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Mastering the Portugal Wealth Tax: Expert Advice and Best Practices

Home | Personal Income Tax | Mastering the Portugal Wealth Tax: Expert Advice and Best Practices

Mastering the Portugal Wealth Tax: Expert Advice and Best Practices

by | Monday, 29 May 2023 | Immigration, Personal Income Tax

portugal wealth tax

Portugal wealth tax. Where to begin? Thanks to its high quality of life, stunning landscapes, and favourable tax policies, Portugal is an increasingly popular destination for expats and investors. One aspect of the Portuguese tax system that has drawn much interest is the so-called “wealth tax.” In this comprehensive guide, we will explore the concept of Portugal’s wealth tax, how it affects both residents and non-residents and the various taxes and rates associated with different types of assets. With this information, you will be well-equipped to make informed decisions about living, investing, and managing your finances in Portugal.

Overview of the Portuguese Tax System

The Portuguese tax system encompasses various types of taxes, including income tax, corporate tax, value-added tax (VAT), and local taxes. The tax system is primarily divided into federal and municipal taxes levied by local authorities.

Foreigners living in Portugal must register as taxpayers to start earning income there. The Portuguese tax year runs from January 1st to December 31st, with tax returns submitted between April and June of the following year. If you reside in Portugal for 183 days or more in a calendar year, you will typically be considered a Portuguese tax resident and must pay income tax on your worldwide income.

Understanding the Portugal Wealth Tax

While Portugal does not have a specific wealth tax, there are various taxes associated with owning and transferring assets that can be considered as wealth-related taxes. These taxes include:

  • Municipal property taxes
  • Stamp duty and transfer taxes
  • Capital gains tax
  • Inheritance and gift taxes

In the following sections, we will delve into these taxes in more detail.

Municipal Property Taxes

Imposto Municipal Sobre Imóveis (IMI)

IMI is an annual property tax levied by the local municipality on real estate properties within their jurisdiction. The municipality determines the exact rate and depends on the property’s location and its taxable value. The tax rate varies between 0.3% and 0.45% for urban properties and 0.8% for rural properties.

Adicional Imposto Municipal Sobre Imóveis (AIMI)

AIMI is an additional property tax, also known as Portugal’s “wealth tax,” that applies to owners with a share in Portuguese real estate worth over €600,000. If a property is jointly owned, the threshold increases to €1.2 million. The tax rates for AIMI are as follows:

  • 0.4% on the total amount of properties held by companies
  • 0.7% for individuals
  • 1% for those owning property valued over €1 million

Stamp Duty and Transfer Taxes

Imposto Municipal Sobre Transmissões Onerosas de Imóveis (IMT)

IMT is a tax charged on transferring property rights over immovable property or parts of this right, such as use and habitation, surface rights, and usufruct. The tax is applied to the value of the purchase contract or the property’s taxable value, whichever is greater. The tax rate varies depending on the type of property and its location, with rates ranging from 0% to 6% for residential properties. Properties in the Autonomous Regions of the Azores and Madeira benefit from reduced rates.

Stamp Duty (Imposto do Selo)

Stamp duty is a tax applied to all acts, contracts, documents, deeds, papers, and other legal transactions, including the transfer of goods free of charge. In the case of property purchases, stamp duty is applied to the value of the purchase contract or the property’s taxable value, whichever is greater, at a rate of 0.8%.

Inheritance and Gift Taxes

Inheritance and gift taxes in Portugal are levied under the stamp duty system. The donation of property is taxed at 0.8%, while the free acquisition of goods by individuals (inheritance and gifts) is taxed at 10%. No inheritance tax applies to direct line descendants and ascendents. It is important to note that Portugal has double taxation treaties with over 60 countries, which can help reduce the tax burden on expats.

Tax Benefits for Foreigners

Non-Habitual Residency (NHR) Tax Regime

Portugal’s NHR tax regime offers significant tax exemptions and a flat 20% tax rate on certain types of income for eligible foreign residents. The NHR program is available to individuals who have not been tax residents in Portugal for the previous five years and are applying for NHR status. Under this program, qualifying individuals can enjoy tax benefits for their first ten years of residence in Portugal.

In conclusion, while Portugal does not have a specific wealth tax, various property and asset ownership taxes can be considered wealth-related. Understanding the multiple taxes and rates associated with different types of assets in Portugal is essential for managing your finances effectively and making the most of your investment in this beautiful country.

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