The most common taxes and costs are detailed below.
The largest tax paid when purchasing a property in Portugal is IMT (Imposto Municipal sobre as Transmissões Onerosas de Imóveis). This is quite a complicated tax to calculate, as there are different tax scales for primary and secondary residences, plus the tax is calculated using a table with different tax levels depending on the purchase price. Rustic property pays a different rate (5%) to urban property. IMT can range from 0 to 6%, but Offshore properties in a blacklist jurisdiction attract a higher rate of tax.
There is a useful online calculator to help you understand the calculation of IMT, and you can find it here
IMT is paid before the deeds (escritura), and can be paid on the same day as the deeds are signed.
This is a lower tax, paid on sales of property and also applied on mortgages given. The rate for a property sale is 0.8% of the sale price, and a rate of 0.6% is applied on a mortgage. This tax is paid on the day of purchase/mortgage.
Since the abolition of the monopoly public notaries had for many years, notary fees are now variable. The notary provides an important safeguard when you are purchasing a property, so you should not select on cost alone.
The “Casa Pronta” service provides a one stop shop where you can not only have the escritura notarised, but also pay the taxes due and update the property registration. At the time of writing (2013) Casa Pronta will charge €375 for a simple purchase.
Registration fees have to be paid at the Land Registry (Registo Predial), and these vary depending on the number of properties you are registering. A minimum fee is approximately €250.
We always advise clients to use the services of a competent lawyer or solicitor, specialised in property conveyancing. Costs vary for this, but you can expect to pay 1-1.5% of the purchase price.
Again, we always advise that when you are buying a property in the Algarve, you ask a surveyor to inspect the property and provide you with a report on the condition of the property. The cost of this is around €600, which is a small price to pay for peace of mind.
Once you have bought your property in the Algarve, there are (of course) some ongoing taxes to be paid.
IMI (Imposto Municipal sobre Imóveis) is a yearly tax paid by the owners of properties in Portugal. The tax is calculated based on the size, type, facilites and location of the property.
IMI is paid either in one, two or three (since 2013) instalments. The higher the tax, the greater the number of instalments.
IMI is not a particularly high tax, although it has increased in recent years as many older properties were paying very little IMI.
Each council is allowed to set the rate that they charge IMI, within a legal limit. In 2013, Loulé and Tavira charge 0.4%, São Brás 0.44% and Albufeira 0.5%. These percentages are charged over the VPT (valor patrimonial tributário) or rateable value of a property. As an example, a property with a VPT of €200.000 in Loulé council would pay 200.000 x 0.4%=€800 per year.
There are still some properties who have not been re-evaluated under the new system to establish a VPT. These properties pay a higher rate of IMI.
This tax can apply if you receive rental income from your property in Portugal. It is paid on a stepped scale, and the tax percentages increase as the income increases.
Mais valias (Capital gains tax) is payable if you sell a property and make a profit. Those who are resident in Portugal and sell their primary residence are allowed to reinvest the profit free of capital gains tax, as long as certain conditions are met. There are no exemptions for non-residents.
Capital gains tax for non-residents (which includes non-resident companies) is currently 28% of the profit (2013). Residents pay capital gains tax as if it was income, so the sliding scale for IRS is used.
Taxes and the rules relating to them are constantly changing. We always recommend that you consult a professional tax adviser if you need assistance with taxation. Please contact us if you would like some recommendations for professional advisers.