Portuguese tax legislation establishes that gains obtained from the sale of an immovable property constitute capital gains. Specifically, is taxable for Portuguese Personal Income Tax (IRS) purposes the balance between gains and losses made by a taxpayer during a certain fiscal year.
Taxpayers who qualify as resident, for tax purposes, in Portugal are taxed on half (50%) of the capital gain realized, which is subject to the marginal and progressive IRS rates.
From capital gains may be deducted, among others, the expenses incurred with the acquisition and sale of the property, as well as the expenses related to the increase in value of the property, which are proven to have been incurred in the last 12 years.
EXCLUSION FROM TAXATION THROUGH REINVESTMENT - PERMANENT HOME
The IRS Code establishes that capital gains arising from the onerous transfer of real estate which constitute the taxpayer's or his/her household's main and permanent residence are excluded from taxation when such capital gains are reinvested in another real estate, which will also be the taxpayer's or his/her household's main and permanent residence. If there is no reinvestment in another permanent residence, the exclusion of taxation shall not apply.
The value considered for reinvestment is the realization value, that is, the sale value after deducting the eventual loan amortization contracted for the acquisition of the property sold. This value can be reinvested
i) In the acquisition of another property;
ii) In the acquisition of land for construction and/or the respective construction; or
iii) In the expansion or improvement of another property.
The property to be reinvested in can be in Portugal or in another Member State of the European Union or European Economic Area (in this last case, it is necessary a tax information exchange agreement with Portugal and the other country tax authority).
As stated above, the property in which the reinvestment is made must always be for the taxpayer's own and permanent residence.
According to the Portuguese IRS Code, the reinvestment can be made between 24 months before and 36 months after the sale.
Additionally, in the case of reinvestment in the acquisition of another property, the taxpayer has 12 months after the reinvestment to allocate the property to his own and permanent residence.
In other cases (acquisition of land for construction and / or respective construction or expansion or improvement of another property) the taxpayer has 48 months from the date of completion of the construction to request the registration / amendment in the land registry of the property and until the end of the fifth year after the realization to affect it to his own and permanent residence.
It is essential that the above deadlines are respected to avoid the exclusion of taxation being questioned by the Portuguese Tax Authorities, in accordance with national case law, for example decision issued by the Administrative Arbitration Center on 31 July 2012, Case No. 60/2012-T and the decision issued by the South Administrative Central Court on 15 December 2010, Case No. 04319/10.
In view of all the above, the Tax Law Department at Belzuz Abogados, S.L.P. - Branch in Portugal demonstrates its full availability to assist you with the framework applicable to real estate sales operations that you may carry out or have carried out, in the calculation of capital gains generated and in the completion of the respective tax returns. With several years of experience in these matters, our tax law team is available to help you clarify whether you have to pay the referred tax.
Departamento Derecho Fiscal y Tributario | Lisboa (Portugal)
Belzuz Abogados SLP
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