Legal alert no. 10

The 2017 Portuguese State Budget Law (Law no. 42/2016), published in the Official Gazette of the Republic of Portugal on December 28th, establishes a supplementary Tax on Property to be paid in addition to the Municipality Tax due over Property.  

At the same time, the law in effect since 2013 (Law no. 55-A/2012, of 29th October), which sets out the obligation for owners of properties with a Taxable Patrimonial Evaluation exceeding 1 million euros to pay stamp duty, has been revoked.

The Supplementary Tax on Property is due by individuals and legal entities, which are properties owners, or holding usufructuary right or superficiary right, in the Portuguese territory, of residential properties buildings. Properties used for services, commercial and industrial purposes are thus excluded.

The Taxable Value of this Supplement corresponds to the sum of the taxable patrimonial evaluation of the properties owned by the taxpayer on January 1st of the year to which the tax refers. However, the properties which have been exempted (or not subject to) from the Municipality Tax on Property in the previous year, shall not be accounted for the payment of the Supplement (e.g. properties renewed under the urban rehabilitation regime).

In relation to the rates applicable to individuals (and undivided estate), they are set at 0,7% for Taxable Patrimonial Evaluation whenever exceeding the amount 600 thousand euros but lower that 1 million euros, and at 1% in relation to the value exceeding 1 million euros.

For its part, legal entities are taxed at a rate of 0,4% on the Taxable Patrimonial Value of all the properties they own. Nevertheless, if the property is owned by a legal entity but is intended to be used for personal use of the shareholders, members of corporate, supervisory or management bodies, or their families, rates of 0,7% and 1% will be applied on the Taxable Patrimonial Value below and above 1 million euros, respectively.

In its turn, regarding Taxable Patrimonial Value of properties hold by entities subject to a “tax haven” regime, the applicable rate is 7,5%.

Taxpayers who obtain real estate income will be able to deduct the amount corresponding to the Supplement under Personal Income Tax (e.g. rental income) and Corporate Income Tax, up to the maximum limit of the taxable value obtained by the application of the corresponding rate to the real estate income. Notwithstanding, in case the property is owned, directly or indirectly, by an entity with tax residence in a “tax haven”, this deduction will not be possible.

The Supplementary Tax on Property is liquidated, such as the Municipality Tax on Property, on an annual basis and by reference to the information registered by the Tax Authorities on January 1st of the year to which the tax refers to. This represents a differentiating factor from the Municipality Tax on Property, which is liquidated on December 31st. The payment of the Supplementary Tax on Property is due in the month of September of the year to which the tax refers to.

To access to the complete wording of the 2017 Portuguese State Budget Law please link to - https://dre.pt/application/conteudo/105637672