The proposal was announced by the country’s finance minister Mario Centeno last week during the 2017 budget and means that Portuguese properties worth more than €600,000 will be taxed at annual rate of 0.3%.
The allowance applies per individual, so a married couple would only face a tax on any jointly-owned properties over €1.2m.
An initial vote on the budget is scheduled for 4 November and if approved, the tax will replace an earlier and much more stringent stamp duty system that applied a 1% charge on homes valued above €1m. The stamp duty was scrapped by Centeno during Friday’s budget announcement.
Set to go live on 1 January, the new levy will be part of Portugal’s IMI council tax system which is based on a local authorities calculation of the property’s tax value – known as Tax Registration Value (TRV) – rather than its market value.
In most case, the TRV is at least 30% below the market value of a property.
Portugal’s government hopes the new duty will bring in €160m a year to the treasury coffers.
The move comes as country’s real estate market, hit hard by the 2008 financial crisis, showed signs of a strong recovery, with average property prices recording an increase of 6.3% during the second quarter of 2016.
However, prime minister Antonia Costa, is still struggling to deal with stagnant growth, high levels of debt and a fragile financial sector – stoking fears the country could be forced into a second international bailout.
Last month, Mariana Mortagua, an MP in the coalition government, said the tax will only affect the “wealthiest 1%” of the population or 43,000 taxpayers.
The wealth tax may damage Portugal’s reputation as a “tax haven in the sun” following efforts to attract wealthy expats and their families from the rest of Europe.
NHR programme
In January 2009, it introduced the non-habitual residency (NHR) programme which allows individuals who move to Portugal for the first time to qualify for beneficial tax treatment for a period of 10 years.
Under the system, a special tax rate of 20% is applied to employment and self-employment income derived from a “high value-added activity” carried out by for example, doctors, engineers, tax advisers, dentists, computer consultants and medical researchers.
There is also tax exemption for other foreign-source income (pension, rental income, capital gains, interest, dividends, as well as other investment income), provided certain conditions are met.
