Before you consider how the wealth taxes in Portugal work, you should know what the concept of property ownership is like in the country. In Portugal, people follow the concept of ‘full ownership’ which entails the right to full and exclusive ownership of a real estate property. The focus on this system of property ownerships gives the Portuguese real estate industry an advantage over most comparable real estate industries on the continent.
When it comes to Tax Law pertaining to wealth, however, there are some critical things that you need to keep in mind. You should, ideally, make sure that you are well aware of legislation pertaining to taxes relating to benefits of a particular type of wealth as well as the rates which are applicable.
In the country, acquisition of immovable property usually results in the levying of the Municipal Tax which is related to the property’s ownership being transferred. This tax can be seen in view of Stamp Duty and Valuable Consideration.
Understanding Municipal Tax in terms of Valuable Consideration for Transfer of Property
This tax is charged for valuable consideration when property rights are being transferred whether in part or as a whole. For instance, apart from full ownership, this tax will also apply for habitation, temporary use, usufruct, surface rights, and other similar purposes.
How Does The Application Of This Tax Work?
Depending upon whichever is greater, this tax can be applied on the taxable value of the property or the agreed value as per the purchase contract.
Various rates are used when determining this particular tax. However, for residential property the rate ranges between 0 and 6 percent with the exception of properties located in the Madeira and Azores Autonomous Regions where the rates are lower.
How Does Stamp Duty Work?
This tax is a kind of fee for handling various legal aspects of the transfer such as handling and updating of papers, deeds, documents, contacts, and compliance with acts. Like Valuable Consideration, Stamp Duty is also based on the agreed value in the purchase contract or the taxable value of the property, depending upon which is higher. Even in the case of transfers that are completely free, this tax is applicable. The rate of stamp duty is stable at 0.8 percent.
Understanding Taxable Value
Taxable Value is the value that is specified at the time the property is registered which is usually considered to be the date of sale. The property registration contains other information as well such as the identity of the owners, its location, and its description, in addition to its taxable value. The last day of every calendar year sees these registers being updated.
Who Pays These Taxes?
These taxes are paid by the individual or organisation that is making the purchase.
At What Point Are These Taxes Paid?
These taxes are paid before the purchase agreement is signed and finalised. In the case of the transfer occurring beyond the Portuguese national borders, there is a leeway of a month within which these taxes should be paid.
What Is The Mode Of Payment Of These Taxes?
These taxes can be paid through three ways. These include a Casa Pronta Service Desk, the national Finance Website, and through the Finance Service Office.
For property owners, it is important to keep the following aspects in mind always:
Understanding Municipal Property Tax
This tax is paid on the basis of the taxable value of the property owned.
Why Is This Tax Relevant?
Any individual who owns a property on the last day of every year is required to pay this tax.
What Is The Municipal Property Tax Rate?
The rate varies when it comes to Municipal Property Taxes on an annual basis but stays within the range of 0.5 percent and 0.3 percent of the taxable value of the property, regardless of whether it is industrial, residential, commercial, or of any other type. These taxes are applied by the Municipalities in which the property is located.
When Is This Tax Paid?
This tax is paid for every year after it has ended. Consider the following information.
- Payments to be made in April for an amount lower that €250;
- Payments to be made in April and November if the amount if higher than €250 but lower or equal to €500;
- Payments to be made in April, July, and November if the amount exceeds €500.
What Is The Mode Of Payment For This Tax?
This tax can be paid through Home Banking, via Multibanco, through CTT, or physically at any of the many Finance Service Offices in the country.
For property owners who do not reside in Portugal but instead stay in another location within the European Union, it is important to have a representative within the Portuguese territory’s tax domicile. A representative can be appointed via the Finance Website or at a Finance Service Office.
In a situation where the taxable value of the property in question is equal to or higher than 1, 000, 000 Euros, a Stamp Duty of 1 percent is applicable.
It is also important to note that if the buyer is a resident of a country or region that has tax rules more favourable than Portugal then the taxes levied on the purchase are much higher than what is mentioned above. Such countries or regions are known as Tax Havens. Such situations warrant the following rates.
- Tax on the Transfer of Property for a Valuable Consideration – 10%
- Municipal Property Tax – 7.5%
- Stamp Duty – 7.5% (on all urban properties with a value of 1,000,000 euros or more)
Certain tax benefits are also applicable when it comes to these taxes. Consider the following.
Properties Designated For Tourist Use:
Owners of properties that have been set aside for tourist use such as buildings being used as guest houses or parts of resorts will not have to pay the Municipal Property Tax for seven years.
If the owner of a property has implemented some refurbishment work on them then they would be entitled to tax benefits in terms of Valuable Consideration on transfer and Municipal Property Tax.
Properties Relevant For Cultural Heritage:
Even if the property being acquired can be categorised as having a national, public or municipal interest, benefits pertaining to Stamp Duty, Municipal Property Tax, or even Valuable Consideration based transfer tax may be applicable. The property has to be acquired under relevant legislation.
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Colin was very helpful, informative and friendly! He gave us very good advice on the area.