In recent years, the number of citizens from all over the world who have been traveling to Portugal, whether just to spend holidays, to live or possibly just to invest, has grown exponentially.
When investing in Portugal is at stake, a foreign resident or non-resident, with special status or not, must always consider the advantages and disadvantages of investing through a company or in a personal capacity.
There are different rules and tax rates for the taxation of income in each of the categories, so careful monitoring and analysis, carried out by a professional, of each person's particular situation is always an added value.
The real estate market has been one of the fastest growing in Portugal in recent years and will continue to be a safe investment in the coming years. There are many foreigners, residents or not, who want to invest in real estate in Portugal and the question for them is clear: Should I invest personally or through a company controlled by me?
The answer may not be linear and must always be considered, however it is important to clarify the most relevant facts to take into consideration.
For an individual, whether resident in Portugal or not, who intends to make an investment in real estate in Portugal on a personal basis, taxation will be carried out as follows:
- Whether you are a resident or non-resident, category F property income will be subject to separate taxation of 25% or 28%. What will define the rate to be applied to this income is the purpose of that property, that is, whether it is for housing purposes (25%) or for other purposes (28%).
- There are situations arising from the duration of the rental contract for housing purposes that may influence the autonomous taxation to be applied, namely if the contract lasts more than 5 years and less than 10 years, the rate will increase to 15%, between 10 years and 20 years will be 10%, and finally for contracts lasting more than 20 years, it will be 5%.
- In case of sale of the property and taxation of real estate capital gains, these will be taxed equally for residents and non-residents. In other words, residents and non-residents are now taxed only on 50% of the added value generated, which is included and subject to progressive IRS rates, from 14.5% to 48%.
- There may be an exemption from taxation on capital gains in the case of reinvestment of the value for which the property was sold, however, it is necessary to bear in mind that it is not enough to invest the capital gains generated, but rather the entire amount received from the sale of the property (immovable property). This reinvestment can be made in any country within the European Union.
In the business sphere, when the entity is non-resident in Portugal and does not have a permanent establishment in Portugal, property income taxation will be carried out as follows:
- There is no obligation to withhold IRC at source when there is a convention designed to eliminate double taxation or another international law agreement that binds the Portuguese State or domestic legislation, and does not have a permanent establishment to which the same is attributable (is not attributed to the source State or is so only to a limited extent).
- A recent ruling by the Supreme Administrative Court, which standardizes jurisprudence, concluded that: “the taxable amount of capital gains realized on the sale of property located in our country, by a non-resident company without a permanent establishment in Portugal, applies on its entirety, with the 50% reduction not being applicable”.
- Real estate capital losses cannot be deducted.
Also, In the business sphere, when the entity is resident in Portugal or non-resident but with a permanent establishment in Portugal, property income taxation will be carried out as follows:
- There is an exemption from withholding tax for companies whose purpose is to manage their own properties.
- Depending on the geographic location, we can have extremely competitive IRC rates, which can range from 11.7% for the first €50,000.00 of profit, up to a maximum of 14% for the remaining profit.
- Regarding real estate capital gains realized on the sale of property located in our country, by a company resident or with a permanent establishment in Portugal, these only apply to 50% of the amount of real estate capital gains made.
- Real estate capital losses may be deducted.
For all these reasons, careful and professional real estate and tax planning in Portugal is essential.
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