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The taxation system applied to the purchase of real estate

Let's start by clarifying which routes for the investment you can have. Investments in real estate can be performed individually or structured through vehicles such as commercial companies, real estate investment funds, property investment companies.

Taxation of acquisition

Let’s start by clarifying which routes for the investment you can have. Investments in real estate can be performed individually or structured through vehicles such as commercial companies, real estate investment funds, property investment companies.

Asset deals

Municipal Property Transfer Tax (IMT) will be calculated on the price of the transaction or on the VPT (value of the real estate assessed by the Tax Authority), whichever is higher.

How to calculate an IMT:  (Taxable value x Rate) – Threshold deduction = IMT to be paid.

IMT is charged at the following rates:

  • Flat rate of 6.5% on the sale or transfer of any urban property not exclusively of a residential nature.
  • Flat rate of 5% for rural properties.
  • Progressive rates for the sale and transfer of urban buildings or apartments exclusively for residential purposes that are intended to be the buyer’s permanent residence, ranging from 0% to 7.5% 
  • Progressive rates for the sale and transfer of urban buildings or apartments exclusively for residential purposes and/or intended for letting purposes, but not intended as the buyer’s permanent residence, ranging from 1% to 6% 

To discourage the purchase of real estate in Portugal through offshore companies, IMT is levied at a rate of 10% if the buyer is a company established in a country, territory, or region with a preferential tax regime. Further, as of 1 January 2021, the same punitive tax rate applies, when the acquirer is an entity dominated or controlled, directly or indirectly by a company established in a country, territory, or region subject to a preferential tax regime. In these cases, no exemptions are made available.

The property deals may be exempt from IMT or may benefit from tax reliefs in the following cases, among others:

  • Property acquisition for resale
  • Acquisition of urban property for urban regeneration purposes
  • Restructuring operations or cooperation arrangements
  • Acquisition of property classified as of national/public/municipal interest
  • Exemption or reduction of the IMT tax rates, regarding the acquisition of property that constitutes eligible investment under the Investment Promotion Tax Regime (RFAI)

Real estate owned by open-ended or publicly offered closed-end Real Estate Investment Funds (REIFs), pension funds, or retirement funds no longer benefit from a 50% IMI exemption.

The transfer of property is also subject to a flat rate of 0.8% of stamp duty. Stamp duty will be calculated on the price of the transaction or on the VPT, whichever is higher.

Although, as a rule, the transfer of property and shares in Portugal is exempt from VAT, transfers of property can be subject to the tax. A seller may waive the exemption if certain conditions have been met and they have complied with various formalities.

If the exemption is waived, VAT can be recovered in accordance with provisions in the Portuguese VAT code.

Share deals

In the case of a share deal, as of 1 January 2021, IMT applies to the purchase of an equity position both in a private limited liability company (LDA) and in a corporation (S.A.) that holds real estate assets located in Portugal if the following requirements are cumulatively met:

  1. The asset value of the company transferred is, directly or indirectly, composed of more than 50% of real estate assets located in Portugal;
  2. The real estate assets are not directly allocated to an activity of agricultural, industrial, or commercial nature unless the activity is of purchase and sale of real estate property; and

  • As a result of the acquisition (or other corporate events), one of the shareholders retains at least 75% of the share capital of the target entity (or the number of shareholders is reduced to two persons married or in a non-marital partnership).

If the purchase of shares involves privately placed closed-end Real Estate Investment Funds, the transaction is subject to IMT if after the acquisition the acquirer holds 75% or more of the units in the fund.

The buyer is responsible for the assessment and payment of IMT, as well as VAT (reverse charge mechanism), if applicable. IMT must be paid before the deed and the notary is obliged to confirm its payment.

Stamp duty, where applicable, is paid by the buyer (who normally also pays the notary’s fees). The buyer must present the payment proof to the notary at the moment of the transfer signature. The tax is paid through a document issued by the tax authority (the buyer can issue the document on the tax authority website or request it in a tax authority service).

The attribution of immovable property by means of reimbursement in kind of participation units, arising from the liquidation of privately placed closed-end real estate investment funds, is subject to IMT. The same is applicable to the transmission of immovable property arising from the merger of the referred kind of Funds.

VAT on an acquisition 

In Portugal, the transfer of property and shares is exempt from VAT.

If the exemption is waived, VAT can be recovered in accordance with specific dispositions set out in the Portuguese VAT Code.

Other costs of acquisition

In Portugal, the transfer of real estate requires the payment of notary’s fees, if the transfer was executed through public deed and also registration fees regarding the registry of the acquisition before the relevant Land Registry Office. In general, the acquirer pays these transaction costs.

This was the first part of our three articles regarding taxation when buying or selling property in Portugal. Don’t forget to check out the other articles as well!

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