When you sell property in Portugal, you pay taxes on the proceeds. This article will discuss capital gains tax in Portugal. The calculation method depends on your tax residency, so there are two possible options.
You are a tax resident in Portugal
If you are tax resident in Portugal, the taxable base is 50% of the actual capital gain. However, there is no flat rate. One adds the capital gains to your regular income in the progressive income tax. The highest bracket is 48% for income higher than €80,640.
There are two exemptions. The first (pro rata) exemption is for financing the permanent residence. If you use the proceeds to buy a new permanent residence in the EU, there is an entire exemption. You have the choice of buying a new residence 2 years prior to the sale or buying a new residence within 3 years of the sale. In addition, you must occupy your new residence within 6 months.
The second exemption is there if you bought the property before 1989. Then you do not pay capital gains tax.
There is also a reduction if you own the property for more than 2 years. You are then allowed to deduct inflation from the actual capital gain. This is done with the help of an officially established table.
Capital gains tax in Portugal for non-residents
As a non-resident in Portugal, you basically pay a flat rate of 28% on actual capital gains. However, EU citizens can opt for the Portuguese resident regime provided they disclose their worldwide income to the tax authorities in Portugal.
What expenses can I deduct?
You can deduct two categories of expenses from capital gains tax in Portugal.
The first category covers all costs related to the purchase and sale of the property. Think of legal fees or the estate agent's commissions. For the latter costs to be deductible, you need to mention the estate agent in the notarial deed.
The second category concerns additional works to the property that took place 12 months before the sale.
You need to add to the purchase price any additional works taking place five years prior to the sale.
