Once you’ve decided where you want to buy property in Portugal and how much you can expect to pay based on average house prices there, you’ll also want to know about the running costs of upkeep and maintenance. It’s important to know what other expenses and taxes you’ll have to pay on your new Portuguese home after the initial purchase is made (apart from the obvious ones like water, gas, and electricity bills).
IMI Municipal Property Tax (Imposto Municipal Sobre Imóveis)
This is an annual tax defined and updated by the municipality where the property purchased is located. The revenue from IMI belongs to each municipality, although the Finance Department collects it, they later deliver the funds to municipalities.
The amount of IMI to pay is also limited by the State, not allowing municipalities to charge outside the range of 0.3% to 0.8% of the sale value of the property.
The IMI is payable in instalments in case it surpasses 100€, and the payment dates are as follows, depending on how much you are taxed:
Note: IMI exemption and discounts are available for property owners who meet certain requirements, so you should be on the lookout for that.
AIMI Addition to Municipal Property Tax or Portuguese Wealth Tax (Adicional ao Imposto Municipal sobre Imóveis)
Many property owners in Portugal don’t know that they have to pay the AIMI. The AIMI is an annual tax that complements the existing IMI.
Note that the IMI and the AIMI are two different taxes and must be paid separately.
The AIMI has to be paid by all individuals or companies who, as of January 1st of each year, appear listed in the land registry as owners, usufructuaries or superficiaries of urban residential buildings or lands destined for construction in the Portuguese territory.
AIMI is settled by the Tax Authorities in June of each year and paid in one instalment in September.
The taxable basis corresponds to the sum of the tax registration value of all urban properties held by each taxpayer, as reported on January 1st of each year.
The tax rate to apply to the taxable basis depends on the property sale value:
Note: If the property is held by a company, the applied tax rate is 0,4%.
IRS Personal Income Tax or Tax Return Declaration (Imposto sobre o Rendimento das Pessoas Singulares)
This is an annual tax based on the income that is defined by different Personal Income Tax categories. The tax rates can go from 14,5% to 48% according to tabulated income ranks. If you do not have income in Portugal, you will not be taxed by the IRS.
Residents in Portugal are taxed on the totality of their income (in Portugal and abroad) and non-residents are taxed for income obtained in Portugal only.
Professions of high cultural and economic worth are also given generous tax exemptions under the NHR tax regime, as they are considered to be of added value to Portugal. Check the list of professions here.
For non-residents, tax on long-term rental income is set at 28%, although maintenance, repair expenses, insurance, and IMI may be deducted. Regarding short-term leases, 65% of income is considered expenses, which means that only 35% of the invoiced amounts will be taxed.
All Tax Return Declarations must be submitted from the 1st of April until the 30th of June.
After submitting your Tax Return Declaration if the tax authorities validate your declaration you will receive a tax bill in the post, giving you 30 days to do the payment.
Value Added Tax, VAT Return or VAT Declaration (Imposto Sobre Valor Acrescentado IVA)
In Continental Portugal, almost all transactions are taxed with VAT at 6%, 13% or 23%.
Any person who, independently, carries out an economic activity is considered to be a taxable person. This means that owners of companies with a Portuguese VAT number must submit regular returns detailing all VAT received (sales/revenue) and VAT paid (costs/expenses).
If you fall into this category then you must know that your VAT declarations need to be submitted monthly if the annual turnover is equal or higher than 650.000€, or quarterly if the annual turnover is less than 650.000€.
Whenever the tax deducted exceeds the value owed due to taxable operations in their corresponding period, the excess is deducted in the following tax periods:
Note: When renting out your property you can have an exemption regime on VAT if your income does not exceed 10.000€ on the first year.
Stamp Duty (Imposto de Selo - IS)
This tax is due on acts, contracts, documents, and legal affairs regarding your real estate, which occurs in Portugal, and are not subject or exempt from VAT.
For example, you will be taxed on a renting contract every time you register it in the Finances, which is a mandatory process when renting a property. The Stamp Duty tax rate is 0,8%. Upon registering a contract, you have 30 days to pay the Stamp Duty.
If you die owning the property or gift it during your lifetime, recipients will have to pay Portuguese stamp duty at 10% regardless of your residency situation - unless they are your spouse or child, in which case they are exempt. Stamp duty is payable even if the recipient does not live in Portugal.
Capital Gains Tax (Imposto sobre Mais-Valias)
A capital gain happens when you sell your property for more than you spent to acquire it. If you’re thinking about selling your Portuguese property you should know that you must declare the sale on your tax return declaration (IRS) and therefore you will be taxed on it, that is if you had a gain on the transaction.
Portuguese residents are taxed on 50% of the capital gain at normal tabulated IRS rates (= maximum of 24% tax rate).
Non-residents simply pay 28% of tax on the whole gain, or 25% if the taxpayer is a company. However, various exceptions and reductions can apply. For example, less income is taxable if the money is reinvested in a new Portuguese property, or if the property was the main residence.
Inheritance Tax (Imposto sobre Herança)
If you die owning the property, there is no Inheritance Tax since it was abolished in Portugal in 2004, however, recipients will have to pay a Portuguese Stamp Duty at 10% regardless of your residency situation, unless the recipients of the property are your spouse or children, in which case they are exempt. Stamp duty is payable even if the recipients do not live in Portugal. You have 3 months from the date of death to pay this tax.
Do you need help paying your taxes whilst you're overseas?
Our After Sales Department will be your eyes on the field!
Advantages of becoming an After Sales member:
we make sure you never miss a payment, and therefore never get a fine;
we manage your Finance Portal for you and simplify the information you need to know, this way you will get rid of unnecessary spam in your inbox. Also, if you do not understand Portuguese you will not be able to manage your Finance Portal yourself because it does not have translation options for non-speakers;
we will let you know of all exemptions and discounts regarding taxes, they will ensure that you’re given the correct and updated information in the simplest way;
when applicable, we will run simulations on tax declarations to make sure you pay as less money as possible giving you the best scenario possible;
we will validate all your expenses invoices for tax purposes in your E-Fatura portal so that you don’t have to do the work yourself.
Home insurance: Just as with any other house, it’s a good idea to have home and contents insurance on your Portuguese property. In Portugal, the standard rate charged by insurance providers is from 180 to 380 euros a year, but that obviously varies with property type, location, and value.
Home administrator: If all this red tape seems like too much work for you, especially in Portuguese, another option is to just hire a property manager to do the paperwork and organize the payments for you. These kinds of services cost about 100 to 150 euros per year, and allow you to sit back and relax in your home in the sun and not worry about the running costs!
The monthly cost of utilities in Portugal depends on how big your house is and how many people live there. For example, heating, electricity, and water for one person in a 45m2 studio can cost between €80 to €90 per month.
Utilities for two people in an 85m2 apartment can be between €120 and €130 per month.
Comparing these prices to the UK or Spain, the costs are much cheaper, enabling people to actually afford a better lifestyle in Portuguese cities than in other European cities.
Unfortunately, electricity bills in Portugal can be very high; according to Eurostat, a kWh costs €0.2246, which is 22% higher than in the UK, however, our advice is to use your off-peak time as much as possible for the washing machine, dishwasher and heaters in winter.
The cost of installing the metre is an average of €50. However, the price of water per cubic metre varies between cities.
For instance, in Santo Tirso, a small city in northern Portugal (see Portugal Map) the price of water is around €240 per 120 cubic metres of consumption. This doesn’t include the cost of sanitation and municipal solid waste.
See here the price of water in Lisbon.
In this video, Portugal Homes' Co-Founder and CEO, David Poston, elaborates on the costs of buying a home in Portugal. There are some government costs, Legal fees and if you choose to live overseas, fiscal representation services that companies like Portugal Homes can provide.