Different options of purchasing property in Portugal

People often contact us to discuss the various options for owning property in Portugal. Our response is typically: it depends. This is because the best approach varies based on several key factors, including your primary purpose for acquiring the property (whether for personal residence or rental income), your long-term investment plans (whether you view the property as a single investment or part of a larger portfolio), and your potential plans for selling the property in the near future.


Below, we provide some insights and options regarding property ownership in Portugal. Please note that this information is intended for general informational purposes only and should not be considered as tax, legal, or accounting advice. We strongly recommend consulting your own tax, legal, and accounting advisors before undertaking any property transactions in Portugal.

a) Direct purchase

Direct purchase is the most common method of acquiring property in Portugal. This approach is particularly sensible if the property is going to be your main residency in the future, is the most sensible choice.

When purchasing directly, it also means that the property will not pay the additional council tax bills (AIMI) in the first 650.000€ of property tax value and pay the ordinary council tax (IMI). However, please note that Portugal’s IMI (council tax) is relatively inexpensive, especially compared with the UK. In Portugal, the yearly council tax varies from 0.3% to 0.45% of the property’s tax value.

When the property is owned directly, the CGT in a future sale is levied on 50% of the gain and taxed at the progressive tax rates. As the maximum IRS tax bracket is 48%, this means an effective rate of 24% of the capital gain in the worst-case scenario.

Also, if the property is the primary residence for more than 24 months at the time of sale, it’s possible to avoid CGT if the sale proceeds are used to purchase another property.

Direct purchase may also be an option if you intend to rent the property. However, if you want to purchase the property for short-term lets, you should look for a villa (not an apartment), as in several locations, the license for short-term lets (AL) is restricted in apartments. If you are a non-resident and looking to invest, please note that you will pay 8.75% of tax on your gross income from your short-term lets; if you are looking to rent long-term, the tax is 25% on the rent after expenses are deducted.

Please note that in the case of short-term lets (AirBnB), the property will be deemed a business, and you will need to stop the activity for 36 months prior to the sale to pay CGT on 50% of the gain; otherwise, CGT will be levied on 95% of the gain.

b) Purchase in the name of a foreign company (registered in Portugal as a Non-Resident entity without permanent establishment)

If you do not intend to live in Portugal but wish to have access to a property here for personal use, this alternative allows you to purchase a property using your company funds rather than personal savings. If the company is registered as a non-resident entity without permanent establishment, it means that it may not have any business activities in Portugal; therefore, there is no need to register any activity for tax purposes.

When purchasing a property in the name of a foreign company, the property will pay council tax bills (IMI) and additional council tax bills (AIMI). When the property is owned through a foreign company, the CGT in a future sale is 25%.

It’s not possible to reinvest to avoid CGT. It may also not be possible to have any business activity unless this was referred to when registering the entity in Portugal.

The company will not file any accounts in Portugal, except when the property is sold. Please note that in this case, the obligation to declare the sale and assess the capital gains tax needs to be performed in the month following the sale.

c) Purchase through a Portuguese limited company (which can be owned directly and or by a foreign entity)

This alternative may still allow the purchase to be made using funds in the foreign entity rather than personal savings if the foreign entity is also a shareholder.

When the property is owned through the Portuguese company, the CGT on a future sale is assessed as the profit. In Portugal, the corporate tax rates are 17% for the first 50.000€ of profit and 21% for profits above 50.000€.

As this is a Portuguese limited company, is mandatory to appoint an accountant and a company director, who should have a salary and pay minimum social security contributions (unless it pays in another company in Portugal or in a foreign country with an agreement with Portugal).

The company will have VAT activity, and quarterly VAT returns will be mandatory. If there are property refurbishments, usually there is a reverse charge clause, which means that the works are done at 0% VAT rate.

Depending on the type of company, it may be possible to reinvest in another property after the sale to lower the CG and the profit. It’s also possible to rent the property and operate a business. The profit will be taxed as above.

The Rental License is only possible if the property is a villa (not an apartment), and this doesn’t change depending on the type of ownership. On the short term lets, the VAT charged to guests is at 6% and the VAT rate on most utilities is at 23%, which may lead to a credit or a low VAT liability.

If the properties are owned through a company, there could be significant tax savings, but these will only make sense depending on the level and length of the investment. If the property is in a company that is owned by a foreign company, through the participation exemption the dividends transferred to the foreign company will not be taxed in Portugal.

In addition to the above, please note that there is no inheritance tax in Portugal, and the spouse and direct descendants of the property owner will only pay 0.8% stamp duty on the transference of the property to them if they own it directly. If the property is owned by the company, the same applies to the shares in the business, they will be transferred to the inheritors who will be liable for 0.8% stamp duty.

For personalized advice and to ensure compliance with tax regulations, please reach out to AFM at info@afm.tax or visit www.afm.tax.

By Ricardo Chaves

12 things you should know about the IMI

1. What is the IMI?

IMI (Imposto Municipal sobre Imóveis – Municipal Property Tax) is a tax on the taxable value of immovable property in Portugal. This tax came into force in 2003, replacing the Council Tax, and reverts to the respective municipalities.

2. Who pays IMI?

The taxpayer is the property owner as of 31st December of the previous year. This means that if you bought your property at the end of 2021, you will pay the IMI for the full year. Likewise, if you sold your property at the beginning of 2022, you will still need to pay the IMI this year, as it’s always related to the previous year.

3. How to calculate the IMI?

IMI is calculated based on the Tax Asset Value (VPT) attributed to the property to which is applied a rate set annually by the municipality (VPT x IMI rate). The way the VPT is calculated varies. The VPT is calculated on the basis of various factors such as the construction value per square meter gross floor area, location, quality and comfort and property age, updated every three years.

4. What is the taxable value?

The taxable value of buildings is its value determined by assessment according to the rules of the IMI Code. This value is registered in the land register.

5. Who determines the IMI rates?

The municipalities decide each year, which tax to apply in their council. This needs to be between 0.3 and 0.45% for buildings and 0.8% for plots (rustic property). Properties with tax domicile in “offshore” are taxed at 7.5%, regardless of the type of property.

6. What are the deadlines for the payment of the IMI?

IMI is paid annually through a single billing document in May, if the tax is up to 100 euros. If the value is between 100 and 500 euros, you pay in two installments, 1st in May and 2nd in November. If the amount exceeds 500 euros, you pay it in three times (May, August and November). Please note that if you wish, you can pay the full amount in May.

7. What are the consequences of not paying the IMI on time?

If you do not pay within the period specified in the collection document, you will pay interest on arrears. If the non-payment persists your property can be seized.

8. Where can the IMI be paid?

IMI can be paid at the Tax Office, Post Office, in any ATM machine or through internet banking. If you wish, you can ask your fiscal representative to set up a direct debit from your account, to make sure you never forget to pay it.

9. Who is entitled to an IMI exemption?

Are exempt from property tax, the owners whose annual income on IRS in the previous year does not exceed 15 295 euros, provided that the book value of the property does not exceed 66,500 euros.

Also, if you bought your main residence and if the tax value of the property does not exceed 125.000€ and your yearly income does not exceed 153k, you can apply for a 3 year IMI exemption.

10. Am I entitled to a discount in the IMI due the number of children?

Since 2016 the law considers the possibility of each municipality, to offer a family discount, based in the number of children. It’s determined by each council and the maximum discounts are: 10%, 15% and 20%, for one, two or three (or more) children.

11. I am paying too much IMI, can I reduce my IMI bill?

It may be possible to reevaluate your property and reduce your tax liability. We have successfully submitted requests to the local tax departments to reduce the tax values of our clients’ properties, thereby saving many on the IMI property tax bills. However please note that any reassessment only takes effects on the following year, as you will only pay IMI for 2022, in 2023.

Please note that if you did not receive your IMI bill, this could be because you have not submitted a tax return in 2020 and incorrectly registered as having no income. This is a mistake and can cost you a lot of money. In this case, please contact us to rectify the situation, avoiding interest or fines.

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