Non-residents are taxed in Portugal on income arising from Portuguese sources only. You are considered tax resident in Portugal if you spend at least 183 days there per year or if your main resident home is located in Portugal.
You will also be obliged to file a tax return detailing their worldwide income in your home (tax resident) country.
Where a double taxation agreement exists between Portugal and your home country, which provides for double taxation relief, then a deduction for tax paid in the foreign country can be offset against tax on the same income in your home country.
Tax on purchase:
Property Transfer Tax, IMT (Imposto sobre as Transmissoes Onerosas de Imoveis) is levied on the transfer of property in Portugal. Rates vary from 5%-10% for residential property depending on the transfer value and whether the property is an urban or rural property. The 10% rate only applies to resident of selected low tax countries. Urban property with a value under €92,407 (2012) is exempt from IM tax.
This tax is due within 1 month of the transfer date.
VAT is charged on new property at 23%. Lower rates apply in Medeira & the Azores.
Ongoing property taxes:
Portuguese Income Tax, IRS (Imposto sombre o Rendimento de Pessoas Singulares) is levied on Portuguese income only for Non-residents. A flat rate of 15% is charged after certain costs including:
Repairs & Maintenance costs
Municipal property taxes
Building Insurance
A deduction for Loan Interest is not given against rental income received.
Income Tax Returns for rental income must be submitted by 30 April following the relevant tax year which runs from 1 January —31 December. Extension to 25 May applies if filing electronically.
Where the property is rented to tourists or registered with The Tourist Board, rents are taxed as business income at 25% and all related costs including loan interest can be deducted at arriving at net taxable income.
Municipal Property Tax, IMI (Imposto Municipal sobre Imoveis) is levied on Portuguese Property at rates varying between 0.2% - 0.8% depending on region, type of building & value. A waste collection fee is also payable in October & March.
Transfer taxes:
Portuguese Capital Gains Tax, CGT is charged on the gain (main valais) earned from the sale of property at a rate of 25%. The taxable gain after costs is subject to personal income tax and is included as income on the taxpayers Income Tax return (IRS).
Portuguese Inheritance Tax, CSISD (Codigo do Imposto Municipal de Sisa e do Impost sobre as Sucessoes e Doacoes) is levied on gift/inheritance of Portuguese property. The rates depend on the value of the property and the relationship between the beneficiary & donor. From 2004 such transfers are exempt from CSISD if between spouses and lineal decendants. Otherwise they are taxed at 10%.
Worldwide income
If you are resident in Ireland or the UK, you will be obliged to declare and file your Portuguese income in Ireland/ UK also. There is a double taxation agreement between Portugual and Ireland / the UK so relief for certain Portuguese taxes will be given against Irish/ UK taxes payable on your Portuguese property.