Rental income and tax

By PEDRO SIMÕES  [email protected]

Pedro Simões is licensed in fiscal law and management, and is the Managing Director of ACOQ Consultancy Lda, based in Lisbon.

I own and rent a property in Portugal, but I don’t live in Portugal. Where do I pay taxes? Do I pay it in my country of residence, or do I have to pay it in Portugal as well?

That’s a question often asked by non residents that own a property in Portugal. All over Portugal there are many properties owned by non residents. Do they pay taxes in both countries? Do they just pay taxes in Portugal?

The tax of Rental Income is paid in the country where the property is located. For a better understanding, here are some questions and answers, taking into consideration a real situation.  

I live in the UK and I am renting a property in Lagos, do I have to pay taxes in Portugal, or in the UK?

The Rental Income is paid in Portugal, because the property is in Portugal.

How can I declare my income in Portugal if I am not living there?

When you are non-resident, you should nominate a fiscal representative, who must have the information to set up your tax return, or you can use a tax expert.

When is the tax due?

Your tax return must be submitted in April/May each year. The government usually sends the tax bill to be paid in September/October of each year.

What is the tax rate for the rental income?

The tax rate for Rental Income when you are non-resident is 15 per cent.

Can I claim any expenses to decrease my tax liability?

Yes, you can claim all the maintenance and repair expenses from the property. If your property is in a condominium you also can deduct the condominium fee and other expenses that the condominium charges you, such as any extra fees for maintenance. You can also claim the yearly property tax (Council Tax) that you pay on the property.

What is the yearly property tax?

This is called IMI, and is a municipal tax. The rates are defined by the town hall. It is a tax on the property ownership.

And what is the basis for this tax? What is it paid on?

The IMI is paid on the fiscal value of the property. This value is an evaluation by the fiscal authorities. The value is fixed according to area, quality and comfort, location, date of licence to use the property.

Is this IMI paid once a year? How does it work?

Generally, the IMI is paid in two payments (April and October). However, if it is less than 250 euros, it has to be paid in April.

I have a mortgage on the property. Can I deduct what I pay to the bank?

No, you cannot deduct the mortgage payments. The mortgage payments are only deductable for primary residency.

And what about the insurance I am paying each month regarding the mortgage?

The only insurance you can deduct is the condominium insurance. You cannot deduct the insurance you pay for contents, or life insurance, or even civil liability insurance. You would deduct the life insurance if it was your primary residency.

In conclusion, the tax for rental income is fixed, non progressive. In the country of residence, you will have a credit on the tax you are paying in Portugal.

Pedro Simões can be contacted by emailing [email protected] or in confidence to [email protected] or by calling (00351) 219 205 225 or fax (00351) 212 468 352.