Month: June 2025

Understanding capital Gains Tax: A Crucial Step Before Selling Your Property

June 13, 2025

By Ricardo Chaves

Understanding capital Gains Tax: A Crucial Step Before Selling Your Property

Understanding the concept of capital gains tax is crucial before you decide to sell your property. A capital gain occurs when you sell something for more than you spent to acquire it. This is not just limited to investments, but also applies to personal property like your home. By knowing what tax you will have to pay and how to reduce this liability, you can make informed decisions about your property sale.

You can’t hide from the tax department.

It’s important to note that any property transaction performed in Portugal must be reported to the Tax Authorities by the notary who executes the deed. This means that when you declare the sale on your tax return, the tax authorities are already aware of it. Failing to include this in your declaration can lead to consequences, so it’s crucial to fulfill your reporting obligations.

It’s mandatory to file a tax return every time you sell a Portuguese property.

Irrespective of your tax domicile, if you sold a property located in Portugal, this means that you need to declare it in your tax return in Portugal. Regardless of whether there was a gain or not, it’s mandatory to make this declaration, which happens normally before June of the year following the sale, in case of individual ownership, or within 30 days after the sale, in case of corporate ownership (nonresident companies without permanent establishment here).

Declaring the sale doesn’t mean you need to pay a tax.

You only pay tax if you have a gain from this transaction, but you always must report the sale on your tax return. If the sale was higher than the purchase, then the difference is a capital gain, and that is reported on your taxes. Please note that the value you paid for the property needs to be adjusted according to the price index coefficient applicable to the year of purchase. This means that the purchase value will increase for the capital gains calculation. Also, some expenses will be included in the tax return and deducted from any gain obtained.

In which cases is your sale tax-exempt?

It is possible to be exempt from tax in certain situations. For example, if the property was acquired before 1989, it’s not liable to any CGT. Nevertheless, taxpayers will still have to declare the transaction. Please note that if you acquired a plot to build before 1989 and sold the plot or the property now, this gain is still liable for tax, as the exemption only applies to properties already finished and with registered purchase prior to 1989.

Expenses allowed to deduct your capital gains.

From the sale of your property, you can deduct the costs incurred with the purchase operation and sale of the property (e.g., IMT and registers on the purchase, real estate commission on the sale, etc.). Taxpayers can also deduct costs incurred in the property over the past twelve years, such as property refurbishments or other money spent to increase the asset’s value, including the cost of the energy certification.

All invoices must be issued properly, with your NIF and the property’s address. It is also important that you realize that each taxpayer is taxed individually; therefore, if the house belongs to you and your partner, but all the costs are in your name, it could mean you have a loss, and your partner has a gain. One loss will not offset against your partner’s loss, even if you file jointly. So, it’s important to ask for two invoices in the name of each partner when possible.

Residents’ vs Non-resident’s individual ownership: the capital gains are taxed the same

If you are a non-resident for tax purposes, the tax on your capital gains is calculated the same way as if you were a tax resident. Since 2023, capital gains tax on properties owned by non-resident individuals is now levied on 50% of the gain and taxed per the progressive tax rates. Please note that in this case, the tax authorities will require information on your worldwide income to determine your tax bracket. Even if you are in the highest bracket, 48% for incomes above 83.696€, you are effectively paying 24% as you pay 48% on half of the gain.

Please note that even when a non-resident is taxed under the same rules as a resident, as this is not his primary residence, the gains cannot be rolled over if he buys another property. This will only be available for those residents who sell their main residence and buy another property that will be their main residence.

It’s important to emphasize that if your property was registered as an AL business in the 3 years before the sale, then the capital gains tax continues to be levied on 95% of the gain, instead of 50% of the gain.

Important new rules for property reinvestment!

If you are a resident and this is your primary residence, you can reinvest the sale proceeds on another purchase within the EU. This needs to be done on a purchase made between 24 months prior and 36 months after the sale. If the reinvestment in the new property is lower than the total sale, the tax will be calculated pro rata.

Please note that what changed is that the property is only considered your main residency, if this was your registered address during the last 12 months prior to the sale. And reinvestment is only allowed if you haven’t rented the property or part of it during these last 12 months.

If you do not wish to reinvest in another property, please note that you can reinvest in a financial product. Provided that the taxpayer is demonstrably in retirement or has 65 years of age, he can choose to purchase an insurance contract or an individual membership of an open pension fund or contribution to the publicly funded scheme. To make this possible, the purchase of this product must be made within six months of the date of sale of the property.

There is no benefit for excluding capital gains tax if the reinvestment is not made within the referred six-month period, or if, in any year, the value of the benefits received exceeds the limit of 7.5% of the invested amount. Both reinvestment options can be done together, partially in a new property or an insurance contract.

Please note that if you fail to meet the reinvestment declared on your tax return or reinvest a lower amount, the tax will be re-assessed, and you will pay interest.

Even if you do not plan to sell your home for now, it is important that you keep all supporting charges and make sure the invoices include your name, fiscal number, and, very importantly, the correct address of the property. The repayment of mortgage loans incurred to purchase the property will also be taken into consideration when calculating the tax return.

If you have any questions about how capital gains tax applies to your property sale or if you need assistance with tax planning and compliance, our expert team is here to help.

Feel free to contact us at info@afm.tax or call +351 281 029 059 for personalized support.

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VAT exemption (article 53): what you need to know about the new rules

June 13, 2025

By Ricardo Chaves

VAT exemption (article 53): what you need to know about the new rules

Recent changes to the Portuguese VAT Code may significantly affect small business owners, freelancers, and anyone offering services in Portugal — including foreign residents and occasional service providers. Approved on March 24th, these updates modify the exemption rules under Article 53, tighten compliance obligations, and change the timeline for VAT liability.

Whether you rent out a property, offer translation services, or run a freelance consultancy, this article breaks down what the new rules mean for your business in practical terms.

What is the VAT threshold in Portugal?

In Portugal the VAT rate or exemption depends on the nature of the service and also the turnover declared when the business (sole trader) is registered at the tax office. If the expected business turnover is lower than 15.000€ per year, then the business is below the VAT exemption threshold.

I have a rental license on my apartment and I rent it to tourists, I have already registered my business with the tax office, what happens to my VAT threshold in Portugal? Does this law change anything?

The threshold is exactly the same, however the consequences when you exceed the VAT threshold are now much different. If a taxpayer exceeds the 15.000€ limit in a single year, the dates when he starts to become liable for VAT, change as per the examples below.

Example A

Mr. Smith’s received rental income during the year in the total of 17.000€. The VAT liability in the current year is none as he was registered with VAT exemption. His VAT Liability in the following year will be 6% on all his rentals income and will start from January 1st (the alteration is performed in January of the year following the fact that determined the loss of the VAT exemption).

Example B

Mr. Smith’s had a lot of rentals this year and in June he had already exceeded 18.750€. As the VAT exemption threshold was exceeded in more than 25% of the limit, his VAT liability changes in the following month. In this case if Mr. Smith reaches 18.750€ of rental income in June, it means he starts charging 6% on all his rentals income, from 1st of July.

Prior to this new law come into effect, in both these scenarios Mr. Smith was only liable for VAT in February of the following year. Now the VAT liability and the change of VAT status is much earlier and can happen during the same tax year, depending of the volume of business.

  • It is important to note that self-employed individuals who are not tax residents in Portugal are no longer eligible for VAT exemption. Even if their annual turnover is below €15,000, they will fall under the standard VAT regime.

I do some translations occasionally, but not recurrently. This year I was asked to do a translation to a client and issued him a single invoice (ato isolado), in the amout of 3.750€ this was done without registering a business activity and I paid VAT on top of this, was this procedure correct?  Now this client is asking me to register the activity and do other jobs for them, do I pay VAT on those jobs as well? I agreed to bill them 1.000€ per month, ie 12.000€ per year.

If you have a single operation in the year, it is possible to issue a single invoice (ato isolado), without registering your business activity. However please note that this is possible, providing the work is not done in consecutive years, otherwise if you issue a single invoice each year, the tax authorities will assume that you have a recurring business activity and will notify you to register your business activity.

When you issue the single invoice, you must charge VAT and pay the VAT in the following month. The single invoice, if done once a year (not in consecutive years) does not imply registering with the social security, which means that the single act pays VAT, but doesn’t pay social security.

When you decide to register your business activity, the amount considered to determine your VAT status is 12.000€ and the amount billed in that single act is not considered to determine if you are below the VAT threshold of 15.000€. The 3.750€ will also not be considered to determine the 25% threshold excess mentioned in the example B, however at the end of the year, as the total turnover exceeds 15.000€, you will be liable for VAT at 23% from January 1st, as per the example A.

Currently, when I register my business during the year, I have a threshold of 15.000€ for the whole year, but if I register in July, my threshold is pro-rata and is half of the full year amount. Does this now change?

With the new law, the pro-rata calculation disappears and if you register your activity in July, you remain VAT exempt if you don not exceed the 15.000€ of turnover. Before the law your threshold was only 7.500€ for the referred months.

During 2025 I think I will exceed my 15.000€ threshold slightly. What happens if I stop my activity in December 31st and then restart it at later date? Do I keep my VAT exemption when I restart?

If you stop the activity during 2025 and as you are still VAT exempt at the time you stopped, there is no need to make any alterations in 2026. However, please note that your business activity needs to be inactive during a minimum of 12 months. If you re-register your activity during 2026, you will automatically be included on the normal VAT regime. If however you wait for January 1st, 2027 to register, you will be able to register as VAT exempt, providing you anticipate a yearly turnover up to the threshold of 15.000€.

I am an insurance broker and my wife is a doctor, when we register our business activities in Portugal, do we have the same VAT threshold of 15.000€ per year?

No. The VAT exemption can be determined by the yearly turnover (if below the yearly threshold), or if the service provided is included in the list of services that are VAT exempt (Article 9). Both of the services mentioned, are VAT exempt under article 9 and therefore there is no VAT chargeable, irrespective of the yearly turnover.

My main profession is teacher and I issue around 30.000€ of invoices which are VAT exempt due to the fact that the invoices I issue to the school are exempt. I am considering offering some massages as a small side business, will this activity be influenced by my global turnover, or the VAT exemptions relates only to the massage business?

To determine your VAT exemption, only the turnover of the massage business will be considered. This means that if the massage business is below the VAT exemption threshold, you will be exempt under article 53 and obviously your teacher invoices will remain exempt under article 9.

I am an IT freelancer and issue an average of 10.000€ of invoices per month, to my contractors outside Portugal. All my invoices are VAT exempt, do I need to file any VAT returns and can simply fill my tax return at the end of the year?

Be aware that any taxpayer with a business activity has rules to issue invoices and needs to inform the tax authorities on a monthly basis of the invoices issued. This communication is also required, even if there are no invoices issued in that month. Therefore is not possible to wait for the year end, to release the information of your business, as this needs to be reported monthly.

Also, please note that although in your case your invoices are VAT exempt, this is due to the reverse charge rules and technically you are crediting and debiting the invoice to the supplier. This means that for VAT purposes you are liable for VAT and can deduct the VAT on the purchases made. It also means that you are obliged to submit quarterly VAT returns.

Keep in mind that there are many other changes to the VAT rules, that may affect you. If you want to find out more, our team can guide you through the Portuguese tax system.

For any further clarification please contact our team at +351 281 029 059 or info@afm.tax.

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Tips Received via Airbnb: What is the Tax and Accounting Treatment for Short-Term Rental Companies?

June 12, 2025

By Ricardo Chaves

Tips Received via Airbnb: What is the Tax and Accounting Treatment for Short-Term Rental Companies?

With the growing use of platforms such as Airbnb, it has become increasingly common for guests to leave tips for hosts as a token of appreciation for the service provided. However, when these tips are received directly by the short-term rental management company — and not distributed to employees — questions arise regarding their proper tax and accounting treatment.

Below we clarify how this situation should be handled, based on a recent technical opinion and binding information issued by the Portuguese Tax Authority.

1. Are tips considered income for the company?

Yes. Whenever the tip is retained by the company instead of being distributed to employees, it must be regarded as income of the entity itself. In other words, it is not a personal gratuity but an additional amount linked to the company’s business activity.

2. How should it be recorded in the accounting books?

Two accounting approaches are possible, both accepted:

  • Account 78 – Other Income
    The tip may be recorded under a sub-account of Account 78, for example:
    • 7816 – Other supplementary income, or
    • 7888 – Other unspecified income
  • Account 72 – Sales and Service Revenue
    If the tip is considered a voluntary additional payment for the service provided, it may also be acceptable to record it under Account 72.

The choice between these accounts depends on the nature and frequency of receipt of these amounts, as well as the company’s internal accounting policy.

3. What about VAT? Is an invoice required?

According to the Binding Information from the Portuguese Tax Authority (Process No. 25662, ruling dated 29-02-2024), tips do not constitute consideration for services under VAT law. Therefore:

  • There is no legal obligation to issue an invoice including VAT;
  • However, issuing an invoice is permitted provided that:
    • The tip amount is clearly separated from the main service charge, and
    • The invoice contains the statement “Not subject to VAT” or a similar phrase.

Alternatively, and perhaps more appropriate in such cases, a simple receipt can be issued to acknowledge receipt of the amount, especially when there is no intention to include this value in the taxable amount of the services provided.

4. Conclusion

When a tip is received by the company and not distributed to employees:

  • It should be treated as income of the company;
  • It can be recorded under Account 78 or Account 72, depending on the nature of the amount;
  • It is not subject to VAT but may be included in an invoice with the appropriate indication or acknowledged simply by a receipt.

This interpretation aligns with the Portuguese Tax Authority’s position and reflects the recommended accounting practice for entities operating in the short-term rental sector.

Should you require any further clarification, our team is fully available to assist and guide you through the tax and accounting framework in Portugal.

Contact us at +351 281 029 059 or info@afm.tax

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