non-resident individual

 

 

Resident company

 

 

Non-resident company

Rental income

Capital gains

 

Rental income

Capital gains

 

Rental income

Capital gains

 

Rental income

Capital gains

Real estate profit tax Individual income tax

 

Real estate profit tax Individual income tax

 

Corporate income tax Corporate income tax

 

Corporate income tax Corporate income tax

28%

7.25%-24%

 

28%

7.25%-24%

 

Up to 22.5%

Up to 22.5%

 

Up to 22.5%

Up to 22.5%

 

Rental income

Individuals

Introduction

Rental income is taxed as business income, however, at a rate of 28%.

 

Liability to tax

Rental income received by individuals is subject to a rate of 28%.

 

Basis of tax

In Portugal, rental income is taxed at the individual level at a rate of 28%, on the rent of rustic, urban and mixed buildings paid or made available to the respective owners.

Companies

Introduction

Rental income is taxed as business income.

Liability to tax

Rental income earned by companies is subject to corporate income tax as business income.

Basis to tax

The normal tax rate for resident companies is 21%, in addition for most municipalities, the municipal tax is at the maximum rate of 1.5%.

The first €15,000 of taxable income for a SME is taxed at the reduced rate of 17%.

 

Capital gains

Individuals

 

Introduction

Capital gains realised by individuals are taxed as ordinary private or business income, subject to personal income tax on half of the amount of the gain. Dividends received by the individuals are taxed as capital gains.

 

Liability to tax

Capital gains realised by individuals are subject to individual income. In short, the individual must deliver a certain level of labour or entrepreneurial activities. The realised capital gains are subject to personal income tax at a rate up to 48% (effectively 24%, as only half of the total capital gains are subject to tax). This tax      rate does not include an Additional Solidarity Fee (Portuguese: Taxa Adicional de Solidariedade).

Therefore, the maximum rate will be an effective rate of 26.5% (53%/2).

 

Basis of tax

Capital gains realised by individuals are taxed as ordinary private or business income, directly subject to personal income tax on half of the total capital gain at a rate up to 26.5% (53%/2).

 

Companies

Introduction

Capital gains realised by companies are subject to corporate income tax as business income.

Liability to tax Basis to tax

The normal tax rate for resident companies is 21%, in addition to most municipalities, the municipal tax at the maximum rate of 1.5%. The first €15,000 of taxable income for a SME is taxed at the reduced rate of 17%.

Exemptions

Companies can defer taxation on realised capital gains by creating a reinvestment reserve. The capital gains are not taxed on sale, instead a reinvestment reserve is formed for the amount of the capital gains, the company must then make a reinvestment within three years of the sale. If another building is bought, the value of the reinvestment reserve can be deducted from the purchase price of the new property. As a result of this, the future depreciation costs are lower, resulting in higher taxable income. This tax deferral only applies to tangible fixed assets, intangible assets, or biological assets (not consumption).

 

Portuguese VAT & transfer taxes

 

Taxpayer

Basis of tax

Tax levied

Tax rates (202019)

Resident individual

 

 

 

Non-resident individual

 

 

 

Resident company

 

 

 

Non-resident company

Rental income Transfer of real estate services

 

Rental income Transfer of real estate services

 

Rental income Transfer of real estate services

 

Rental income Transfer of real estate services

Value Added Tax Transfer Taxes

 

 

Value Added Tax Transfer Taxes

 

 

Value Added Tax Transfer Taxes

 

 

Value Added Tax Transfer Taxes

23%

0 - 8%

 

 

23%

0 - 8%

 

 

23%

0 - 8%

 

 

23%

0 - 8%

 

Value Added Tax

Individuals

Introduction

Value added tax (VAT) is a tax based on the increase in value of a product or service at each stage of the supply the chain.

 

Liability to tax

If a company performs commercial or professional activities in Portugal, it will be subject to VAT.

 

Basis of tax

Generally, the supply and lease of immovable property are exempt from VAT. However, if the lease includes other related services such as furniture supply, cleaning services, etc., then the operation is subject to VAT at a rate of 23%.

 

Interaction with transfer tax

Sales of real estate are exempt from VAT. Companies

The same rules as for individuals apply to companies.

 

Transfer Taxes

Individuals

Introduction

Transfer tax is a tax on the passing of real estate from one person or company to another. Rights of immovable property can qualify as real estate.

 

Liability to tax

Transfer taxes apply to the acquisition of legal or economic ownership of Portuguese real estate and is payable by the purchaser.

 

Basis of tax

The market value of the immovable property will be taxed at a rate of 0% or 8%, depending on the value of the transaction. The basic of tax will be the higher of the purchase value and the tax asset value, as defined by Portuguese tax administration.

 

Exemptions

For acquisitions below €92,407 the rate to be applied is 0%. Companies

The same rules as for individuals apply to companies.

 

Exemptions

Acquisition of buildings for resale by real estate companies are exempt from transfer taxes.

 

Local taxes

 

Taxpayer

Basis of tax

Tax levied

Tax rates

Resident individual

 

 

Non-resident individual

 

 

Resident company

 

 

Non-resident company

Market value *

 

 

Market value

 

 

Market value

 

 

Market value

Municipal Tax

 

 

Municipal Tax

 

 

Municipal Tax

 

 

Municipal Tax

Depends on the municipality (0.3%- 0.45%/0.8%)

Depends on the municipality (0.3%- 0.45%/0.8%)

Depends on the municipality (0.3%- 0.45%/0.8%)

Depends on the municipality (0.3%-

0.45%/0.8%)

 

* There are certain rules to determine the market value for local taxes. Each municipality determines this market value, which is open for appeal.

 

Individuals

Introduction

Every municipality levies an annual municipal tax on Portuguese real estate. The annual municipal tax is deductible from rental income.

 

Liability to tax

An owner or user of residential or commercial buildings in Portugal is liable to local municipal tax.

 

Basis of tax

The local tax is based on the tax asset value (Portuguese: Valor Patrimonial Tributário) as defined by the Portuguese tax administration.

Every municipality defines a tax rate, between 0.3%-0.45%.

 

Exemptions

Urban buildings whose tax asset value (Portuguese: Valor Patrimonial Tributário) does not exceed

€125,000 and is held by taxable persons whose taxable income for IRS purposes in the year prior to the acquisition does not exceed €153,300, are exempt for a period of three years.

Integrated buildings on developments that have been attributed to tourist use can qualify for an exemption for a period of seven years

Companies

The same rules as for individuals apply to companies.

 

Portuguese net wealth/worth taxes

 

Taxpayer

Basis of tax

Tax levied

Tax rates (202019)

Resident individual

 

Non-resident individual Resident company

Non-resident company

Net value of real estate Net value of real estate Net value of real estate

Net value of real estate

Additional Municipal Tax Additional Municipal Tax Additional Municipal Tax

Additional Municipal Tax

0.7%-1%

 

0.7%-1%

 

0.4%

 

0.4%

 

Individuals

Introduction

Wealth or worth tax is a tax levied on the total value of assets, including real estate. Loans on the real estate are deductible.

 

Liability to tax

A person who holds properties with a total taxable value exceeding €600,000, not including urban buildings classified as ‘trade, industry or services’ and ‘others‘ is liable to wealth or worth tax.

 

Basis of tax

The local tax is based on the tax asset value (Portuguese: Valor Patrimonial Tributário) as defined by the Portuguese Tax Administration. The tax rate applicable is 0.7% but can go up to 1% if the total tax asset value (Portuguese: Valor Patrimonial Tributário) per person exceeds €1,000,000.

Companies

Introduction

Wealth or worth tax is a tax levied on the total value of assets, including real estate. Loans on the real estate are deductible.

 

Liability to tax

Every company owner or user of residential or commercial buildings in Portugal is liable to local additional municipal tax, except urban buildings classified as ‘trade, industry, or services’ and ‘others‘.

 

Basis of tax

The local tax is based on the tax asset value (Portuguese: Valor Patrimonial Tributário) as defined by the Portuguese tax administration.

The tax rate applicable for companies is 0.4%.

 

Vehicles for Portuguese real estate

Commonly used vehicles for Portuguese real estate

Limited liability companies

The so called ‘Lda.’, the Portuguese limited liability company, is the most frequently used vehicle for the ownership of Portuguese real estate. The equity is divided into shares and the shareholders of the Lda, are not personally liable for the business debt. Dividends attributed to individuals are taxed at a rate of 28%. Dividends or profits attributed to companies with a shareholding of more than 10% which has been held for more than one year are exempt from taxation (participation exemption). Where the shareholding is less than 10%, dividends attributed to companies are subject to income tax at a rate of up to 22.5%.

Profits made by the Lda companies are subject to corporate income tax at a tax rate up to 22.5%.

 

Partnerships and joint ventures

Investments in real estate are often done on a collective basis by entities and/or individuals. For Portuguese tax purposes, there is no distinction between the taxation of partnerships and joint ventures.

 

Trusts

Trusts are legal instruments which are not known as such in Portuguese law and are therefore not recognised in Portuguese tax law. In order to qualify a foreign trust as a transparent or non-transparent entity for Portuguese income tax purposes, the Portuguese tax authorities will determine which persons have legal and actual rights to dispose of the trust’s assets, and who is able to make the corresponding arrangements. If such rights lie with a beneficiary or other related person, it is likely that the income generated by the trust will be directly attributable to this person, and the trust will qualify as a transparent trust.

 

Foreign partnership

The residence of a partnership is determined by the place where the crucial decisions are made. Usually, this is where all the partners meet.

If a foreign partnership is trading in Portugal, the partnership is subject to Portuguese corporate income tax, and the partners are subject to Portuguese personal income tax. A foreign partnership qualifies as a permanent establishment in Portugal by owning Portuguese real estate.

 

Specific real estate vehicles for Portuguese real estate

Real estate investment trusts

From 2019, the taxation of real estate investment funds follows the same rules as an ordinary company in Portugal.