After a 2016 quite robust in terms of real estate investments in which it was possible to perform transactions that amount to 1,300 million euros (from which 86% of the total investment had origin on foreign capital), almost at the end of the first quarter of 2017, the growing rate does not seem to slow down.
It is now a great opportunity to recall some possible tax benefits applicable to real estate investments:
If the purpose of the acquisition of a building it is to further sale it within a deadline of 3 years, there is a benefit of no application of real estate transfer tax (“RETT”). Furthermore, the law also foresees the possibility of not applying an annual property tax (“IMI”). Usually for commercial buildings the applicable RETT rate is of 6.5% of the purchase price, while the annual “IMI” rate may vary between 0.3% up to 0.45%.
In case the focus is a project of urban refurbishment, additionally to the tax benefits for “RETT” and “IMI”, the law also foresees the application of a reduced VAT rate on the construction and refurbishment services. Currently the reduced VAT rate applicable in Portugal is of 6%.
If the seller is under an insolvency procedure, the law also foresees exemptions for the purchaser regarding “RETT” and Stamp Duty (another tax which is regularly applicable to real estate transactions). The most regularly applicable Stamp Duty rate is of 0.8% on the purchase price.
If the target of the transaction is a building with the status of touristic utility, the Portuguese tax law foresees benefits regarding “RETT”, “IMI” and also Stamp Duty.
Moreover, it is worthwhile to recall that the Corporate Income Tax rate currently applicable in Portugal is of 21%.
For completeness, there are other situations which can certainly make the difference when structuring a real estate investment project. All of them should be considered on the preparation of any transaction.