Investing in Real-Estate in Madeira Island: A Tax Guide

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Investing in Real-Estate in Madeira Island: A Tax Guide

by | Friday, 5 April 2024 | Investment, Real Estate

real estate in Madeira

Acquiring real estate in Madeira Island is considered a stable and secure investment, given that the market has experienced steady growth in recent years.

Whether you intend to purchase a house on the island to serve as your primary residence or whether you are considering it as a long-term investment opportunity, the advantages are never-ending – Ranging from the security of investing in a country with a stable political climate and growth opportunities due to the ever-increasing tourism to the comfort of a relaxed yet cosmopolitan way of life, mild and sunny weather all year round and a high quality of life by European standards.

It is important to note, however, that as with any investment, there are specific implications which you will need to be aware of to swiftly navigate the process of investing in real estate in Madeira Island.

Residency status

Anyone may choose to invest in real estate, whether they are a resident or not. However, taxes must still be paid on any property purchased in Portugal, even if one is not a resident. Someone who spends fewer than 183 days a year (tax calendar year) in Portugal shall not be considered a tax resident.

Being a resident can offer some advantages when purchasing real estate from a taxation standpoint if this property is to be used as a permanent home.

Taxes due

1) Municipal Property Tax (IMI): This tax levied on the property’s Patrimonial Value must be paid every year from the moment the buyer acquires the property.

Each municipality in Portugal sets the rate to be applied, but you should consider it when calculating IMI. This calculation is based on a table with ranges included in the Municipal Property Tax Code.

Exemptions: It is possible to be exempt from paying this tax in two different situations, making the exemption either temporary or permanent.

Temporary exemption—If a property is purchased as a permanent home, the asset value does not exceed 125,000 euros, and the household’s taxable income is less than 153,300 euros for IRS purposes, then the family can be exempt from paying IMI for three years.

Lifetime exemption – For this, the household’s annual income must not exceed 15,469.85 euros.

2) Municipal Property Transfer Tax (IMT): This is levied whenever a house is purchased. It is applied to the Taxable Asset Value or the value declared in the deed, which is the higher of the two amounts. In addition, the portion corresponding to the rate must be subtracted.

This tax must be paid before the property is purchased, and its calculation takes into account four specific characteristics:

Type of property: rural or urban;

Purpose of the purchase: Permanent or Secondary Dwelling;

Exemptions: To be exempt from paying IMT, the property must be used as a permanent home, and its value must not exceed 115,509 thousand euros.

3) Stamp Duty (IS): It is payable on the purchase and sale of the property. When the deed is signed, the buyer must pay this tax to the Notary. In this case, Stamp Duty is 0.8%.

If a home loan is granted, the buyer must pay Stamp Duty on the amount financed. This real estate tax will be paid when the financing amount is transferred to the client’s bank account who is buying a new home.

There are two different rates in this case: For credit agreements with a payment period of more than five years, stamp duty is 0.6%, and if the payment period is less than five years, the rate is 0.5%.

4) Wealth/Opulence Tax
Portugal implemented the Adicional Imposto Municipal Sobre Imóveis (AIMI), often known as the municipal wealth tax or luxury tax, in 2017. It applies only to property owners with real estate valued at over €600,000.

Please do not hesitate to contact us to learn more about tax rates applicable to your particular situation and to be advised on real estate investment opportunities in IsIslando to optimise potential advantages.

Disclaimer: The information in this article is for informational purposes only and should not be considered investment advisory, legal or tax advice. When investing in real estate in Madeira, please consult a qualified professional for specific guidance tailored to your circumstances.

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