Spain Versus Portugal



Portuguese Vs. Spanish Real Estate Property, taxes etc.

Property and income tax comparisons between Portugal Vs. Spain lower down page but, just to mention, if this quinta / villa property were just a few meters north (across the river / border in Spain), it would cost you up to 43,750 Euros a year in wealth (assets) tax alone; here in Portugal there is no wealth tax. Which is perfect for anyone that loves Spain but not Spanish wealth / worldwide income taxes.

On the subject of taxes, if you qualify as a Non-Habitual Resident in Portugal you will pay only 20% on earning derived from within Portugal and nothing on income derived outside Portugal providing the income is taxable in the other country where you earn it (even if they do not actually tax you on it).

Many people find the Spanish tax man / system very, if not too intrusive / grabbing regarding worldwide earnings. Spain has quite low thresholds for what is taxable outside Spain if you are resident there. If you are affluent or wealthy, you probably will not find the Spanish tax regime attractive. Living on the border just inside Portugal however, gives you the best of both worlds.

Living on the border, you can literally enjoy the best of both countries. For example, the healthcare, fish, restaurant food, clothes shopping, recreational facilities, cured ham and dairy products are far better in Spain. Chicken, fresh vegetables, bottled water, beef, fruit, video games (because the Portuguese versions also have English, the Spanish versions do not) preschools and soft drinks are much better in Portugal. The present owners sometimes buy wine in Portugal, sometimes Spain, depending on what offers there are. Many people here in Portugal buy petrol / diesel for their cars in Spain where it is cheaper.

If you operate a business across the river in Spain (it does not have to be a very big business, it could simply be an extension of your hobby, perhaps operated from a low cost virtual office), you would be able to buy a Spanish registered car in the businesses name and drive it legally for personal use in Portugal; a BMW 320D touring (estate / station wagon) costs €14,000 more in Portugal than it does in Spain (Spanish and Portuguese road taxes and insurance are comparable); see our Business page.

There have been some horror stories broadcast on British TV about foreign ownership problems, mostly in Spain. The reason is that many Spanish building permits had been corruptly issued for "rustic" category land, which they should not have been; you need "Urbano" land title for development / building. In Portugal such things are tightly regulated and no-one can get a building permit for rustic land; they have to change the land type (if it is possible) first. In Spain it is buyer beware; be sure your land title is "Urbano". In Portugal you can get a building permit for agricultural title land (the plot on which you build though has first to be upgraded to "Urbano") if you own over 5000 sqm of agricultural land or your land is in a designated development zone; again, in Portugal, your land title for the building itself must be Urbano.

On the other side of the coin and river when Spain does zone an area for development they often have little regard at city hall for what is adjacent to where you can build. Here in Portugal land and developments / buildings are carefully regulated for a number of reasons including environmental and communal. For example, the present owners have some land available to legally build a house but it has been made clear to them that the maximum number of storeys is two (including the roof section which can contain accommodation) and that any house must be a good distance from their nearest neighbour’s property so as not to steal light from their windows. Compare this with Salvaterra just across the border in Spain where 6 plus storey apartment blocks have appeared from nowhere and where little old ladies in their little old houses now have huge concrete blocks next to them; you do not see that the Portuguese side of the border.

Spanish Developments
Above, Spanish planning at its worse in Salvaterra, just across the river from the villa. Great, lots of new shops and restaurants for you to go to. Not so good for this houseowner who has 5 or even 6 storey apartment blocks now on every side. As recently as 2004 this road was all old single storey houses, now....... Which only goes to show you can not rely on the views from your house and grounds unless you own the land next door or it is protected by preservation orders and zone restrictions!

On the taxation side, Portugal is far more attractive than Spain. Especially if you want to take early retirement and raise a family off your savings; the fact Portugal does not tax wealth (assets in Portugal) is a major benefit. If the villa was in Spain, a buyer would have to pay up to 43,750 Euros a year wealth tax on the property alone! Capital gains on property and inheritance tax in Portugal are also much better (lower or non-existent) than Spain. In fact, the only tax to grumble about in Portugal is the (hidden) vehicle licensing fee (tax) which makes cars 30% more expensive then in Spain, but the EU has already mandated Portugal must drop this back door tax within the next few years. Will this simply get added to the tax burden elsewhere? Apparently not as Portugal is fast catching up on its income tax, municipal property tax (rates) and VAT cheats, so they are getting more tax revenues this way. Of course if you buy a villa in Portugal that is on the border with Spain, if you also register in Spain, you can of course buy yours cars over the border! As long as you are not Portuguese and as long as you have a Spanish ID card, the Portuguese tax police can do nothing unless they can prove the Spanish registered vehicle spends more than the 6 months allowed in Portugal.

Tax Type Spain Portugal
Wealth Tax 0.2 % - 2.5% pa Nil
Inheritance Tax 7.65% - 34% Nil (immediate family)
Non-Resident Property Tax 3% pa of property value Nil
Property Transfer Tax 6% to 7% “ITP” if property is not new (including stamp duty), 8% (VAT and stamp duty) if new. Land only is 17%. 6% “IMT” + 0.8% Stamp Duty for luxury properties, 6.5% IMT + 0.8% Stamp Duty for land only.
Property Capital Gains Tax Non-Residents: 35%
Residents: 15%
Non-Residents: 25%
Residents: 6% to 21% (less all legal fees and costs paid)*
Income Tax (Residents) 15% - 45% 12% - 42%
Income Tax (Non-Residents) 25% 25% / 15% on rental income
Municipal Property Tax (Rates) 0.4% to 1.1% 0.4% and 0.8%

Capital Gains Tax (Individuals)
Capital gains tax on property sales in Portugal for residents are treated as income and taxed accordingly. Tax breaks exist for Portuguese residents but not for non-residents that make it very sensible to be classified as "resident" when you sell any property! Home owners that have their principle residence outside Portugal pay a flat rate of 25% of their capital gains on any property sale in Portugal. Residents receive a 50% exemption before the gain is calculated along with any other taxable income. However, if your Portuguese property is your main / registered residence and you sell it, you can invest your sale proceeds including profit into a new principle address property without paying tax on the capital gains made on the old property (must be done within 2 to 3 years). If you reinvest less than the full sale amount of the former property, the taxable amount is pro-rated. In addition, you are able to offset your selling and buying costs (legal and moving fees), which brings down the maximum tax rate of 20% (50% of 42%) significantly.

Inheritance Tax
All immediate family members (spouse, children, grandchildren, parents and grandparents) are exempt from tax on transfers by way of gift or inheritance; anyone else is assessed tax at a flat rate of 10%.

Note: We have done our very best to accurately reflect the true tax systems of Spain and Portugal above, but we are not taxation experts nor financial advisors and you should ascertain the facts from a qualified source such as the local tax offices. This information was compiled from a number of other (credible) web sources in March 2009.

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