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Paying Income Tax in Portugal

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Income Tax

Non-residents are obliged to make an annual return for income tax if they receive income from letting property. For non-residents, income on rental profits are taxable in Portugal at a flat rate of 25%. Unlike other countries, which allows a deduction for tax purposes of mortgage interest against rents, you would not be entitled to a deduction for Portuguese tax purposes for mortgage interest costs relating to the purchase of the property in Portugal. In Portugal only repairs and maintenance expenses can be claimed as a deduction.

For Portuguese residents, your Portuguese rental income is added to any other income you may have, and your total income then calculated on a sliding scale as shown in the following table.

Income Bracket Tax Rate
Up to €4,100 12%
€4,100 - €6,200 14%
€6,200 - €15,375 24%
€15,375 - €35,363 34%
€35,363 - €51,251 38%
Above €51,251 40%

Capital Gains Tax

As mentioned above, a capital gain in Portugal is added to regular income and the appropriate income tax rates (stated above) are applied. In calculating a capital gain, account is taken of the rate of inflation from the date of purchase until the date of sale.

When the proceeds of the sale are re-invested in the purchase of other permanent assets (another Portuguese property or shares, etc.), only 20% of capital gains tax need be paid in the current year. The balance of 80% of the profit is deferred to the following years. On the sale of real estate that is the vendor's primary residence, 50% of the gain is added to the regular income for income tax purposes. If the proceeds are invested in the purchase of alternative real estate for a residence within a short period as defined in law (currently two years), the capital gain is exempt from tax.

For non-residents on a sale of the property Portuguese capital gains tax (CGT) is payable at 25% of the gain.

Under the double tax treaty with Portugal, if you are tax resident in a country that has entered into such an agreement with Portugal, the agreement allows you to credit any capital gains tax paid in Portugal against any capital gains tax payable in your tax domiciled country.