Real Estate transaction costs in Portugal

The additional costs when purchasing property in Portugal

Transaction taxes for real estate in Portugal are very low

Compared with most other European countries, transaction taxes for real estate are very low in Portugal. While in Spain you usually pay between 8 and 10% of the purchase value of your investment under the sun, in Portugal this is only 5 to 6%. The costs of purchasing a property in Portugal depend on various factors such as the value of the property, the reason for the purchase and whether the purchase is made through a mortgage.

In all cases, the following taxes must be paid by the buyer when purchasing property in Portugal. Payment for this is generally made on the day of the final purchase deed.

How to calculate transaction taxes for real estate in Portugal

To be able to calculate the transaction taxes, you must first know the purchase value of the property. You also need to know whether you are purchasing the property in Portugal as your first residence and permanent address, or as a second residence for your own use or for renting out.

A) Transaction taxes for properties bought as a second home or for rental purposes*

Most foreign real estate investors and foreign buyers of properties fall under this tax scheme. If you buy a property to generate rental income, or you want a second home under the Portuguese sun to spend the winter there, but maintain your own address in your country of origin, this is the transaction tax rate intended for you:

The Portuguese Real Estate transaction tax IMT

This is the actual Portuguese transaction tax. The buyer is liable for the correct payment of this transfer tax for real estate in Portugal. To calculate this tax, look in the table below for the purchase value of your property in Portugal, multiplied by the tax rate. You then deduct the rate discount from the result.

up to: €101.917,00 - Tax rate: 1% and no tax discount
from: €101.917,00 to: €139.412,00 - Tax rate: 2% - Discount: €1.019,17
from: €139.412,00 to: €190.086,00 - Tax rate: 5% - Discount: €5.201,53
from: €190.086,00 to: €316.772,00 - Tax rate: 7% - Discount: €9.003,25
from: €316.772,00 to: €607.528,00 - Tax rate: 8% - Discount: €12.170,97
from: €607.528,00 to: €1.102.920,00 - Tax rate: 6% and no tax discount
More than: €1.102.920,00 - Tax rate: 7,5% and without discount

For example, if you buy a property with a purchase value of €500.000 as a second home or for investment purposes, you calculate the transaction tax IMT as follows:

Purchase value x tax rate = X
X - Discount = IMT

Meaning:

€500.000,00 x 8% = €40.000,00
€40.000,00 - €12.170,97 = €27 829,03 IMT to be paid

B) Transaction taxes when buying a property in Portugal as your main and permanent residence*

If you buy real estate in Portugal as a resident and the purpose of the real estate purchase is to use it your own permanent residence and it is therefore registered as your main address, then the IMT to be paid is lower. As you can see from the table below, the tax rate remains the same, but you will receive more discount on it.

up to: €101.917,00 - Tax rate: 0%
from: €101.917,00 to: €139.412,00 - Tax rate: 2% - Discount: €2.038,34
from: €139.412,00 to: €190.086,00 - Tax rate: 5% - Discount: €6.220,70
from: €190.086,00 to: €316.772,00 - Tax rate: 7% - Discount: €10.022,42
from: €316.772,00 to: €607.528,00 - Tax rate: 8% - Discount: €13.190,14
from: €607.528,00 to: €1.102.920,00 - Tax rate: 6% and without discount
more than: €1.102.920,00 - Tax rate: 7.5% and without discount

For example, if you buy a property with a purchase value of €500.000 as your main residency and address, you calculate the transaction tax IMT as follows:

Purchase value x tax rate = X
X - Discount = IMT

Meaning:

€500.000,00 x 8% = €40.000,00
€40.000,00 - €13.190,14 = €26.809,86 IMT to be paid

As you can see, the transaction or transfer tax for the purchase of a property used as your main address is approximately €1,000 lower than for the purchase of a second home or a property for rental purposes.

* Please note: all the above rates apply to mainland Portugal. Different rates apply for the autonomous regions such as Madeira and the Azores. For commercial properties such as a property inside a touristic resort, there is a rate of 6,5% without any deduction. For rustic properties such as agricultural land, there is a rate of 5%, without any deductions.

Buying property in Portugal - other additional costs

Stamp duties

Whether you buy real estate in Portugal as a permanent residence, as a second home under the sun or as a pure investment, you will always have to pay the stamp duties. The stamp duties ("Imposto de Selo") are paid by the buyer at the time of the transfer, together with the IMT taxes, and are equivalent to 0.8% of the purchase price.

Mortgage

Nowadays, you can apply for a mortgage fairly easily at the Portuguese banks. In general, banks give 60% and in some cases even 70% of the value of the property to be bought. You must pay the remainder of the payment as a self-contribution. If you live and work in Portugal, you can borrow up to 80% or even 90% in some cases. You will then also be eligible for fixed interest rates on your mortgage. As a non-resident, you are required to opt for variable interest rates. These are cheaper, but naturally also entail more risks.

If you buy a house with a mortgage, a mortgage tax of 0.8% on the value of the mortgage is payable. You must also pay the bank valuation of your property to be purchased in Portugal. The costs for this are around €1,000.

Notary

The duties of a notary in Portugal are not the same as those of a notary in the U.K., Ireland or Canada. In Portugal, the notary is only present during the purchase transfer and records what has been agreed between the buyer and seller. The payment of the purchase price as well as the payment of all transaction taxes takes place under the supervision of the notary. The costs for this are on average around €1.000.

Lawyer

It is certainly not mandatory to hire a lawyer when buying property in Portugal. However, this is generally recommended to foreigners who buy property in Portugal.

As mentioned above, the notary in Portugal has different duties than the notary in the U.K. or Ireland. To verify whether the owner of the property to be sold is actually the (only) owner, that the house looks exactly as approved by the plans issued to the municipality and it is completely free of mortgages or other debts, you must use the services of a lawyer.

A further advantage of a lawyer is that you can give him or her a power of attorney for the buying procedure of your house under the Portuguese sun. In this way you do not have to be present in Portugal during the buying process, which can take several months, or you do not have to fly back and forth to Portugal for every signature.

Lawyers usually take between 1% and 1,5% of the purchase price as fee.