Whether a resident of Portugal or not, understanding the capital gains taxation rates is important – it might be higher than you expect. Even for those with the NHR status (the old one, not the new) it’s important to understand the capital gains taxation rates in Portugal, compared to receiving capital gains from foreign-sourced income.
What we tend to see is that individuals proceed with a house sale in Portugal, or in their home country, without thinking about the overall capital gains rules. And anyway, as a Portuguese tax resident that income needs reporting on your tax return.
So whatever you do, read through this article first to get an understanding before you do anything with the sale of capital gains!
Capital gains rates for residents
To be classified as a resident of Portugal, specifically a tax resident, your Portal das Finanças address is located in Portugal, or you’ve spent more than 183 days in Portugal – which deems you a tax resident. So firstly, you need to determine whether you’re a resident of Portugal, or not.
As a resident of Portugal, capital gains are typically taxed at a flat rate of 28%. Gains from movable property, like house or land, is taxed at the progressive rates in Portugal. However, certain rules can apply such as; if you’re selling immovable property then only 50% of the gain applies, and you could consider reinvesting the proceeds into a new residence – within a specific timeframe.
Although, if we’re speaking about capital gains from foreign-sourced income then the rates differentiate a little, as long as it’s in relation to immovable assets. For example, considering that the UK and Portugal have a Double Taxation Agreement, individuals won’t be fully taxed on capital gains from abroad. To explain this in more detail, let’s say you pay 24% in the UK and then as a Portuguese resident this sale must be declared on your Portuguese tax return (since you have to declare worldwide income), and so you’d end up paying the difference – 4%.
It’s of course best to speak with our experts about this so they can give you a more outlook about the overall taxation rates.
Capital gains rates for non-residents
Similarly to the previous paragraph, you first need to consider if you’re definitely considered as a non-resident of Portugal. Because if not, you might be in for a big shock when dealing with capital gains.
As a non-resident of Portugal, generally moveable capital gains are taxed at a flat rate of 28% on the full amount of capital gains from the sale of Portuguese assets, such as a property. But again, if you’re lucky enough to live in a country that has a DTT agreement with Portugal, then whatever is paid in Portugal should be offset against the rate paid in your home country. But again, speak with our team for full and final confirmation.
Why this matters on your tax return
As briefly mentioned in the previous paragraphs, in Portugal you must declare your worldwide income. And so, if you’re a resident of Portugal that dealt with capital gains in another country this gain must be declared in Portugal; and the taxation rate will be applied based on the rules between both countries. So, before proceeding with any type of capital gain sale, as a Portuguese resident, speak with our team about the best tax efficient planning method.
Whilst we understand that you may have paid capital gains tax in the country of source, you must remain compliant in Portugal. Otherwise, you’ll start to place your assets at risk of being seized – yes, we have seen this happen before.
Should you need to declare capital gains on a tax return in Portugal, there are some exclusion rules. The below rules apply to moveable assets publicly traded, such as shares and ETFs:
- 10% exclusion: for assets held for over two years but less than five;
- 20% exclusion: for assets held for five years or more, but less than eight;
- 30% exclusion: for assets held for eight years or longer.
Essentially, the longer you hold your investments, the greater the potential tax benefit on your return. Keeping these timelines in mind is key to optimising your tax strategy – again if you need help planning, speak with us.
Primary residence reinvestment
For residents of Portugal, and as mentioned in the first section of this article, primary residence reinvestment affects how capital gains are taxed.
There are some circumstances under which the gain may be wholly or partially exempt, as long as the taxpayer’s primary residence was held for 12 months and the sale proceeds, reduced by outstanding loans relating to the purchase of the property being sold, are reinvested in the acquisition, improvement, or construction of another primary residence in Portugal – or within the European Union – within 36 months from the sale, or in the period of 24 months previous to the sale.
There might also be other exemptions that apply from capital gains arising from the sale of real estate, and so it’s ideal to speak with our team to put a plan in place – before proceeding with a sale.
Capital gains on non-property sales
Generally, capital gains are taxed at a flat rate of 28%. Although, only 50% of the capital gains from the sale of shares in unlisted micro and small companies are subject to taxation.
As of 1 January 2023, the positive balance between capital gains and losses from the transfer of shares and other securities must be aggregated if two conditions are met:
- The assets were held for less than 365 days;
- The taxpayer’s taxable income, including this sale, is EUR 86,634 or more.
These rules also apply to the balance of capital gains and losses subject to the higher 35% tax rate, which is applicable in countries, territories, or regions with significantly more favourable tax regimes.
What happens if you have the NHR
Since applications for the Non-Habitual Resident (NHR) regime officially closed on 1 January 2024, your ability to benefit from its tax advantages now depend on your status before this deadline. You generally cannot apply for the NHR unless you were either:
- Already registered under the NHR by 1 January 2024;
- Met all the conditions for NHR registration by 31 December 2023.
If you don’t fall into these categories, it may be worth exploring the Tax Incentive for Scientific Research and Innovation (IFICI). While its benefits differ from the NHR, it could still be advantageous for your situation.
Although for those who successfully obtained the NHR, a tax exemption is applied to foreign-source income, such as capital gains, as long as certain conditions are met – plus it’s useful if the country of course has a DTT agreement with Portugal. In most cases, capital gains from the sale of securities in Portugal are taxed at a flat rate of 28%. Additionally a flat 10% rate applies to foreign-source pensions, and other payments from retirement funds.
Whilst the NHR is advantageous, it doesn’t necessarily help towards capital gain sales in Portugal. That’s why it’s important to plan ahead of you, and make proper use of the NHR – to your full advantage.
How RHJ Accountants can help
Aside from breaking down each consideration of capital gains rules, in Portugal and beyond, most importantly our team can help you create an effective tax plan before any type of sale is conducted. So, make sure to speak with our team before doing anything.
However, if you have already proceeded with a capital gain sale and need it including in your Portuguese tax return (by the way, you only have until 30 June 2026) then our team can help; and we’ll do it in the most tax advantageous way possible.
