Taxes on Property in Portugal: What You Need to Know

When buying or selling property in Portugal, understanding the tax implications is essential. Here’s a detailed breakdown of the key property taxes you’ll encounter as a property owner in the Algarve (or anywhere in Portugal).

1. IMI – Portugal’s Annual Property Tax (Council Tax)

What is IMI?
IMI (Imposto Municipal sobre Imóveis) is Portugal’s annual property tax, similar to council tax or property rates in other countries. It helps fund local infrastructure, public services, and community development.

How is IMI Calculated?

IMI is based on the Taxable Property Value (VPT), which is assigned by the local municipality (Câmara Municipal). This value is often lower than the market value of the property.

📌 IMI Tax Rates:

• Urban properties: 0.3% to 0.45% (depending on the municipality)
• Rustic properties (rural land): 0.8%

💡 Example:
For a property in Loulé with a taxable value of €200,000, at a rate of 0.3%, the IMI would be:
✅ €200,000 x 0.3% = €600 per year

🔎 Check your local IMI rate on the official Finanças website.

2. Rental Income Tax in Portugal

If you rent out your property, rental income is subject to tax.

For Non-Residents:

• Flat tax rate: 28% on rental income
• Option for a "Simplified Regime":
  • 65% of rental income is automatically deducted as expenses
  • Effective tax rate is approximately 10%

💡 Example:
✅ Rental income: €10,000 per year
✅ Automatic deduction (65%): €6,500
✅ Taxable amount: €3,500
✅ Tax due (28% of €3,500): €980 per year

For Residents:

Residents can choose to include rental income in their annual IRS (income tax return). The tax rate depends on total income (see IRS tax brackets below). It’s recommended to consult an accountant to determine the best approach.

Income Tax Brackets (IRS) for 2024:

3. Capital Gains Tax (CGT) in Portugal

What is CGT?
Capital Gains Tax (Mais-Valias) is applied when selling a property for a profit.

For Non-Residents:

• Flat tax rate: 28% on the profit
• Deductible expenses include:
  ✅ Renovations & improvements (from the past 12 years, with invoices)
  ✅ Property purchase costs (legal fees, taxes)
  ✅ Depreciation, furniture & estate agency fees

For Residents:

• Only 50% of the capital gain is taxable
• Taxed at the owner’s income tax (IRS) rate

Tax Exemption for Primary Residences

If you sell your main residence and reinvest the proceeds into another primary home within 36 months (after the sale) or 24 months (before the sale), you are exempt from CGT. This applies to reinvestment within Portugal or any EU country.

💡 Example:

• Property bought for: €300,000
• Sold for: €400,000
• Capital Gain: €100,000
• Non-resident tax: 28% of €100,000 = €28,000
• Resident tax: 50% of €100,000 = €50,000, taxed at IRS rate

4. Fiscal Representation in Portugal

If you are a non-resident property owner, Portuguese law requires you to appoint a Fiscal Representative. This is a local tax agent or company responsible for handling your tax affairs and ensuring you comply with Portuguese tax regulations.

What Does a Fiscal Representative Do?

✅ Obtains your Portuguese Fiscal Number (NIF) (mandatory for buying property, opening a bank account, applying for a mortgage, etc.)
✅ Files property income tax returns (for rental or capital gains tax)
✅ Pays IMI (council tax) on your behalf
✅ Registers your property at the local tax office
✅ Reviews the official valuation (VPT) for tax calculations

⚠️ Late or missed tax payments can result in heavy fines, making fiscal representation an essential service for non-residents.

💰 Cost:

• Typical fiscal representation fees: €200 per year per person

Need Expert Guidance on Buying or Selling Property in Portugal?

Whether you're buying, selling, or renting out a property in the Algarve, understanding your tax obligations is crucial. At IRG Property, we guide you through every step of the process, ensuring compliance while maximizing your investment.

📞 Contact us today for expert advice!

🇬🇧 UK: 0800 015 9997
🇵🇹 Portugal: +351 289 313 325

📧 Email: info@irgproperty.com