Answer ... (a) What taxes are levied and what are the applicable rates?
The acquisition of property in Portugal is subject to two distinct taxes: real estate transfer tax (RETT) and stamp duty. Both are levied on the price or on the tax value of the property, whichever is higher.
Acquiring at least 75% of the shares in a company which owns real estate in Portugal may also trigger RETT should the real estate in Portugal represent at least 50% of the assets of the company.
RETT rates range between 2% and 8%, depending on the acquisition value and the allocation of the property.
Stamp duty is levied at a rate of 0.8%.
Should the buyer be directly or indirectly resident in a tax haven jurisdiction, the RETT rate is aggravated to 10%.
The ownership of property in Portugal establishes an obligation to pay real estate tax (RET) and, in certain situations, RET add-on.
RET is an annual tax and is levied on the taxable value of the property. The RET rates vary between 0.3% and 0.45%, and are specifically determined by the municipality in which the property is located.
RET add-on is also an annual tax and is levied on the sum of the taxable values of the taxpayer’s Portuguese based properties that are not allocated to commercial purposes. For individuals, the RET add-on is due only if the sum of such values is higher than €600,000 and progressive rates from 0.7% to 1.5% apply.
(b) How is the taxable base determined?
With regard to the acquisition, RETT and stamp duty are levied on the price or the taxable value of the property, whichever is higher.
In turn, RET and the RET add-on are always levied on the taxable value of the property.
(c) What are the relevant tax return requirements?
RETT and stamp duty are paid at the moment of acquisition – the public deed of purchase of the property cannot be concluded without this payment.
Regarding RET, the Portuguese tax authorities assess the tax on an annual basis, ex officio, taking into consideration the individual registered as the owner of the property on 31 December of the year to which the tax relates.
Regarding RET add-on, the Portuguese tax authorities also assess the tax annually, ex officio, but based on who is registered as the owner of the property on 1 January of the year to which the tax relates. However, married taxpayers may opt for joint taxation for the purposes of RET add-on (which means that tax will be due only if the total taxable value of the couple’s properties exceeds €1.2 million), in which case a return to that effect must be filed between April and May.
(d) What exemptions, deductions and other forms of relief are available?
The Portuguese tax law provides an exemption of RET and RETT related to real estate rehabilitation works, as long as the acquired property is:
- more than 30 years old; or
- located in an urban rehabilitation area.
The property must be subject to rehabilitation and renovation works, which must improve at least two levels of the property’s state of repair as compared to its state of repair before the works took place, achieving:
- a minimum classification of ‘Good’; and
- compliance with energy efficiency and thermal quality requirements.
A RETT exemption also applies to the acquisition of buildings individually classified as of national, public or municipal interest under the terms of the applicable legislation.
In addition, the law provides for a RETT exemption where the purchase is for resale, provided that, among other requirements, the property acquired is resold within three years. In order to avoid an immediate tax assessment when acquiring the property (ie, for the exemption to take effect immediately), the purchaser must normally and habitually exercise the activities of a purchaser for resale.
Properties classified as national monuments and individually classified as of public or municipal interest under the terms of the applicable legislation are also exempt from RET. The law further provides a RET exemption for urban property constructed, extended, improved or acquired against payment, intended as the taxpayer’s habitual abode, where the taxable value is less than €125,000.