Buying a property in Portugal

Sabine Plattner - Senior Estate Planner

Luxembourgers' interest in Portugal is hardly surprising given the shared history between Portugal and Luxembourg. From the marriage of Prince William Alexander of Nassau to the Infanta of Portugal, Marie Anne de Bragance, 125 years ago, to the Grand Ducal Family's refuge in Portugal during the Second World War, relations between the two countries have been characterised by unity and mutual support. In the 1960s, Luxembourg returned the favour to many Portuguese who came to work and live in the Grand Duchy.

Portugal: an art of living

This shared history certainly plays an important role in the general interest in Portugal, but its quality of life makes it all more attractive. The level of safety is high, and the climate is particularly pleasant, with an average of 300 sunny days per year. The country is also very accessible from Luxembourg, thanks to fast, regular air connections from Findel airport to Portugal's major cities. It is therefore not surprising that some people have chosen to settle there permanently, benefiting until recently from a highly advantageous tax regime known as 'RNH' or 'Non-Habitual Residents'.

Focus on Portuguese property

Property prices in Portugal are currently rising considerably. This inflation affects not only high-end properties in the major cities and their suburbs, but also those in more popular locations such as the Algarve and Cascais, by the sea. However, buying is still attractive, and average prices per m² are still affordable compared with Luxembourg prices. So, once you've chosen your property wisely and considered the many legal and tax issues carefully, there should be nothing to stop you from buying the property of your dreams.

Some preliminary steps to buying a Portuguese property

At the start of the property purchase process, the most important step for any non-resident investor is to obtain the NIF: the Portuguese Tax Identification Number. Registration with the Portuguese Ministry of Finance is compulsory, and applications can be made online or directly to a tax office in Portugal. This application can also be made through a third-party representative such as a lawyer.

Moreover, a Portuguese bank account is needed to buy a property in Portugal. It is customary for the buyer to give the seller a certified cheque from a Portuguese bank to settle the balance of the sale price (deducted from the deposit paid) once the final deed of sale has been signed. Payment through a notary is possible in some cases yet is less common in Portugal.

When buying a property, it is also essential to be accompanied by professionals who are familiar with the local market to ensure compliance with tax rules and other obligations. Given the large number of documents required for such a purchase, the support of an estate agent with an IMPIC property mediation licence, a technical expert and a lawyer is highly recommended.

Tax obligations associated with owning property in Portugal

The law applicable to property is the law of the country in which the property is located, i.e. Portugal. From a tax point of view, indirect, direct and local taxes may accumulate when such an investment is made. A Luxembourg resident owning a second home in Portugal is therefore subject to tax in that country and must comply with tax declaration obligations, even if he or she is a non-resident.

These tax issues have an impact at the time of acquisition, during the ownership of the property, and at the time of transfer.

Purchases of property in Portugal are generally exempt from VAT. However, the purchaser will have to pay a municipal tax on the transfer for valuable consideration ("IMT"), which varies between 1% and 7.5% of the purchase value or the cadastral value recorded by the tax authority. This value, known as the "valor municipal tributario", is based on the higher of the purchase value and the cadastral value. Stamp duty of 0.8% is also payable. Added to this are notary fees, lawyers' fees, registration fees and miscellaneous costs, giving a total cost of around 8-10% of the purchase value.

During the holding period, the owner must pay an annual municipal property tax ("IMI") calculated on the basis of the cadastral value recorded by the tax authorities and which varies according to the location, surface area and dilapidation of the property purchased. The rate applicable to urban properties varies between 0.3% and 0.45% and is of 0.8% for a rural property.

If the value of your Portuguese property exceeds €600,000, you will also be subject to an additional municipal tax ("AIMI") of between 0.7% and 1.5% per annum. It should be noted that an allowance of €600,000 is applicable per person, so if a couple buys in joint ownership, for example, they will only be subject to this additional tax on property above €1.2 million. In addition, the 1.5% rate will only apply from €2,000,000.

If, as a non-resident, you do not rent out your property in Portugal, no income tax will be payable in the country. However, if you do rent out your property, you will have to declare your rental income in Portugal, as well as in Luxembourg.

In the event of the resale, gift or inheritance of a property in Portugal

In the event of resale, and from 2023 only, capital gains on property realised by non-residents must be added (up to 50% of their value) to other income obtained by non-residents and are subject to the ordinary progressive rates of between 13.25% and 48% (plus solidarity tax).

Portugal has not applied inheritance or gift tax since 2004. These transfers are therefore exempt, with the exception of the 0.8% stamp duty payable in the case of transfers in the direct line and between spouses. In other cases, i.e. in the case of an inheritance or gift to third parties and not in the direct line, an additional stamp duty of 10% applies, giving a final rate of 10.8%.

Non-resident buyers are often more exposed to risk due to their unfamiliarity with the local Portuguese market and current practices. This is why the experts at Degroof Petercam Luxembourg accompany their clients through the various stages of the process thanks to their knowledge of the Portuguese and Luxembourg context.

This document is published and distributed by Banque Degroof Petercam Luxembourg. The information contained in this document is for general information purposes only and should not be considered as advice or personalised information. The general information contained in this document is not intended to respond to individual situations, needs or questions. This document is not intended to provide an exhaustive description of the legislation and regulations in force, nor of the financial service(s) provided by Banque Degroof Petercam Luxembourg. Although every precaution has been taken to ensure the accuracy of the information contained in this document and Banque Degroof Petercam Luxembourg has relied on sources it considers reliable, the Bank cannot guarantee the accuracy or completeness of the information contained herein. Neither Banque Degroof Petercam Luxembourg nor any of its employees shall be liable for any incorrect, incomplete or missing information, or for any direct or indirect damage, loss, cost, claim or other expense arising from the use of this document, except in the case of wilful misconduct or gross negligence.

Share the article

More about: