Fees and taxes when buying real estate in Portugal: A detailed guide for investors and real estate agents

From the moment the decision to purchase a property becomes a reality, investors and real estate agents face a problem that can affect the transaction’s success and the project’s financial aspects. This problem is the fees and taxes that await all those who decide to invest in the Portuguese real estate market. You may have already heard that when buying a property in Portugal, several fiscal obligations and tax nuances can improve and mar your investment.

Our article aims to thoroughly investigate this issue and fully disclose all the nuances and details related to fees and taxes when purchasing real estate in Portugal. Our experience and expertise allow us to confidently state that Roca Estate Agency deeply understands this complex world of financial obligations associated with real estate in Portugal. We are ready to help you understand all the tax aspects on your way to successfully purchasing luxury real estate in Portugal. Our clients don’t have to worry about pitfalls because we take care of all the details and ensure that the buying process goes smoothly and you can maximize the benefits of your investment.

Basic fees when buying real estate

One of the most critical steps in purchasing real estate in Portugal is to understand all the significant fees and costs associated with the transaction. Effective financial planning and prior knowledge of all mandatory fees are crucial to the success of a real estate investment. The experts at Roca Estate have compiled the main fees and costs you can expect when purchasing a property in Portugal to make informed decisions and implement your investment plans.

Property Transfer Fee:

The property transfer fee, also known as “Imposto Municipal sobre a Transmissão Onerosa de Imóveis” (IMT), is one of the mandatory fees when buying a property in Portugal. Both national and regional authorities charge this fee, and it depends on several factors, including the value of the property and its location. Let’s take a closer look at this fee.

1. Amount of Fee Depending on the Value of Real Estate:

The property transfer fee in Portugal is calculated based on the price of the property and may vary according to the following value ranges:

IMT calculations

• Up to 92,407 Euro: The fee is 0%.
• From 92,407 Euro to 132,774 Euro: A tax rate of 2% applies.
• From 132,774 Euro to 181,034 Euro: A tax rate of 5% applies.
• From 181,034 Euro to 301,688 Euro: A tax rate of 7% applies.
• From 301,688 Euro to 603,289 Euro: 8% tax rate applies
• From 603,289 Euro to 1,050,400 Euro: A tax rate of 6% applies
• Above 1,050,400 Euro: A tax rate of 7.5% applies.

Payment deducted by the state

• Up to 92,407 Euro: 0.00 Euro
• From 92,407 Euro to 132,774 Euro: 1,941.28
• From 132,774 Euro to 181,034 Euro: .5,924.50
• From 181,034 Euro to 301,688 Euro: .9,545.18
• From 301,688 Euro to 603,289 Euro: 12,562.06
• From 603,289 Euro to 1,050,400 Euro: —-
• Over 1,050,400 Euros:——

Example: If you buy a property worth 200,000 Euros, you will pay a 7% fee on the amount exceeding 181,034 Euros. That is, , (200,000/100*7)  14,000 – 9,545.18 ( the government’s deductible  payment for values  between 181,034 Euro and 301,688 Euro: )   + 1,600 (0.8% stamp duty ) = 6,054.82  Euro which will be the amount of the fee.

Initial data:

• Property value: 200 000 Euro.
• The lower threshold for the 7% tax rate is 181,034 euros.
• The state’s deductible payment: 9,545.18
• Stamp Duty (0.8%).

Calculation of the amount of the fee:

• The value of the property is 200,000
• Now let’s apply a tax rate of 7%: 5 on 200,000 Euros.
• Calculation: 0.07 * 200,000 Euro = 14000 Euro .
• Subtract the 14,000 payment deducted by the state from the received amount. Fixed amount for property values from 181,034 Euro to 301,688 Euro 9,545.18
• Stamp duty (0.8%)
• Calculation: 0.08 * 200,000 Euros = 1600.00 Euros

So, the property transfer fee in this example would be  6054,82 euros.

2. Additional nuances:

• Regional Differences: It is essential to remember that the IMT tax rate can vary by region in Portugal. For example, the capital, Lisbon, and the second largest city, Porto, may have higher IMT rates than less popular areas. This can significantly affect the total amount of tax when buying a property in these cities. Therefore, checking the current rates in a particular region before buying is recommended.
• Benefits for residents: Portugal provides several tax benefits for residents, especially those purchasing property for the first time in the country. These benefits may include reduced IMT tax rates or exemption from this levy. However, to qualify for such benefits, residents must meet certain conditions, such as registration with the municipality and residence in Portugal. This can significantly reduce the financial burden when purchasing real estate.
• Elite Real Estate: When purchasing high-end, high-value luxury real estate, the IMT fee can significantly increase. This is important to consider when doing financial planning and calculating the total cost of the transaction. In some cases, luxury real estate buyers may even turn to tax experts to find ways to optimize tax liabilities and reduce the tax burden.

It is essential to remember that the Portuguese tax system can change over time, so it is always advisable to consult a tax advisor or attorney specializing in real estate to get up-to-date information and assess your tax obligations when buying property in Portugal.

Notary services

The notary plays a vital role in a real estate sale and purchase transaction in Portugal and is a mandatory participant. His primary purpose is to ensure the legality and reliability of the trade and protect the interests of all parties, including the buyer, seller, and the state. Here are the main functions of the notary:

1. Document Preparation: A notary prepares all the necessary documents for a sale transaction. This includes the sales contract, property description, title verification, and other legal aspects.
2. Title Verification: A notary public conducts a title verification to ensure that the seller has full authority to sell and transfer the property.
3. Signing the contract: The notary supervises the signing of the sales contract in the presence of both parties. He also explains to the parties all the terms and rights associated with the transaction.
4. Certification of a transaction: A notary public certifies and gives it legal effect. This means the trade becomes official and legal once a notary signs and approves it.

Expenses for notary services:

Notary costs for a real estate sale and purchase transaction in Portugal can vary and depend on several factors, including the property’s value and the transaction’s complexity. Here are the aspects that affect the costs:

1. Notary Rate: Notaries have specific rates that are determined by national regulations. The notary’s rate is calculated as a percentage of the real estate’s value or the transaction’s amount. For example, if the property’s value is 200,000 euros and the notary rate is 1%, the cost of notary services will be 2,000 euros.
2. Additional Services: In some cases, additional services of a notary may be required, such as translation of documents, certification of signatures, apostille, and others. These services may be additionally paid.
3. Regional specifics: You should also remember that notary rates can vary from region to region in Portugal. The rates may be slightly higher in more popular tourist areas or larger cities where property values are higher.
4. Additional Costs: Notaries may also charge additional costs associated with various procedures and inspections.

Notary costs are mandatory and form a significant part of the total costs when buying a property in Portugal. Therefore, it is essential to consider them when planning your budget for the sale transaction.

Taxes on the purchase of real estate

Purchasing real estate in Portugal is an exciting life stage and a serious financial commitment. When you enter the world of real estate in this beautiful country, it is essential to understand the taxes and fees that await investors. The agents at Roca Estate have pulled together all the tax obligations and details associated with buying a property in Portugal.

Real Estate Transfer Tax:

The Real Estate Transfer Tax (IMT, Imposto Municipal sobre as Transmissões Onerosas de Imóveis) is one of the most important financial aspects when buying a property in Portugal. This tax is compulsory and levied when the property ownership is transferred from the seller to the buyer. Here’s how it works:

• Calculation of Tax: The real estate transfer tax amount is calculated as a percentage of the property’s value or the transaction amount, whichever is greater. The tax rate may vary depending on several factors, including the value of the property and its location.
• Tax Rates: Real estate transfer tax rates can vary from region to region in Portugal. They usually start at low percentages and can increase as the value of the property increases. For example, for properties worth less than €92,407, the rate may be 0%; for properties worth more than €1,000,000, the speed may be as high as 8%.

Exceptions and specifics:

It is essential to know that certain exceptions and specifics can affect the calculation of real estate transfer tax:

1. Residents and Nonresidents: Residents and nonresidents may be subject to different real estate transfer tax rates. Residents may be granted exemptions, including reduced tax rates.
2. Family Homes: Certain categories of property, such as family homes, may have reduced tax rates provided they are used as permanent dwellings.
3. Elite Real Estate: Higher real estate transfer tax rates may apply for high-value properties. This is important to consider when doing financial planning.

Example calculation: For a better understanding, here is an example of calculating the real estate transfer tax: If the value of the property is €300,000 and the tax rate in the region is 5%, the tax will be equal to 5% of the value of the property, i.e. €15,000.

Value Added Tax (VAT)

Value Added Tax (VAT) is a consumption tax usually included in the price of goods and services. In the context of buying real estate in Portugal, VAT may be applicable in some cases, and it can significantly impact the transaction. Here’s how it works:

The impact of VAT on the transaction:

VAT may affect a real estate transaction in Portugal if the property is sold as a new construction or in a “first sale” condition. The seller must include VAT in the property’s price in this case. This means that the buyer will be obliged to pay VAT on top of the cost of the property. The VAT rate on real estate in Portugal is usually 23% but can be reduced to 6% for specific properties such as social housing.

Example: If the value of a new property is €300,000 and the VAT rate on it is 23%, the buyer will be liable to pay an additional €69,000 in VAT.

Types of real estate subject to VAT:

VAT generally applies to new properties and properties in a ‘first sale’ state. This includes:

1. New Construction: If you are buying a recently built property that has never been sold before, it is likely to be subject to VAT.
2. Custom-built properties: If you order the construction of a property to your requirements, it may also fall under the VAT regime.
3. Second-hand properties: If you buy a property already sold (secondary market), VAT usually does not apply, and you only pay the real estate transfer tax (IMT).

It is important to note that VAT can be a complex tax, and its impact on a transaction depends on various factors, including the type of property and its previous sales history. It is, therefore, advisable to consult professional tax advisors or solicitors when buying property in Portugal to fully understand the liabilities and taxation possibilities in your particular situation.

Property tax

The property tax (Imposto Municipal sobre Imóveis or IMI) in Portugal is a regular tax levied on property owners. This tax is essential for maintaining municipal budgets and financing infrastructure and public services at the local level.

How property tax is calculated:

1. The calculation of property tax (IMI) in Portugal is based on several factors:
2. Tax rate (Taxa IMI): Each municipality in Portugal has its property tax rate. The rate may vary from city to metropolis and depends on several factors, including the market value of the property and its characteristics.
3. Market Value of Real Estate: The market value of real estate is estimated based on official appraisals conducted by government agencies. This appraisal is usually carried out every few years.
4. Special Deductions: In some cases, there are deductions and reductions in the tax base. For example, some municipalities provide exemptions for families with children or real estate used for commercial purposes.

When and how often you need to pay IMI:

• Regular payments: IMI is usually paid annually to municipal coffers. Municipalities determine payment dates and methods, which may vary. The tax is generally billed in the spring, and the timing can range from a few weeks to several months.
• Penalization for non-payment: Penalization can be assessed for late payment of IMI, so keeping track of deadlines and notices from local tax authorities is essential.

Example of calculating IMI: Suppose you have a property in a municipality where the tax rate is 0.3% of the market value. If the market value of your property is assessed at €300,000, your IMI would be: 0.3% of €300,000 = €900 per year.

IMI is a vital tax obligation for property owners in Portugal; it is recommended to follow the updates from the local tax authorities and consult with professionals to calculate your tax liability and avoid penalties for non-payment correctly.

Tips for investors and real estate agents

When investing in real estate in Portugal, especially in the luxury real estate segment, having accurate information and understanding of tax obligations and charges is critical. In the previous sections, we have looked in detail at the various taxes and fees associated with buying a property. Still, several other essential tips may be helpful for both investors and real estate agents working in the Portuguese market.

Budget planning

Purchasing real estate in Portugal is a significant financial decision that requires careful and thorough budget planning. It is essential to consider all the taxes and fees that may await you during the transaction. Let’s consider purchasing an apartment in Lisbon for €1 million.

• Step 1: Determining the maximum budget

First of all, determine your maximum budget. Consider the amount you can allocate to purchase luxury real estate, and consider the possibility of obtaining a loan, if necessary.

• Step 2: Calculating the value of the property

In this case, we consider apartments worth €1 million.

• Step 3: Real Estate Transfer Tax (IMT)

For this property value, the IMT will be calculated as follows:

• The IMT rate for Lisbon apartments can vary, but it’s 8%.
• However, IMT is not calculated on the whole amount but on the difference between the value of the property and the threshold amount on which no tax is due. In Portugal, this is a threshold amount that changes every year. Let it be 600,000 euros (this is an approximation). Thus, the IMT tax will be calculated at a rate of 8%.
• We apply the IMT rate: 8% of 600,000 Euro = 48,000 Euro.

• Step 4: Notary services

The costs of notary services must also be taken into account. The approximate amount depends on the notary’s fees, usually several thousand euros.

• Step 5: Real estate transfer tax (IMT) for luxury properties

Given the high cost, the IMT tax can amount significantly, as in our example, 35,437.94 Euro (48000-12562.06= 35437.94).

• Step 6: Property Tax (IMI)

Every year, real estate owners in Lisbon have to pay a property tax (IMI), which depends on several factors, including the value of the property and the tax rate in your municipality.

In the case of a €1,000,000 property purchase, you should consider the following IMI aspects:

• Property tax rate (IMI): The IMI rate in Lisbon can vary depending on the location and category of the property. Generally, rates range from 0.3% to 0.5% of the property value. For our example, let’s assume the rate is 0.4%.
• Calculation of IMI: IMI is based on the cadastral value of real estate, which is set by the city authorities and updated periodically. It can be significantly lower than the market value. In our case, let’s assume that the cadastral value is 800,000 euros.
• Tax amount: Calculate the IMI using the formula: Rate (0.4%) * Cadastral value (€800,000) = €3,200 per year.

The owner of a property worth €1,000,000 in Lisbon will have to pay an annual property tax of €3,200. Keep in mind that IMI rates and cadastral values may change over time, so it is recommended to regularly update information with local tax authorities and real estate professionals.

• Step 7: Value Added Tax (VAT)

When buying a new property in Lisbon for €1,000,000, it is essential to consider the possible payment of Value Added Tax (VAT). VAT applies to certain types of real estate and services, and its amount may vary depending on the specific conditions and type of property.

Here’s vital information about VAT when buying a new property in Lisbon:

• VAT rate: The VAT rate on real estate may vary depending on the property type and its purpose. Usually, residential properties are subject to a reduced VAT rate, while commercial or investment properties are subject to the standard rate. In Portugal, the reduced VAT rate on residential property is 6%, and the standard rate is 23%.
• Applicability of VAT: VAT generally applies to new home construction, remodeling, and renovation costs. It may also include the cost of architects, designers, and construction firms.
• VAT amount: Let’s assume a reduced VAT rate of 6% applies to purchasing a new property. Let’s calculate the amount of VAT: 6% of €1,000,000 = €60,000.
• VAT refund for residents: It is important to note that residents of Portugal may be entitled to a refund of part of the VAT paid, especially if they are buying a home as a permanent residence.

Remember that VAT rules and rates can change, so it is advisable to get advice from tax experts and check the current laws and regulations at the time of the transaction.

• Step 8: Professional counseling

Buying a property worth €1,000,000 in Lisbon is a severe transaction, and it is essential to ensure that it is handled correctly and that all tax obligations are met. For this purpose, it is advisable to contact tax advisors and lawyers specializing in real estate in Portugal.

Your actions when buying a property through a real estate agent can make the process easier:

• Agency with experience and reputation: When choosing a real estate agency, ensure it has experience and a good reputation in the market. Roca Estate Agency has extensive experience with luxury real estate in Lisbon, providing high professionalism and knowledge of local laws and regulations.
• The staff of specialists: Roca Estate Agency has a team of specialists, including tax advisors and lawyers, to ensure that you fully understand all the transaction’s tax obligations and legal aspects. This provides you with the confidence that your financial interests will be protected.
• Comprehensive Service: Roca Estate Agency offers a complete service, including assistance with property search, transaction support, valuation, and accounting for all tax liabilities. This allows you to avoid hidden costs and errors.
• Support at every stage: Working with Roca Estate Agency, you get help at every step of the transaction, which provides you with comfort and confidence in the correctness of your investment decision.

When you turn to professionals, you can ensure that all tax liabilities are calculated correctly and have no hidden costs. This makes purchasing real estate in Lisbon as transparent and safe for your financial interests as possible.

Market research

Real estate market research plays a key role when investing in Portugal. It is an important step that helps investors make informed decisions and avoid risks. Let’s examine why market research is so important and how to choose the most profitable regions for investment.

Why it’s essential to research the market before investing:

1. Potential Assessment: Market research allows you to determine the potential for real estate value growth in a particular region. This is important for investors who want to get a return on their investment.
2. Understanding Trends: Market research helps identify current and future trends. This is important for choosing the right time to invest and understanding what types of properties are currently in demand.
3. Risks and Limitations: Market research helps identify risks and limitations associated with investing in a particular region or property type. This enables investors to make informed decisions.

Recommendations for selecting the most profitable regions:

• Lisbon: Portugal’s capital, Lisbon, is an attractive real estate market with high growth potential. Areas in the historic city center, such as Baixa and Alfama, are particularly valued.
• Porto: Portugal’s second-largest city, Porto, also has an active real estate market. The neighborhoods adjacent to the Douro River are trendy.
• Algarve: This region in southern Portugal is known for its beautiful beaches and climate. Investing in real estate on the Algarve coast can be lucrative, especially renting out to tourists.
• North of Portugal: This region also offers exciting investment opportunities, especially in rural areas where real estate prices can be more affordable.

Market research example: Suppose you are considering investing in apartments in Lisbon. Market research shows that housing prices in the Baixa neighborhood have risen steadily in recent years and that demand for short-term rentals has been strong. This indicates the potential for investment in the area.

Researching the real estate market in Portugal allows investors to make informed decisions and choose the most profitable regions. It is an important step that helps to reduce risks and increase the chances of a successful investment in Portuguese real estate.

Fees and taxes when buying real estate in Portugal: Summarizing the results

The importance of being aware of all fees and taxes when buying property in Portugal cannot be overemphasized. These financial obligations are crucial to the success of the investment, and understanding their nature and nuances is critical to successful transactions.

Investors and real estate agents should keep the following key points in mind:

1. Determination of Real Estate Value: A market study and technical appraisal will help accurately determine the value of the real estate, which is the basis for calculating taxes and fees.
2. The Role of Real Estate Agents: Real estate agents help find and select the right property and ensure that their client’s interests are protected during the transaction. The reputation and experience of the agent are of great importance.
3. Fees and Taxes: Understanding fees and taxes such as IMT, IMI, VAT, and others allows investors to plan their finances properly and avoid surprises.
4. Market Research: Investors should conduct thorough market research to select the most profitable regions and property types for investment.
5. Professional advice: Contacting tax advisors and attorneys with real estate experience helps avoid tax mistakes and hidden costs.

Roca Estate Agency prides itself on its knowledge and experience in Portuguese real estate. We know all the pitfalls and are ready to help our clients deal with them. When you decide to buy luxury real estate in Portugal with us, you will immediately be aware of all important aspects and can trust our professional approach. We create harmony in real estate investment so your experience will be comfortable and successful.