What is the tax rate on real estate capital gains in Portugal?

With regard to income real estate, Capital gains on real estate in Portugal are always taxed in the country where the property is located; pursuant to the 1971 tax treaty between France and Portugal to avoid double taxation, these capital gains are taxed in Portugal.

Capital gains tax on real estate in Portugal is due at the same time as income tax. You will therefore need to report it on your IRS tax return in Portugal. Any sale real estate must, in fact, be reported to the ’Autoridade Tributaria,« regardless of whether or not it results in a capital gain on real estate in Portugal.

The main cases of exemption:

• Property acquired before January 1, 1989, is not subject to capital gains tax on real estate.

If the property was acquired after January 1, 1989, you will be subject to tax.

• Nevertheless, the Portuguese Tax Code provides that a tax exemption in the event of the sale of one's primary residence (own permanent residence) and the use of the proceeds from the sale to purchase, construct, or make improvements to a new primary residence. The reinvestment must take place either in advance, within the 24 months prior to the sale, or afterward, within 26 months of the sale of your primary residence. In the case of a partial reinvestment, the amount not reinvested will be subject to tax.

• For sales between 2015 and 2020 of properties purchased with a loan taken out before December 31, 2014, the Portuguese tax code provides for an exemption in the case of the sale of your sole residential property. Therefore, you must not own any other properties on the date of the sale.

If you sell a property that is not your primary residence, or if it is your primary residence but you do not wish to reinvest the proceeds from the sale in the purchase of a new primary residence, you will be subject to capital gains tax on real estate in Portugal.

For individuals who are tax residents of Portugal, half of the amount of the capital gain on real estate will be included in your other taxable income at the’IRS.

If you are not a Portuguese tax resident, you are not eligible for this 50% tax reduction and will be subject to tax at 100 % of the real estate appreciation in Portugal.

Calculating Capital Gains on Real Estate in Portugal

Take the sales price - The purchase price, revalued as of the date of sale, minus deductible expenses × 50 % (only if you are a Portuguese tax resident) = taxable amount.

Deductible expenses include, among others, taxes paid at the time of purchase: property transfer tax (IMT) and corporate income tax (IS), notary fees, registration fees, renovation work completed within the last 12 years, the cost of the energy performance assessment, and the commission paid to the real estate agency for the sale of the property. To be deductible, these amounts must be supported by a invoice in your name.

Tax rate 

• For a Portuguese tax resident: 50 % of capital gains on real estate in Portugal are included in the taxpayer’s other income and taxed at the progressive rate corresponding to the taxpayer’s marginal tax bracket.

Example : In 2007, you purchased a house worth €180,000, including real estate agent fees. You sold the same property for €300,000 in 2017. Deductible expenses include renovations completed over the past 12 years totaling €24,500 and the energy efficiency certificate required for the sale, costing €300, as well as expenses incurred at the time of purchase totaling €450, plus the transfer taxes due at the time of purchase totaling €5,900, and finally the real estate agency’s commission on the sale: 5% × €300,000 = €15,000

Capital gain = €300,000 – €180,000 – €300 – €24,500 – €450 – €5,900 – €15,000 = €54,050

The amount to be reported on your IRS return is: 50 % × 54,050 = 27,025 €, taxed according to the IRS’s progressive tax scale.

• For a non-resident for tax purposes in Portugal : 100 % of the capital gain on real estate in Portugal will be taxed under the IRS at a flat, final tax rate of 28 %. It should be noted that you are also not eligible for the reinvestment exemption when purchasing a new primary residence in Portugal, since, by definition, you are not a Portuguese tax resident.

Using the same example, the non-resident for tax purposes would be taxed on 100% of the €54,050 capital gain on real estate in Portugal, at a flat rate of 28%, for a total tax amount of €15,134.

As a reminder, the rate currently applicable to capital gains tax on real estate in France is 36.2 % (19% as a flat-rate withholding tax for income tax + 17.2% in social security contributions), to which may be added the exceptional contribution of 2% in the case of capital gains exceeding 50,000€, as well as the exceptional contribution on high incomes at a rate of 3 % or 4% (when the portion of taxable income, including the taxable capital gain, exceeds 250,000€ per taxpayer). However, in France, a reduction is applied to the taxable capital gain based on the number of years the property was held.