Property Taxes in Portugal – The Importance of Getting it Right

Popularity of Portuguese Property

Portugal features as an all-time favourite with picturesque views of ancient and new buildings on the sunny hills of this new favourite European gem. A zoomed in view of these include glazed blue ceramic tiles, or azulejos, covering the exterior walls of buildings.

Property has recorded double digit percentage growth in various sectors listed by numerous real estate service companies in recent years and the expectation is that this will continue – with an increased demand and reduced supply than previously seen.

What is an interesting misconception is that property prices are driven predominantly by the Golden Visa program – in actual fact, the Portuguese Golden Visa accounts for an insignificant portion of property purchases, when considered in comparison to total property purchases in Portugal.

This reflects that there are various factors in Portugal influencing properties prices, including: the fact that Portugal is the new acclaimed California, the new European Silicon Valley, it is ranked one of the best places to live and work in the world, it is an attraction magnet for digital nomads, as well as offering a 10-year tax holiday for the affluent, and there is more.

Property has always been a favourable investment class for many – and that is no different now. This raises the importance of understanding the related tax consequences for holding property in Portugal.

Below Dixcart have summarised some of the tax implications applicable in Portugal.

What are the Tax Consequences for My Rental Income?

Rental income, for individuals is taxed at a flat rate of 28% – for both resident and non-resident Portuguese holders of property. It is worth noting that residents may use the marginal scale rates if lower – although it is unlikely they will be able to do so.

Qualifying expenses may be used to reduce the taxable income due – provided it forms part of the income producing activity.

Corporate tax rates for rental income depend on residency status: non-resident entities may be subject to 25% tax, whereas local Portuguese companies will be subject to tax at rates between 19% to 21% in mainland Portugal and 11.9% to 14.7% for properties located in the autonomous region of Madeira.

When is Stamp Duty Applicable?

Stamp duty is applicable on a variety of transactions in Portugal – this may occur when a property is inherited or when a property is purchased. Please refer below for more details.

What Inheritance Tax Implications Exist for Property (or is it Stamp Duty that Applies)?

Although inheritance tax is not applicable in Portugal, stamp duty does apply.

For the purposes of stamp duty, inheritance or gifts may fall into one of two categories – those which are exempt, and those taxed at a flat rate of 10%. Inheritances by close relatives, such as parents, children and spouses, are exempt from stamp duty. All other inheritances and gifts are taxed at a flat stamp duty rate of 10%.

Stamp duty is payable for the respective property, even if the recipient does not live in Portugal.

If you are a UK domicile, your Portugal property will form part of your UK estate for UK inheritance tax purposes.

Stamp Duty on the Purchase of a Property

Stamp duty on the purchase of a property is charged at a rate of 0.8% at the higher of the purchase price or VPT (the rateable value, attributed by the tax authorities). The VPT in most cases is much lower than the actual purchase price of the property.

The purchaser must pay this duty, prior to signing the final deed, and proof of payment will need to be provided to the notary.

VAT may be applicable on the purchase of new builds in particular situations.

Property Transfer Tax

Property transfer tax, namely IMT (Imposto Municipal sobre Transmissões Onerosas de Imóveis), is applicable each time ownership is transferred. The tax is required to be paid by the purchaser prior to the final deed of sale being signed (as the original copy of proof of payment needs to be shown to the notary at the time of the property exchange).

The tax paid, is calculated on the higher of the purchase price or the VPT.

The property transfer tax rate is largely dependent on the ultimate use of the property and whether it is your first or second home, with the rates varying between 0% and 6%.

Annual Municipal Property Tax (IMI)

Annual municipal property tax, or IMI (Imposto Municipal sobre Imóveis), is payable by the person who is the property owner as at 31 December of the previous year, and is based on the VPT. The rate applied ranges from 0.3% to 0.8%, and is dependent on whether the property type is classified as urban or rural (classified by the Portuguese tax authorities based on the location of the property). Note that any investor or company located in a blacklisted tax jurisdiction, in accordance with the Portuguese tax authority, will be subject to a flat rate of 7.5% IMI.

An additional annual municipal property tax, namely AIMI (Adicional ao IMI), is chargeable for any VPT value exceeding €600,000, for all residential properties and construction plots, at a rate of 1%. Thus, the first €600,000 will be subject to the IMI at the respective IMI rate, and the excess value above €600,000 will be subject to AIMI at rates that vary between 0.4% and 1.5%.

Please note that AIMI is not only considered for a single property but considered per owner and therefore, if more than one property is held, the cumulative VPT needs to be considered. If the cumulative VPT value of all properties held by a single owner exceed €600,000, AIMI will be applicable on the value of the properties held, exceeding this threshold.

What Tax Consequences are Applicable Upon the Sale of a Property?

Capital gains tax is applicable on the sale of a property, unless purchased before 1989.

The tax consequences vary dependent on whether you are resident or non-resident. In addition, the use of the property and the way that the proceeds from the sale are utilised are paramount, as this may have a significant impact on the related tax consequences applicable.

The tax is calculated on the difference between the selling price and the acquisition value (adjusted for inflation rates, net of documented costs incurred when the property was acquired, coupled with any capital improvements within the last 12 preceding years of the sale).

As a Portuguese tax resident, 50% of the gain is required to be paid. If the property was held for a period of two years or more, inflation relief may also be applicable. Capital gains, on your property, are added to your other annual income and are taxed at marginal tax rates of up to 48%.

It is worth noting that gains resulting from the sale of a primary residence are exempt for residents, if you reinvest all of the proceeds (net of any mortgage on the property), in another main home in Portugal or the EU/EEA, before the property is sold (a window of up to 24 months), or within 36 months of the disposal of the property, provided you live in the new property, within 6 months of the purchase.

Capital gains are taxed at 28% for non-residents individuals and 25% for non-resident companies.

However, the tax consequences in Portugal are not the only consideration to bear in mind. One also needs to consider the double taxation treaty and local laws and regulations applicable in the country of tax residency.

A typical example of this for a UK resident, is the fact that UK tax residents also pay tax on the gain from the Portuguese property in the UK, however, under the double taxation treaty, any tax paid in Portugal may be credited against the tax due in the UK.

Is there a Preferred Structure to Hold Property in Portugal?

A topical query – what is the most preferred and tax efficient structure to hold property in Portugal?

Although the answer may vary dependent on objectives and circumstances from one investor to the next, as well as the purpose for such properties, it is worth noting that as a non-tax resident investor wishing to invest in property to earn rental income, holding such a structure through a Portuguese company may be more beneficial with tax rates varying between 19% to 21% and 11.9% to 14.7%, for properties located in Portugal mainland and the autonomous region of Madeira respectively, in comparison to the flat rate of 25% for non-resident entities.

For residents, holding a primary residence in their personal capacity, may be more beneficial from a capital gain point of view. Thus, each situation needs to be considered on a case-by-case basis.

Other considerations, however, need to be taken into account, such as the operational costs for running a company and ensuring appropriate substance exists. The cost of holding a property through a corporate structure may thus not exceed the benefit in all circumstances.

Alternative qualitative benefits may include the fact that corporate structures provide an extra layer of asset protection, which may be considered invaluable for many individuals located in jurisdictions exposed to considerable financial and other types of risk.

Summary of Property Tax Consequences

To summarise the tax and costs applicable for purchasers, owners, sellers and others, as discussed above, please refer below:

Purchaser:Owner:
IMT (Property Transfer Tax)Stamp DutyNotary/Registration CostsLegal expensesIMI (Annual Municipal Tax)AIMI (in addition to IMI)Running costs (such as water and electricity)
Seller:Others:
Capital gainsCommission to real estate agencyInheritance tax

The related tax rates may be summarised as follows:

Individuals
 ResidentsNon-Residents
Capital Gains TaxPrimary residence may be subject to exemptionSecond property will be taxed at 28%28%
Rental IncomeLower of 28%; orMarginal tax rate.28%
Companies
 ResidentNon-Resident
Capital Gains Tax28%25%
Rental IncomeRespective company tax rate, namely: Madeira: 11.9% to 14.7%Portugal: 19% to 21%25%

Why is it Important to Engage with Dixcart?

It is not just the Portuguese tax considerations on properties, largely outlined above, but also the impact from where you may be tax resident and/or domiciled, that need to be considered. Although property is typically taxed at source, double taxation treaties and double tax relief need to be considered.

A typical example is the fact that UK residents will also pay tax in the UK and this will be calculated based on UK property tax rules, which may be different to those in Portugal.  They are likely to be able to offset the Portuguese tax actually paid against the UK liability to avoid double taxation, but if the UK tax is higher, further tax will be due in the UK. Dixcart will be able to assist in this regard and to help make you aware of your obligations and filing requirements.

How else may Dixcart Assist?

Dixcart Portugal have a team of experienced professionals who may assist with various aspects regarding your property; efficient tax planning, legal support (for the sale or purchase of a property), accounting and tax support and the incorporation and maintenance of companies.

Further to this, if you would like a deemed tax calculation to be performed, you may reach out to our offices in Portugal and/or Madeira for this information: advice.portugal@dixcart.com

Dixcart have helped many with this service and look forward to assisting you with your next property advice and/or transaction.

Golden Visa Portugal – Investment Route and the Non-Habitual Residents Regime

Portuguese Golden Visa – Investment Route and the Non-Habitual Residents Regime

Background

Portugal is being re-discovered as a destination to relocate to, with iconic cities such as Lisbon and Porto, and stunning coastal areas, for example, the Algarve. It also offers very easy access to the rest of Europe.

Portugal is increasingly recognised as an international hub with 71 Double Taxation Agreements and 49 Investment Protection Treaties.

The Golden Visa

There are a number of different criteria that can be met to fulfil Golden Visa obligations, including direct investment into property. An increasingly popular route is the investment fund option whereby individuals can gain a Golden Visa, by investing in a Portuguese Venture Capital Fund.

Key Facts: The Golden Visa Programme

The Portuguese Golden Visa allows individuals to qualify for a residency permit, to live in Portugal for up to five years and does not necessarily trigger Portuguese tax residency. The applicant and his/her family are free to travel within the Schengen area. The Golden Visa also allows investors to work in Portugal if they choose to do so.

Investing in a Portuguese Venture Capital Fund – the Requirements

An investment of at least €550,000 must be made in a Venture Capital Fund with the objective of providing capital for companies. The capital must be injected for a minimum of five years and at least 60% of the investment must be made in commercial companies, with a head office in Portugal.

Taxation

The benefits of investing through a Venture Capital Fund include:

  • Withholding tax of 10%, on distribution of the income generated, if the investor is tax resident in Portugal.
  • Exemption from withholding tax, on distribution of the income generated, if the investor is not tax resident in Portugal.
  • Exemption from corporate income tax when the fund is established and operating under Portuguese legislation.
  • 10% tax on capital gains derived from the sale of participation units.

Non-habitual Residents Scheme (NHR)

Portugal also offers an attractive personal tax regime, the ‘NHR’ regime, to EU and non-EU individuals who have not been tax resident in Portugal for the previous 5 years, but who wish to be tax resident in Portugal.

An individual can enjoy the NHR regime for 10 years, after which he/she will be taxed at the standard Portuguese tax rate.

The key advantages are:

  • Income derived from employment or independent personal services in Portugal is taxed at a special flat rate of 20% for ten consecutive years, as above. Portuguese employment income must be derived from high value-added activities of a scientific, artistic, or technical nature.
  • 28% flat rate of withholding tax on interest, dividends and/or capital gains relating to Portuguese source income.
  • Pensions will be taxed at the rate of 10%
  • No capital gains on the sale of a permanent residence in Portugal as long as the gains are re-invested in another permanent residence in Portugal or another EU or EEA country.

Comprehensive details are available from Dixcart: advice@dixcart.com.

Additional Information

If you require additional information regarding the Portuguese Golden Visa or the NHR regime, please speak to your usual Dixcart contact or email the Dixcart office in Portugal: advice.portugal@dixcart.com

What Will Portugal’s Golden Visa Programme Look Like in 2022?

Portuguese Golden Visa and the Application Procedures

Portugal Golden Visa Changes

From 1 January 2022, new changes will come into force for the Portuguese Golden Visa programme. The Portugal Golden Visa changes include limitations on where investment properties can be located and an increased investment threshold for some investment routs. 

Changes Regarding Real Estate

Although residential properties located in Lisbon, Oporto and the Algarve will be excluded from the programme, areas such as Alcácer do Sal, Grândola, Santiago do Cacém, the Douro Valley, Aljezur, Peneda-Gerês, and Madeira, still offer attractive investment potential, and will be some of the key areas that are likely to see growth, especially early 2022.

The real estate route is divided into the €500,000 minimum investment that requires the acquisition of a property and the €350,000 route which requires the acquisition of a property that is at least 30 years old or located in rehabilitation area and will also have to be refurbished.

Considering that as of next year the investment into residential properties is limited to low density areas such as the ones indicated above, the minimum investment reduces in 20%, meaning that the minimum investment of EUR 500.000 reduces to EUR 400.000 and the EUR 350.000 reduces to €280,000.

Madeira and the Azores are not considered low density areas and therefore the minimum investment amounts remain the EUR 500.000 and the EUR 350.000.

The restrictions are not applicable to commercial or services properties, such as hotels, where clients can still acquire properties in Lisbon and Oporto.

Changes to Other Investment Routes

As of 1st January 2022, investment in any one of the non-real estate routes, will be required at the increased levels, as detailed below:

  • Investment by capital transfer will increase from €1,000,000 to €1,500,000; or
  • Investment by capital transfer in research activities, will increase from €350,000 to €500,000; or
  • Investment by capital transfer for the acquisition of units of investment funds or venture capital funds, designated for the capitalisation of companies, will increase from €350,000 to €500,000; or
  • Investment by capital transfer through the establishment of a commercial company with a head office in Portugal, and the creation of a minimum of five permanent jobs, will increase from €350,000, to €500,000.

Summary

If would like additional information on applying for a Portuguese Golden Visa, please speak to Catarina Sardinha in our office in Portugal: advice.portugal@dixcart.com. The renewal of Golden Visa permits, granted prior to 1st January 2022, will not be affected by the changes detailed above.

Cyprus, Malta, and Portugal – Three of the Best Southern European Countries to Live in

Moving to Guernsey – The Potential Tax Efficiencies

There are many reasons why individuals and their families choose to take up residence in another country. They may wish to start a new life elsewhere in a more attractive and relaxing environment, or they may find the greater political and economic stability that another country offers, of appeal. Whatever the reason is, it is crucial to research and plan ahead, as much as possible.

Residence programmes vary in what they offer and, depending on the country, there are differences regarding how to apply, the time period that residence is valid for, what the benefits are, tax obligations, and how to apply for citizenship.

For individuals considering an alternative country of residence, the most important decision is where they and their family would like to live. It is critical that clients consider the long-term objectives for themselves, and their families, before applying for a particular residence (and/or citizenship programme), to help ensure that the decision is right for now, and in the future.

The main question is: where would you and your family most like to live? The second, and almost equally important question is – what are you hoping to achieve?

CYPRUS

Cyprus has rapidly become one of Europe’s top hotspots for expatriates. If you are considering relocating, and are a bit of a sun-chaser, Cyprus should be top of your list. The island offers a warm climate, good infrastructure, convenient geographic location, membership of the EU, tax advantages for companies, and incentives for individuals. Cyprus also offers an excellent private healthcare sector, a high quality of education, a peaceful and friendly community, and a low cost of living.

On top of that, individuals are drawn to the island due to its advantageous non-domicile tax regime, whereby Cypriot non-domiciliaries benefit from a zero rate of tax on interest and dividends. These zero tax benefits are enjoyed even if the income has a Cyprus source or is remitted to Cyprus. There are several other tax advantages, including a low rate of tax on foreign pensions, and there are no wealth or inheritance taxes in Cyprus.

Individuals wishing to move to Cyprus can apply for a Permanent Residence Permit which is useful as a means to ease travel to EU countries and organise business activities in Europe. Applicants can make an investment of at least €300,000 in one of the investment categories required under the programme, and prove they have an annual income of at least €30,000 (which can be from pensions, overseas employment, interest on fixed deposits, or rental income from abroad) in order to apply for permanent residence. If they choose to reside in Cyprus for seven years, in any ten-calendar year period, they may be eligible to apply for Cyprus citizenship by naturalisation.

Alternatively, a temporary residence permit can be obtained by establishing a foreign investment company (FIC). This kind of international company can obtain work permits for relevant employees and residence permits for family members. Again, a key advantage is that after residing for seven years in Cyprus, within any ten-calendar year period, third country nationals can apply for Cyprus citizenship.

Find out more: Benefits, Financial Obligations, and Additional Criteria of the Cyprus Permanent Residence Permit


MALTA

Located in the Mediterranean, just south of Sicily, Malta offers all of the advantage of being a full member of the EU and Schengen Member States, has English as one of its two official languages, and a climate many chase all year round. Malta is also very well connected with most of the international airlines, which makes travel to and from Malta seamless.

Malta is unique in that it offers 8 residence programmes to meet different individual circumstances. Some are appropriate for non-EU individuals while others provide an incentive for EU residents to move to Malta. From the Malta Permanent Residence Programme, which offers a fast and efficient way for individuals to obtain a European permanent residence permit and visa-free travel within the Schengen Area, the Digital Nomad Residence Permit for third country individuals to legally reside in Malta but maintain their current job remotely, the Highly Qualified Person’s Programme, targeted towards attracting professional individuals earning over a certain amount each year offering a flat tax of 15%, to Malta’s Retirement Programme. It should be noted that none of the Malta residence programmes have any language test requirements – the Malta Government has thought of everyone.

  1. Malta Permanent Residence Programme – open to all third country, non-EEA, and non-Swiss nationals with a stable income and sufficient financial resources.
  2. Malta Residence Programme – available to EU, EEA, and Swiss nationals and offers a special Malta tax status, through a minimum investment in property in Malta and an annual minimum tax of €15,000
  3. Malta Global Residence Programme – available to non-EU nationals offers a special Malta tax status, through a minimum investment in property in Malta and an annual minimum tax of €15,000
  4. Malta Citizenship by Naturalisation for Exceptional Services by Direct Investment – a residence programme for foreign individuals and their families, who contribute to the economic development of Malta, which can lead to citizenship
  5. Malta Key Employee Initiative – is a fast track work permit application programme, applicable to managerial and/or highly-technical professionals with relevant qualifications or adequate experience relating to a specific job.
  6. The Malta Highly Qualified Persons Programme – available to EU nationals for five years (may be renewed up to 2 times, 15 years in total) and non-EU nationals for four years (may be renewed up to 2 times, 12 years in total). This programme is targeted at professional individuals earning more than €86,938 in 2021, and seeking to work in Malta in certain industries
  7. The Qualifying Employment in Innovation & Creativity Scheme – targeted towards professional individuals earning over €52,000 per annum and employed in Malta on a contractual basis at a qualifying employer.
  8. Digital Nomad Residence Permit – targeted at individuals who wish to maintain their current job in another country, but legally reside in Malta and work remotely.
  9. Malta Retirement Programme – available to individuals whose main source of income is their pensions, paying an annual minimum tax of €7,500

To make life even more enjoyable Malta offers tax benefits to expatriates and the attractive Remittance Basis of Taxation, whereby a resident non-domiciled individual is only taxed on foreign income, if this income is remitted to Malta or is earned or arises in Malta.

Find out more: A Snapshot of Malta’s Extensive Residence Programmes


PORTUGAL

Portugal, as a destination to relocate to, has been top of the list for several years now, with individuals attracted by the lifestyle, the Non-Habitual Resident Tax Regime, and the Golden Visa residency programme.

Portugal’s Golden Visa is the perfect route to Portugal’s golden shores. Due to its flexibility and numerous benefits, this programme has proven to be one of the most popular programmes in Europe – providing the perfect solution for non-EU citizens, investors, and families looking for Portugal residency, plus the option to apply for citizenship after 6 years if that is the long-term objective.

With changes soon approaching at the end of 2021, there has been a rapid uptake of more applicants in the last few months. Forthcoming changes include Golden Visa investors not being able to purchase properties in high-density areas such as Lisbon, Oporto, and the Algarve, which opens up greater opportunities for investors in Portugal. Alternatively, there are very attractive advantages in any one of the other non-real estate routes (more information can be found here).

Portugal also offers a Non-Habitual Residents Programme to individuals who become tax resident in Portugal. This allows them to enjoy a special personal tax exemption on almost all foreign source income, and a 20% tax rate for employment and/or self-employment income, sourced from Portugal, over a 10-year period.

Last but not least, following on from the restrictions caused by the pandemic and the significant increase of people no longer working in an office, Portugal offers a temporary residence visa that can be used by freelancers and entrepreneurs, which digital nomads can take advantage of. The local government in Madeira has launched the ‘Madeira Digital Nomads’ project, to attract foreign professionals to the island. Those taking advantage of this initiative can live in the nomad village in Ponta do Sol, in villas or hotel accommodation and enjoy free; wi-fi, co-working stations, and specific events.

The Golden Visa may seem less important for EU citizens, as they already have a right to live in Portugal without formal immigration or investment being required, but the NHR has proved to be a major motivator for both EU and non-EU citizens looking to relocate.

Find out more: From Portugal’s Golden Visa to the Non-Habitual Residents Regime


Summary

Moving Abroad? What to think about!

If you require additional information regarding moving to Cyprus, Malta, or Portugal, or would like to speak to an adviser to find out which programme and/or country best suits you and your family’s needs, we have staff located in each jurisdiction, to answer your questions:

What Are The Tax Benefits Available in Portugal For Digital Nomads and Other Individuals Moving There?

Alternative Jurisdictions to Consider for Non UK Domiciles Wishing to Move Out of the UK

The Rise of the Digital Nomad

Following on from the restrictions caused by the pandemic and the significant increase of people no longer working in an office, or place of work, a number of individuals have realised that they can work from ‘anywhere’.

Portugal offers a temporary residence visa that can be used by freelancers and entrepreneurs, which digital nomads can take advantage of.

Digital Nomad Village in Madeira, Portugal

The local government in Madeira has launched the ‘Madeira Digital Nomads’ project, to attract foreign professionals to the island. Those taking advantage of this initiative can live in the nomad village in Ponta do Sol, in villas or hotel accommodation and enjoy free; wi-fi, coworking stations, and specific events.

The Attractions of Portugal – to a Wide Audience

Portugal is an attractive and popular location – not only for digital nomads to move to – but for a large variety of individuals, in many different circumstances.

Not only is it a beautiful country, offering an attractive lifestyle, but it also offers the popular Golden Visa (GV), and the Non Habitual Residents (NHR) programme, which can be combined, and offer a route for individuals to move to Portugal and to enjoy tax advantages once they re-locate here.

The GV is less important for EU citizens, as they already have a right to live in Portugal without formal immigration or investment being required.

  • NHR has proved to be a major motivator for both EU and non-EU citizens.

Key Advantages of Portugal NHR status:

Portugal is a full member of the EU and therefore legal residents can travel freely and visa-free throughout the EU under Schengen.

NHR status lasts for ten years.

Tax efficiencies in relation to NHR status include:

  • It is possible, with careful structuring, for NHRs to not be taxed on income, other than Portuguese-source income, for the ten year NHR designated term.
  • Recent amendments now include a tax of 10% on pension income, which remains considerably less than the standard Portuguese tax on pensions.
  • 20% flat rate for certain Portuguese source income (from specific professions and from self-employment), as opposed to standard Portuguese income tax rates of up to 48%.

Criteria to Meet NHR Status

The following criteria must be met:

  • The right to reside in Portugal, either by being an EU/EEA/Swiss citizen, or through schemes such as the Golden Visa programme.
  • Must not have been resident in Portugal within the last five Portuguese tax years.
  • Must not have been a Portuguese tax resident in the five years prior to taking up residence in Portugal.
  • The individual must have a place to live in Portugal, this could be the rental of a modest apartment.
  • To apply for NHR, a fiscal representative, such as Dixcart, needs to be appointed in Portugal.

Additional Information

If you require additional information regarding moving to Portugal, please contact the Dixcart office in Portugal: advice.portugal@dixcart.com.

Catarina Sardinha

Head of Legal Department

Profile

Catarina Sardinha joined Dixcart in 2008. She graduated in Law from the University of Lisbon and worked for a company associated with the international law firm Simmons & Simmons. She completed her post graduate course in Advanced Tax Law at ISAG in June 2010. Her role at Dixcart Portugal is to coordinate the work of the legal department and she also provides advice on legal matters, including corporate and labour law relating to Dixcart clients. At the beginning of 2014 Catarina was appointed Head of the Legal Department at Portugal. She is responsible for due diligence and anti-money laundering procedures. Catarina is also responsible for managing the human resources department, where her Employment Law experience is of great value.