Capital Gains Tax in Portugal: What Algarve Sellers Need to Know

Understanding capital gains tax is crucial when selling your property in Portugal. While I’m here to guide you, it’s essential to seek personalized advice from a tax professional to fully comprehend your specific situation.

Key Points for Sellers

• Residents vs. Non-Residents: The tax treatment of capital gains differs depending on your residency status in Portugal.
  
• Tax Rates:
  • Residents: are subject to a 28% tax rate on 50% of the capital gain.
  • Non-resident: While previously a flat 28% on 100% of the capital gain was taxed, since January 1, 2023, only 50% of the capital gain is taxed. It is added to their worldwide income and taxed at the progressive IRS rates (ranging from 14.5% to 48%, plus solidarity tax if applicable).
    
• Exemptions and Reductions: There are several exemptions and reductions available that could significantly impact your tax liability. These may include:
  • Reinvestment in a New Main Residence within EU/EEA: The gain from the sale is exempt if the net proceeds (after deducting any mortgage used to acquire it) are reinvested in another main residence within the EU or EEA within 36 months.
  • Principal Residence Exemption: If you sell your primary residence and owned the property before 1989, you’re generally exempt from capital gains tax on its sale.
  • Age-Related Reductions: Sellers over 65 may be eligible for reductions in capital gains tax if reinvesting in certain pension products
    
• Practically:
  • For residents:
    • The capital gains tax is generally paid when you file your annual income tax return (IRS – Imposto sobre o Rendimento das Pessoas Singulares). The deadline for filing this return is typically between April 1st and June 30th of the year following the year the capital gain was realized (i.e., the year you sold the asset).
      
  • For Non Residents
    • Withholding Tax:
      • In most cases, the buyer of the asset is legally obligated to withhold a percentage of the sale price and remit it directly to the Portuguese tax authorities on behalf of the non-resident seller. This serves as an advance payment towards the final tax liability.
      • The withholding tax rate can vary depending on the type of asset and the seller’s residency status (e.g., within or outside the EU/EEA).
      • The seller will then need to file a tax return to declare the capital gain and either claim a refund if the withholding tax exceeded the actual tax due or pay the remaining balance if it was less.
    • Tax Return Filing:
      • If there’s no withholding tax mechanism in place or if the seller prefers to handle the tax payment directly, they must file a Portuguese tax return to declare the capital gain and calculate the tax due.
      • The tax return must be filed within a specific deadline, usually in the year following the asset sale.
      • The tax due can then be paid through bank transfer or other accepted payment methods.
    • Tax Representative:
      • Non-residents can appoint a tax representative in Portugal to handle their tax obligations, including filing tax returns and making tax payments on their behalf.  
      • This can be particularly helpful if the non-resident seller is unfamiliar with Portuguese tax procedures or doesn’t reside in Portugal.

Navigating Capital Gains Tax with Confidence

I’ll connect you with qualified tax advisors who can:

• Assess your individual circumstances: They’ll consider your residency status, property type, and other factors to determine your tax liability.
• Identify potential exemptions and reductions: They’ll explore all available avenues to minimize your tax burden.
• Handle tax filings: They’ll ensure your tax return is accurate and submitted on time.

Let’s Talk

Don’t let capital gains tax concerns hold you back from selling your Algarve property. I’m here to help you understand the process and connect you with the right professionals. Reach out today for a personalized consultation.