The main Portuguese cities, namely Lisbon and Porto, are changing, are being renewed. And never saw so many real estate to be targeted for improvement works. A bet on urban rehabilitation that is also due to the tax benefits currently existing in the country. In this guide, we’ll show you seven tax benefits you need to know.
- IRS: collection deduction
For owners, the deduction of collection, up to the limit of 500 euros, is 30% of the costs incurred related to the rehabilitation of real estate located in “urban rehabilitation areas” and recovered in accordance with their rehabilitation strategies or rental properties capable of phased updating of incomes under the terms of the New Urban Lease Law.
- Capital gains;
The capital gains earned by single residents are taxed at an autonomous rate of 5%, with the option of encompassing them, when they are entirely due to the sale of real estate located in an urban rehabilitation area. This tax benefit is significant in view of the fact that the capital gains on the sale of real estate are included in the other income of the taxpayer, applying the general IRS rates.
- Property income;
Property income earned by individuals resident in Portuguese territory is taxed at a rate of 5%, with the option of incorporation, when they are entirely derived from the lease under the conditions described above. It is recalled that the general rule of taxation of property income is the application of an autonomous rate of 28%.
- Municipal Property Tax (IMI);
Urban buildings subject to rehabilitation actions may be exempted from IMI for a period of five years from the year of completion of rehabilitation. The exemption may be renewed for an additional period of five years.
- Municipal Tax on the Real Estate Transfer (IMT);
Exemption from IMT for a period of three years from the year of issuance of the respective city license. Acquisitions of urban buildings for urban rehabilitation also benefit from exemption from IMT, provided that, within three years from the date of acquisition, the acquirer commences its works. It should be noted that these exemptions are dependent on recognition by the city council of the area of the situation of the building, after completion of the works and the issuance of urban certification and energy certification.
Urban rehabilitation works carried out in real estate or public spaces located in areas of urban rehabilitation or in the scope of rehabilitation and/or rehabilitation operations of recognized national public interest benefit from the reduced VAT rate of 6%. The municipality has yet to certify that it is a rehabilitation area. There are, therefore, two conditions: first, that the work is located in a rehabilitation area defined by the municipality or municipal company and the second that the enterprise qualifies as rehabilitation certified by the autarchy.
- IMT exemption and tax benefits for forest real estate assets;
In order to encourage the creation of Forest Management Societies (FGMs) that foster the professional use of the forest and improve the profitability of forest assets, the Government will approve exemptions from IRC payments on the profits that these entities will register.
Also, the acquisition of buildings by these companies will be exempt – temporarily, until the end of 2019 -, being exempt from the payment of the IMT and the stamp duty. And more: the costs associated with the realization of acts of registration of land acquired by SGF will have a reduction of 75%.
Among other measures, a public land bank will be launched that will integrate the state’s rustic heritage and unfamiliar agricultural and forest land. These unowned lands will be owned by this bank and, if they are not claimed, will be held by the State.
As regards SGF, they may be born in the form of commercial companies or cooperatives, made up of different types of members, such as owners, forest producers, investors and local authorities. They will also have tax benefits if they decide to join the SGF, which includes reducing IRS or IRC taxation by 10% on the profits they will receive. Or the reduction of 50% of the payment on the capital gains arising from the disposal of shares of these entities, the publication writes.
In order to accelerate the revitalization of the SGF, a set of temporary tax benefits (until the end of 2019) was launched for owners who decide to cede their forest lands to these entities: they will have a 50% Property income if they decide to rent or a 50% reduction of the payment on the capital gains arising from the sale of these lands to these companies.
However, the municipalities, in the allocation of forest areas through the Land Bank, will take precedence over the private ones if their business plan is better.
To professionalize this management, the Government will oblige each of these companies to manage a minimum area of 100 hectares. But to ensure that they contribute to the joint management of the smallholdings will require the SGF that at least 50% of the rustic buildings that they manage have a size smaller than five hectares.