Property benefits from real estate: new rules on income tax for non-residents

Since January of this year, the taxation of profits from the sale of real estate for emigrants and non-residents in Portugal has changed. As a result of the amendments made to the Budget Code for 2023, profits from the sale of real estate are taxed at a rate of 50%, and then included in the total income with the application of progressive personal income tax (PIT) rates, just as it is already done for residents of the country. The tax authority has now clarified how the entire procedure will take place.

In order to unify the taxation of profits from the sale of real estate within the framework of personal income tax for residents and non-residents.

The government has changed the rules on this issue in the Budget Code for 2023.

Previously, non-residents of Portugal - foreigners or Portuguese emigrants - were required to pay a capital gains tax of 28% on the total amount from the sale of real estate. At the same time, the profit from the sale of real estate by residents of the country was taxed at a rate of 50% and included in the total income subject to the general personal income tax rates.

Now the rules are the same for residents and non-residents: profit from the sale of real estate is taxed at a rate of 50% of the total amount and must be included in the total income subject to progressive personal income tax rates.

How will the taxation of profits from the sale of real estate for non-residents be conducted?

With the aim of "harmonizing procedures," the tax service explained how the taxation of profits from the sale of real estate for non-residents is applied, according to a letter published on the tax service's portal.

• Firstly, it is noted that in the case of non-residents, the taxation of income does not include: profit from the "profitable sale of real estate rights," profit from the "profitable transfer of contractual positions or other rights related to real estate contracts."
• It is then stated that "in the event that the law requires the inclusion of income earned by non-residents in Portugal in the calculation, all income earned under the same conditions as for residents is taken into account to determine the applicable tax rate." In particular, this applies to income earned from January 1, 2023. The goal is not to tax these amounts in Portugal, but to determine the applicable rate.

Thus, "the income earned in Portugal by non-residents, related to profits obtained from the profitable sale of real estate rights or from the transfer of contractual positions or other rights related to real estate contracts, starting from 01/01/2023," falls under the following tax system: the determination of the amount of income classified as profit; mandatory inclusion of certain income in the total income; "the application of general personal income tax rates to the income included in the total income earned in Portugal, provided that all income earned under the same conditions as for residents is taken into account when determining this rate," is further elaborated in the letter.

According to lawyers and tax consultants, this measure of taxing profits from the sale of real estate for non-residents is considered "fairer" and "less discriminatory." However, they believe that filling out model 3 may be more "complex and costly," and there may be difficulties in monitoring the completion, as reported by Jornal de Negócios.