Property Ownership Costs | Inheritance Issues

Overview:

Portugal 's taxation system is similar to those of other EU countries. There is a double taxation agreement between Portugal and the UK. For tax purposes, a foreign national staying in Portugal for more than 183 days during a tax year (January 1 to December 31) is considered a resident; the 183 days do not have to be consecutive.

Property Taxes:

Portuguese real estate owners must pay real estate tax (imposto municipal sobre imoveis or IMI) on their property. IMI is an annual tax levied by municipal authorities on the tax registration value (valor patrimonial tributario) of real estate. IMI is charged annually at between 0.2% and 0.8% depending on the nature and location of the property. The owner on 31 December of a given year is obliged to pay real estate tax for the coming year.

A real estate valuer, on the instruction of the local tax office, determines the tax registration value of a property. An owner who is not in agreement with the initial calculated value of his/her real estate, can request a second valuation. Normally newer buildings have much higher real estate value than older buildings. The tax registration value of a property can be checked at the local tax office and is also available from the caderneta predial.

Real estate that is acquired for one's own permanent residential purposes, can be exempted from IMI for a period of six years, on application by the taxpayer, if its tax registration value does not exceed Euro 150,000.

Real estate that is held by offshore companies or in other tax havens is charged a fixed tax rate of 5%.

Income Tax:

Persons who receive income from real estate situated in Portugal are liable to pay income tax. The obligation to pay tax also exists for persons who are not resident in Portugal . Portuguese residents pay income tax of up to 40%; for non-residents or offshore companies income is taxed at a flat rate of 25 per cent. Income from letting and leasing is taxable as well.

In Portugal, only repairs and maintenance costs are tax-deductible. Deduction of mortgage interest against rents, permitted by some other countries, is not allowed.

If the building is used for his/her own purposes, the owner only has to bear the land tax. The land tax can then not be deducted. No further tax is applicable.

Utility Costs:

The cost of living is considerably cheaper in Portugal than in the UK, typical costs are:

Water rates £36 per annum
Electricity £21 per month
Most people use butane or propane gas bottles (garrafa de gas butano) for cooking and heating the home, and these cost around €20 a bottle. A combined gas heating system for water and home heating is a relatively cheap energy source.

Lettings & Management Charges:

Monthly charges can work out at around €60 for a two-bedroom apartment, and around €210 for a four-bedroom villa. It is possible to have fees deducted from rent payments received by the property management company, and the same applies to rental agents. Get the contractual agreement between you and your property manager approved by an advogado.

Other Ownership Costs:

Residents of Portugal are also subject to other taxes, including vehicle sales tax and rental property tax.

Companies buying property in Portugal will be subject to corporation tax at a standard rate of 25%. An additional municipal tax is charged in most areas of up to 10% of the corporate tax due. The combined maximum tax rate is therefore 27.5% and is payable by Portuguese-resident entities and non-residents operating in Portugal through a permanent establishment. Rental income earned by non-residents without a permanent establishment in Portugal is subject to tax at 15%.

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