People frequently contact us to explore their options for owning property in Portugal. Our usual response is: it depends. This is because the best approach depends on several key factors, including your primary purpose for acquiring the property (whether for personal use or rental income), your long-term investment goals (whether you see the property as a standalone investment or part of a broader portfolio), and your future plans for the property (such as selling it in the near future).
Below, we outline some general insights and options for property ownership in Portugal. Please note that this information is for informational purposes only and should not be taken as tax, legal, or accounting advice. We strongly encourage you to consult with your tax, legal, and accounting advisors before making any property transactions in Portugal.
a) Direct PurchaseDirect purchase is the most common method of acquiring property in Portugal. This is often the most practical option if the property will be your main residence. With a direct purchase, the property is exempt from additional council tax (AIMI) on the first €650,000 of taxable property value and is subject only to standard council tax (IMI). Portugal’s IMI is relatively low compared to the US or UK, ranging from 0.3% to 0.45% of the property’s taxable value annually.
For future sales, capital gains tax (CGT) is levied on 50% of the gain and taxed at progressive income tax rates. In the worst-case scenario, with the highest income tax bracket at 48%, this results in an effective CGT rate of 24%. If the property is your primary residence for over 24 months, you may be able to avoid CGT if the sale proceeds are reinvested in another property.
Direct purchase is also viable if you plan to rent out the property. However, for short-term rentals, villas are generally preferable over apartments, as licensing for short-term rentals (AL) is often restricted in apartments. Non-residents who rent short-term properties will be taxed at 8.75% on gross income, while long-term rental income is taxed at 25% after expenses.
Please note, for short-term rentals (e.g., Airbnb), the property is considered a business. To benefit from the 50% CGT rate on a sale, you must cease business operations at least 36 months prior to the sale. Otherwise, CGT will be applied to 95% of the gain.
b) Purchase via a Foreign Company (Registered in Portugal as a Non-Resident Entity without Permanent Establishment)
If you don’t plan to live in Portugal but want access to a property for personal use, this option allows you to purchase using company funds instead of personal savings. If the company is registered as a non-resident entity without a permanent establishment, it won’t conduct business in Portugal, so no tax registration is required.
The property will be subject to both standard council tax (IMI) and additional council tax (AIMI). Upon a future sale, CGT is set at 25%, with no option to reinvest the proceeds to avoid tax. The company is only required to file accounts in Portugal when the property is sold, at which point the sale must be declared, and capital gains tax assessed in the following month.
c) Purchase via a Portuguese Limited Company (Owned Directly or by a Foreign Entity)
This option allows you to use funds from a foreign entity to purchase the property, as the foreign entity can act as a shareholder. In this case, CGT on future sales is treated as corporate profit, with tax rates of 17% on the first €50,000 of profit and 21% on profits above that amount.
As this is a Portuguese limited company, an accountant and a company director must be appointed. The director is required to receive a salary and pay minimum social security contributions unless they pay contributions in another company or in a country with a social security agreement with Portugal.
The company will have VAT obligations, including quarterly VAT returns. Property refurbishments may be subject to reverse charge VAT (0% rate). Depending on the company structure, it may be possible to reinvest proceeds from a property sale to reduce CGT and profits. The property can also be rented, with profits taxed as described above.
Short-term rental licenses are only available for villas, regardless of ownership structure. For short-term rentals, VAT on guest services is 6%, while utilities are taxed at 23%, potentially resulting in VAT credits or minimal liability.
If the property is owned by a company, there may be significant tax savings, though this will depend on the scale and duration of the investment. If a foreign company owns the Portuguese company, dividends transferred to the foreign entity may be exempt from Portuguese tax under the participation exemption.
Additionally, Portugal has no inheritance tax. Direct heirs (spouse and children) will only pay 0.8% stamp duty on the property transfer. The same applies to shares in a business that owns the property, with the inheritors liable for 0.8% stamp duty.
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