ACQUIRING PORTUGUESE REAL ESTATE

DIRECT PURCHASE OF REAL ESTATE

In this section the tax implications of the direct purchase of real estate are discussed, focussing on the impact on resident and non-resident individuals and companies.

Note: This guide applies to the tax rules in Portugal at the time of writing (31-01-2022)

 

Resident individuals

Transfer taxes

Individuals which acquire Portuguese real estate are subject to transfer taxes on the market value of the immovable property at a rate of between 0-8%.

 

Value added tax

The supply of real estate is 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%.

 

Deductibility of costs

All expenses actually incurred and paid to obtain or guarantee the property income are deductible, with the exception of: interest, depreciation and costs relating to furniture, household appliances and articles of comfort or decoration.

 

Non-resident individuals

Transfer taxes

Individuals which acquire Portuguese real estate are subject to transfer taxes on the market value of the immovable property as a rate of between 0-8%.

 

Value added tax

The supply of real estate is 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%.

 

Deductibility of costs

All expenses actually incurred and paid to obtain or guarantee the property income are deductible, with the exception of interest, depreciation and costs relating to furniture, household appliances and articles of comfort or decoration.

 

Resident companies

Transfer taxes

The acquisition of Portuguese real estate is subject to transfer taxes on the market value of the immovable property at a rate of between 0- 8%. The transfer tax is payable by the purchaser.

 

Value added tax

The supply of real estate is 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%.

 

Deductibility of costs

The acquisition cost of a building can be depreciated on an annual basis by 1-2%. Additional costs incurred in the acquisition of real estate, such as transfer costs, can also be depreciated.

 

Non-resident companies

The same rules apply for non-resident companies as for resident companies, as Portuguese real estate is considered to be a permanent establishment.

 

INDIRECT PURCHASE OF REAL ESTATE

In this section the tax implications of the indirect (shares) purchase of real estate are discussed, focussing on the impact on resident and non-resident individuals and companies.

 

Resident individuals

Transfer taxes

If an individual acquires shares in a company that has real estate, and as a result owns at least 75% of the share capital, or the share capital is owned exclusively by two persons (husband and wife), the acquisition is subject to transfer tax. The market value of the immovable property will be taxed at a rate between 0-8% and is payable by the purchaser.

 

Personal income tax

The income of individuals who hold shares in Portuguese real estate as a result of the acquisition of shares in a company are subject to tax at a rate of 28%. The capital gains of unlisted micro and small enterprises in the regulated or unregulated markets of the stock exchange are considered at 50% of their value.

 

Dividend withholding tax

Shareholders of a Portuguese company are subject to a 28% dividend withholding tax on the distribution of a dividend.

Deductibility of costs

All expenses actually incurred and paid to obtain or guarantee the property income are deductible, with the exception of interest, depreciation and costs relating to furniture, household appliances and articles of comfort or decoration.

Non-resident individuals

Non-resident individuals are treated in the same manner as resident individuals. Resident companies

Transfer taxes

Usually, a share transfer is not subject to transfer taxes.

However, if a company acquires shares in a company that has real estate, and as a result has at least 75% of the share capital, the acquisition is subject to transfer tax.

The market value of the immovable property will be taxed at a rate of between 0-8% and is payable by the purchaser.

 

Corporate income tax

Dividends or profits attributed to companies with a shareholding of more than 10% which has been held for at least one year are exempt from taxation (participation exemption).

Where participation is below 10%, dividends attributed to companies are subject to income tax rate up to 22.5%.

 

Losses

Tax losses carried forward by a company in a given tax period are deductible from its taxable profits in the following five taxation periods, this is extended to 12 taxation periods for SMEs.

 

Fiscal unity

Under Portuguese law, it is possible to form a fiscal unity if the holding company owns at least 75% of the shares in its subsidiaries. A fiscal unity can only be formed when all of the entities are Portuguese residents.

Non-resident companies

Non-resident companies are treated in the same manner as resident companies.