There are several rental property taxes in Portugal. The country has gained significant recognition as a favored vacation spot, drawing numerous tourists annually. Due to its favorable real estate policies, Portugal has attracted a considerable influx of foreigners and investors. Due to the availability of reasonably priced properties, searching for suitable real estate has become popular. Nevertheless, before venturing into the market, knowing the tax obligations associated with renting out a property as a foreign individual is crucial.
What are the rental property taxes in Portugal?
The followings are the taxes and fees that you must pay in Portugal when you want to rent out your property:
- Income tax
- Immovable property tax
- Social security
Income tax
The income tax is the main rental property tax in Portugal. Income tax rates in Portugal differ depending on the rental duration, short-term or long-term, and the individual’s residency status.
Short-term rentals
It is when you furnish accommodations to vacationers, typically lasting up to a month. The tax is on the rental income, which consists of the rental rates you receive minus the property tax (IMI), maintenance costs, and other related expenses.
Non-residents pay a flat rate of 28%. However, residents’ rental income will form part of their total income tax, including from other sources, and will be at a progressive scale.
Long-term rentals
The rules for non-residents on short-term rentals also apply to long-term rentals. Thus, they have to pay 28% rental income tax. However, residents can choose the flat rate of 28% on the rental income or include the rental income in their total income, the taxes of which depends on a progressive scale.
Corporations
The rental of resident companies will be included in their total income and liable for a corporate income tax of 21%. On the other hand, non-resident companies are at a rate of 25%.
Immovable Property Tax (IMI)
In Portugal, IMI (Imposto Municipal sobre Imóveis) is a property tax on real estate properties. It is an annual tax that applies to both residential and commercial properties. The IMI tax is at the municipal level, meaning the rates and regulations can vary from one municipality to another.
The calculation of IMI tax is on the fiscal value of the property determined by the tax authorities.
| Property type | Tax rate |
|---|---|
| Rural property | 0,8% |
| Urban property | 0,3% – 0,45% |
| Property acquired by companies in a blacklisted jurisdiction | 7,5% |
Click here to see countries considered as blacklisted jurisdictions.
If the value of your properties in Portugal exceeds €600.000 ($646.525), you must pay wealth tax, also known as Adicional Imposto Municipal Sobre Imoveis. In the case of properties owned by companies, the applicable rate is 0,4%, calculated based on the total value of the properties held. Conversely, for individuals who own properties, the rate is 0,7%. However, if an individual possesses a property valued at more than €1 million ($1.08 million), the IMI tax rate rises to 1%.
Social security
Social security is technically not one of the rental property taxes in Portugal, but the individual property owner must register as self-employed at the Tax Department and Social Security office in Portugal to run a rental business. Nonetheless, if you already pay for social security in your home country, you won’t have to pay a second one in Portugal anymore. Retirees are also exempt from this. The social security contribution is then payable at 25%.
When are tax returns due?
Tax filings for the previous year’s income in Portugal must be completed between May and June, inclusively. The tax year in Portugal spans from January to December. It is mandatory to submit tax returns online, so it is essential to have passwords ready.
Conclusion
Owing to the complexities of computing taxes and filing tax returns in Portugal can be a challenging task. Given the intricacies of the tax system and the importance of accurate and timely submissions, we recommend hiring professional services. Experienced tax professionals ensure compliance with regulations, maximize deductions and minimize potential errors or penalties. By entrusting your tax matters to professionals, you can save time and optimize real estate investments.
Frequently Asked Questions (FAQs)
What is the income tax on property in Portugal?
The income tax on property in Portugal depends on the rental duration and the payor’s residency status. It ranges from 14,5% to 48%.
Are property taxes high in Portugal?
Property taxes in Portugal are relatively moderate compared to some other countries. In addition, they grant deductions on expenses for upkeep and property tax.
Are there taxes on selling your property?
Yes, you must pay a capital gains tax when you sell your rental properties. Rates vary from 25% to 28%.
