Holding Portuguese Real Estate

DIRECT HOLDING OF REAL ESTATE

In this section the most important tax implications of the direct holding of real estate are discussed, focussing on the impact on resident and non-resident individuals and companies.

Note: This guide applies to the tax rules in Portugal at the time of writing (31-01-2022)

Resident individuals

Personal income tax

Income derived from real estate such as rental income is subject to individual income tax, at a rate of 28%.

Deductibility of costs, interest and depreciation

All expenses actually incurred and paid to obtain or guarantee the property income are deductible, with the exception of interest, depreciation and costs relating to furniture, household appliances and articles of comfort or decoration.

Non-resident individuals

Non-resident individuals are treated in the same manner as resident individuals.

Resident companies

Corporate income tax

Business income such as rental income and capital gains are subject to corporate income tax.

The normal tax rate for resident companies is 21%. In addition, for most municipalities, the municipal tax is at the maximum rate of 1.5%.

The first €15,000 of taxable income for a SME is taxed at the reduced rate of 17%.

Deductibility of costs, interest and depreciation

The acquisition cost of a building can be depreciated on an annual basis by 1-2%. Additional costs incurred on the acquisition of real estate, such as transfer costs, can also be depreciated.

Interest costs are deductible for companies.

Anti-tax avoidance directive

The anti-tax avoidance directive (ATAD) is an EU directive that has been implemented by Portugal. ATAD contains certain interest restrictions that may affect investors in real estate.

Losses – carry back/forward

Tax losses carried forward by a company in a given tax period are deductible from its taxable profits in the following five taxation periods, this is extended to 12 taxation periods for SMEs.

Non-resident companies

Non-resident companies are treated in the same manner as resident companies, as Portuguese real estate held by a foreign company is considered to be a permanent establishment in Portugal.

INDIRECT HOLDING OF REAL ESTATE

In this section the tax implications of the indirect (shares) holding of real estate is discussed, focussing on the impact on resident and non-resident individuals and companies.

Individuals

Personal income tax

Income received by individuals who hold shares in Portuguese real estate on the sale of the shares are subject to tax at a rate of 28%.

The capital gains of unlisted micro and small enterprises in the regulated or unregulated markets of the stock exchange are subject to tax on half of their value. In practice, the rate to be considered will therefore be 14%.

Non-resident individuals

Non-resident individuals are treated in the same manner as resident individuals.

Resident companies

Corporate income tax

The normal tax rate for resident companies is 21%. In addition, for most municipalities, the municipal tax is at the maximum rate of 1.5%. The first €15,000 of taxable income for a SME is taxed at the reduced rate of 17%.

Deductibility of costs, interest payments and depreciation

Interest and depreciation costs may be deductible from business income. The tax depreciation rate is generally between 1% and 2%.

Anti-tax avoidance directive

The anti-tax avoidance directive (ATAD) is a EU directive that has been implemented by Portugal . ATAD contains certain interest restrictions that may affect investors in real estate.

Distribution of income and gains

Dividends or profits attributed to companies with a shareholding of more than 10% which has been held for at least one year are exempt from taxation (participation exemption).

Where participation is below 10%, dividends attributed to companies are subject to income tax rate at a rate of up to 22.5%.

Non-resident companies

Non-resident companies are treated in the same manner as resident companies, as Portuguese real estate held by a foreign company is considered to be a permanent establishment in Portugal.