Selling a house in Portugal: do expatriates benefit from the same rate of return?

In late 2022, the Portuguese Parliament passed a law that will make the rate of taxation on profits from the sale of real estate the same for both residents and non-residents, including emigrants. With this change in the Portuguese Personal Income Tax Law, both Portuguese living abroad and those living in Portugal will be taxed on 50% of the profit from the sale of real estate. Previously, non-residents were taxed on 100% of the value of the sale of real estate.

Beginning in 2023 and affecting tax returns filed in 2024, the taxation of gain on the sale of real estate will have the same rules for both non-residents and residents. In other words, non-residents who have property in Portugal and sell it will be taxed on 50% of the profit, but also taking into account the progressive tax rates established in the Portuguese Tax Code, as explained by Márcio Pereira, consultant to the Portuguese Union of Certified Accountants (OCC).

"The fiscal system in force until 2022 in the Portuguese Code provided that non-residents who received income from the sale of real estate in Portugal were taxed at 100%, but at the tax payment rate, i.e. at the effective flat rate of 28%. The court discussed the unequal treatment of residents in Portugal and non-residents, especially those living outside the European Union member states," the specialist recalls.

For residents of Portugal

taxation applied only to 50% of the value of the sale of real estate. However, as the consultant emphasizes, "their tax rate was not 28%, it was a progressive rate calculated on the basis of their ability to pay tax, that is, a progressive rate based on total income," he explains.

With the harmonization of the rules, Marcio Pereira explains, "the treatment will be similar for residents in everything, not only in the issue of taxation of income from sales with a 50% gain, but also in the tax rate applied." "Until now, a flat tax rate of 28% has been applied for residents, but now a rate in line with the progressive rates of the Tax Code will be applied," he emphasizes.

Can emigrants pay more taxes?

The OCC consultant believes the law revision was presented as a "benefit or tax reduction for non-residents," but admits that "that may not be exactly the case. "

"An emigrant who has a property in Portugal and sells it in 2023 and subsequent years will have to submit his tax return to the Portuguese Fiscal Service and this tax return, in addition to information on the profit from the sale of the property, must also include information on all income earned abroad, not for tax purposes, but to determine the tax rate for the gain on the sale with profit (progressive rate)," according to the consultant.

The consultant says that, given all the income reported, it would be "very easy to get a tax rate of 45% or 48%" on the gain on a gain sale, even though it would be charged on half the value of the sale.

For example, if for non-residents the gain is from a property worth €100,000 and the proportion of the tax rate is 28%, the tax would be €28,000.

What should be indicated in the personal income tax return?

The specialist says details will only be known once the 2023 personal income tax return forms for 2024 are published. They will likely have a separate field to indicate the result of the disposition of the property, such as the sale price and the purchase price of the property. "There will then be a field for reporting income earned outside Portugal for the purposes of determining the income tax rate," according to the consultant.

Despite the indication of income received abroad, costs not directly related to real estate are not taken into account, with the exception of costs directly related to real estate. "The foreclosure gain calculation takes into account the sale price minus the purchase price, but the purchase calculation may include expenses such as property appreciation, improvement work in the last 12 years, or expenses related to the purchase or sale, including real estate agency commission fees," Marcio Pereira gives the example. Other expenses are not counted because, as Marcio Pereira explains, "such deductions apply only to residents on all income. "