Selling and transferring Portuguese Real Estate

DIRECT SALE OF REAL ESTATE

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

Resident individual

Capital gains

Capital gains realised by individuals are subject to individual income tax. In short, the individual must deliver a certain level of labour or entrepreneurial activities. The realised capital gains are subject to personal income tax at a rate up to 48% (effectively 24%, as only half of the total capital gains are subject to tax).

This tax rate does not include an Additional Solidarity Fee. Therefore, the maximum rate will be an effective rate of 26.5% (53%/2).

VAT / transfer tax

Generally, the supply and lease of immovable property is exempt from VAT. However, if the lease includes other related services such as furniture supply, cleaning services, etc., then the operation is subject to VAT at the rate of 23%.

Individuals acquiring Portuguese real estate are subject to transfer taxes on the market value of the immovable property at a rate of between 0-8%.

Deferral of tax

Capital gains arising on the sale of real estate, for own and permanent housing, may be excluded from taxation provided the following conditions are met. The taxable person must reinvest the realisation value of the real estate, less any amortisation on loans obtained for the acquisition of the property, in the acquisition or ownership of another property in Portugal, any other EU Member State, or in the European Economic Area. If the reinvestment is in the European Economic area, there must be an exchange of information within 24 months of the reinvestment if it is prior to the realisation of the capital gain, or 36 months in the event that the reinvestment is subsequent to the realisation of the capital gain.

Non-resident individual

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

Resident company

Capital gains

Capital gains realised by companies are subject to corporate income tax as business income. The normal tax rate for resident companies is 21%. The first €15,000 of taxable income for an SME is taxed at the reduced rate of 17%.

In addition, for most municipalities the municipal tax is a year payment   at the maximum rate of 1.5%. This tax is acceptable for corporate income results.

VAT / transfer tax

Generally, the supply and lease of immovable property is exempt from VAT. However, if the lease includes other related services such as furniture supply, cleaning services, etc., then the operation is subject to VAT at the rate of 23%.

The acquisition of Portuguese real estate is subject to transfer taxes on the market value of the immovable property at a rate of between 0-8%, due before formal acquisition/contract signature (applicable on rustic and urban properties).

Deferral of tax

Companies can defer taxation on realised capital gains by creating a reinvestment reserve. The capital gains are not taxed on sale and instead a reinvestment reserve is formed for the amount of the capital gains. The company must make a reinvestment within three years. If another building is bought, the value of the reinvestment reserve can be deducted from the purchase price of the new property.

Therefore, the future depreciation costs are lower, resulting in higher taxable income.

This tax deferral only applies to tangible fixed assets, intangible assets or biological assets (not consumption).

Losses

At present, 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 period for a SME.

Non-resident company

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 SALE

Resident individuals

Capital gains

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 basis of tax is the difference between the sales price and the acquisition price of the shares.

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.

VAT / transfer tax

Generally, the supply and lease of immovable property is exempt from VAT.

However, if the lease includes other related services such as furniture supply, cleaning services, etc., then the operation is subject to VAT at the rate of 23%.

Usually a share transfer is not subject to transfer taxes. However, if an individual acquires shares in a company that has real estate, and as a result of the acquisition, the individual holds at least 75% of the share capital, or the share capital is owned exclusively by two persons (husband and wife), the acquisition is subject to transfer tax. The market value of the immovable property will be taxed against a tax rate between 0-8% and is payable by the purchaser.

Deferral of tax

In contrast to the direct sale of real estate, it is not possible to form a reinvestment reserve.

Losses

Losses arising on the sale of shares may be offset against profits of the previous year or the next five years, against income from the same trade.

Non-resident individual

Non-resident individuals are treated in the same manner as a Resident company

Capital gains

Capital gains of companies with a shareholding of more than 10% which has been held for more than one year are exempt from taxation (participation exemption). Where participation is below 10%, the capital gains are subject to income tax at a rate of up to 22.5%.

Deferral of tax

In contrast to the direct sale of real estate, it is not possible to form a reinvestment reserve.

Losses

At present, 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 a SME.

VAT / transfer tax

Generally, the supply and lease of immovable property is exempt from VAT.

However, if the lease includes other related services such as furniture supply, cleaning services, etc., then the operation is subject to VAT at the rate of 23%. Usually, a share transfer is not subject to transfer taxes.

However, if a company acquires shares of a company that has real estate, and as a result of the acquisition the company holds at least 75% of the share capital, the acquisition is subject to transfer tax. The market value of the immovable property will be taxed at a rate of between 0-8%.

Non-resident company

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.

Since 2021 taxation is due on acquisition of shares in joint stock companies that own real estate, even with a limited scope. The same rationale underlines the new provision triggering property transfer tax on the transfer of joint stock companies that own real estate.

DIRECT TRANSFER INTRA CONCERN (PORTUGUESE REAL ESTATE TO PORTUGUESE COMPANY)

Resident Company

Capital gains

Capital gains realised by companies are subject to corporate income tax as business income. The normal tax rate for resident companies is 21%. The first €15,000 of taxable income for a SME is taxed at the reduced rate of 17%.

In addition for most municipalities, the municipal tax is at the maximum rate of 1.5%. This tax is acceptable for corporate income.

VAT / transfer tax

Generally, the supply and lease of immovable property is exempt from VAT. However, if the lease includes other related services such as furniture supply, cleaning services, etc., then the operation is subject to VAT at the rate of 23%.

The acquisition of Portuguese real estate is subject to transfer tax on the market value of the immovable property at a tax rate of between 0-8%. The transfer tax is payable by the purchaser.

Deferral of tax

Companies can defer taxation on realised capital gains by creating a reinvestment reserve. The capital gains are not taxed on sale and instead a reinvestment reserve is formed for the amount of the capital gains. The company must make a reinvestment within three years. If another building is bought, the value of the reinvestment reserve can be deducted from the purchase price of the new property.

Therefore, the future depreciation costs are lower, resulting in higher taxable income. This tax deferral only applies to tangible fixed assets, intangible assets or biological assets (not consumption).

Losses

At present, 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.

Fiscal unity

Under Portuguese law, it is possible to form a fiscal unity if the holding company owns at least 75% of the shares in its subsidiaries. A fiscal unity can only be formed when all of the entities are Portuguese residents.

The transfer of real estate within the fiscal unity is invisible and is not subjected to any tax.

Non-resident company

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 TRANSFER INTRA CONCERN (PORTUGUESE REAL ESTATE TO PORTUGUESE COMPANY)

Resident Company

Capital gains

Capital gains of companies with a shareholding of more than 10% which has been held for more than one year are exempt from taxation (participation exemption). Where participation is below 10%, the capital gains of companies are subject to income tax at a rate of up to 22.5%.

VAT / transfer tax

Generally, the supply and lease of immovable property is exempt from VAT. However, if the lease includes other related services such as furniture supply, cleaning services, etc., then the operation is subject to VAT at a rate of 23%.

Usually, a share transfer is not subject to transfer taxes. However, if a company acquires shares in a company that has real estate, and as a result of the acquisition the company has at least 75% of the share capital, the acquisition is subject to transfer tax. The market value of the immovable property will be taxed at a tax rate between 0-8% and is payable by the purchaser.

Deferral of tax

In contrast to the direct sale of real estate, it is not possible to form a reinvestment reserve.

Losses

At present, 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.

Fiscal unity

Under Portuguese law, it is possible to form a fiscal unity if the holding company owns at least 75% of the shares in its subsidiaries. A fiscal unity can only be formed when all of the entities are Portuguese residents.

 The transfer of real estate within the fiscal unity is invisible and is not subjected to any tax.

Non-resident company

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.

DIRECT TRANSFER INTRA CONCERN (PORTUGUESE REAL ESTATE TO FOREIGN COMPANY)

Resident company

Capital gains

Capital gains received by companies are subject to corporate income tax as business income. The normal tax rate for resident companies is 21%. The first €15,000 of taxable income for a SME is taxed at the reduced rate of 17%.

In addition for most municipalities, the municipal tax is at the maximum rate of 1.5%.

VAT / transfer tax

Generally, the supply and lease of immovable property is exempt from VAT. However, if the lease includes other related services such as furniture supply, cleaning services, etc., then the operation is subject to VAT at the rate of 23%. The acquisition of Portuguese real estate is subject to transfer tax on the market value of the immovable property at a rate of between 0-8%. The transfer tax is payable by the purchaser.

Deferral of tax

Companies can defer taxation on realised capital gains by creating a reinvestment reserve. The capital gains are not taxed on sale and instead a reinvestment reserve is formed for the amount of the capital gains. The company must make a reinvestment within three years. If another building is bought, the value of the reinvestment reserve can be deducted from the purchase price of the new property.

Therefore the future depreciation costs are lower, resulting in higher taxable income.

This tax deferral only applies to tangible fixed assets, intangible assets or biological assets (not consumption).

Losses

At present, 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.

Fiscal unity

Under Portuguese law, it is possible to form a fiscal unity if the holding company owns at least 75% of the shares in its subsidiaries. A fiscal unity can only be formed when all of the entities are Portuguese residents.

The transfer of real estate within the fiscal unity is invisible and is not subjected to any tax.

Non-resident company

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 TRANSFER INTRA CONCERN (PORTUGUESE REAL ESTATE TO FOREIGN COMPANY)

Resident company

Capital gains

Capital gains of companies with a shareholding of more than 10% which has been held for more than one year are exempt from taxation (participation exemption). Where participation is below 10%, the capital gains of companies are subject to income tax at a rate of up to 22.5%.

VAT / transfer tax

Generally, the supply and lease of immovable property is exempt from VAT. However, if the lease includes other related services such as furniture supply, cleaning services, etc., then the operation is subject to VAT at a rate of 23%.

Usually, a share transfer is not subject to transfer taxes. However, if a company acquires shares in a company that has real estate, and as a result of the acquisition the company holds at least 75% of the share capital, the acquisition is subject to transfer tax. The market value of the immovable property will be taxed at a tax rate between 0-8% and is payable by the purchaser.

Deferral of tax

In contrast to the direct sale of real estate, it is not possible to form a reinvestment reserve.

Losses

At present, 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.

Fiscal unity

Under Portuguese law, it is possible to form a fiscal unity if the holding company owns at least 75% of the shares in its subsidiaries. A fiscal unity can only be formed when all of the entities are Portuguese residents.

The transfer of real estate within the fiscal unity is invisible and is not subjected to any tax.

Non-resident company

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.

TRANSFER OF PORTUGUESE REAL ESTATE TO AN EU-COMPANY

If the transferor’s home jurisdiction is in the European Union, the liability to tax on the capital gains may be avoidable if the merger and acquisition provisions applies. Several detailed conditions apply which can be found in the Council Directive of 19 October 2009. EU-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.