How Can I Save on IMT Tax?
What is IMT?
Municipal Tax on Onerous Property Transfers or also known in real estate slang “IMT” is a municipal tax that is imposed on property transfers in all Portuguese territory.
The IMT is taxed on the Taxable Equity Value (also known in Portuguese as the VPT) or on the effective sale value of the property, whichever is greater. To calculate the IMT it is necessary to take into account 3 important characteristics of the property:
The type. Is the property urban or rustic? Urban has a higher IMT vs. The rustic property.
Property location. IMT value in Madeira and Azores is lower than on the mainland.
Purpose of the property. If the investor classifies the purchase for its permanent own housing it has, in some cases, exemption/reimbursement of the value of IMT vs. if he/she decides to classify the purchase as secondary housing.
What are the exemptions?
To encourage the transaction and reduce the tax burden on property transfers, the financial and municipal authorities have implemented certain exemptions that allow investors to save a large amount of money at the time of purchase/sale.
The main exemptions are as follows:
Acquisition of real estate for resale. If an investor is buying a property, doing some refurbishment works (although not mandatory but normally the case) and then resell the unit there is the possibility of exemption of the IMT value if the initial purchase and then the resale is made in the same calendar year.
Acquisition of properties for urban rehabilitation. In these cases, there is a refund of the amount of the IMT applied if the investor decides to submit an architectural project to rehabilitate the property.
Acquisition of buildings or autonomous fractions where the destination is of touristic use. Very common in the cases of investors who choose to build small “guest houses” or even local accommodation. Here the amount is also refundable after the deed.
It is also important to bear in mind that there are certain requirements to obtain a direct exemption. In the case of property rehabilitation, for example, exemption from IMT at the time of purchase is only verified if the individual investor is classified in Category B of the IRS. In the case of investing in a personal name, classified in Category G of the IRS, the investor is required to pay IMT on the transaction with no possibility of future refund. Always, check your financial advisor or lawyer so that you can reduce your tax payments to the fullest.
It is very important for the investor to take into account the purpose of the real estate investment in order to be exempt from IMT, after all, nowadays, an exemption from this tax can mean a reduction on average of 6% in the cost of buying a property, something that all investors will be willing to save at the time of purchase!