Which property tax is fair?
If you’re looking to make money in Portugal, it might be time to rethink your investment strategy.
A new report has revealed that real estate is not only the biggest source of income for the country’s poorest citizens, it is also one of the least taxed.
The study by property experts at the Portuguese Institute for Social Research (PIES) found that only 7.6% of all Portuguese property is owned by the government.
This compares to a whopping 44.7% of UK property, and 47.7%, for Germany.
The country has an estimated GDP of $18.7 trillion and a GDP per capita of $19,743.
The tax burden for property is therefore a huge burden for the poorest Portuguese citizens.
“If you’re in the lowest 20% of earners, you’re paying more than the top 10%, if you’re above 20% you’re still paying less than the bottom 20%,” explains PIES research head Cristiane Bensch.
As a result, many Portuguese property owners are paying huge taxes on their property that they should have no part in. “
This means that, even if a property is being owned by a family member or a close relative, the government will not necessarily know who that person is.”
As a result, many Portuguese property owners are paying huge taxes on their property that they should have no part in.
“In order to save the real estate market, the property tax has to be changed, which means that property taxes are a huge problem for the Portuguese,” explains Bensh.
“Property taxes are not just on the property itself, they also have to be paid by the owner of the property as well.”
Benss is particularly critical of the current tax regime.
“For example, the tax on ownership of a single-family house is currently higher than that on a multi-unit property.
This is why the average household in Portugal pays much more than they should in taxes,” she says.
“Many people who have been paying taxes for decades are not aware of this, and the tax system is completely unfair.”
According to PIES, the real rate of tax on property in Portugal will remain at 22% until 2020, and then the rate will be raised to 24%.
This is a drop from the current 24%.
“The real rate will only be raised once a total of €7.5 billion has been earmarked for this purpose,” explains the report.
“And that will be in addition to the additional €1.6 billion of debt to be repaid in 2017-2018.”
As part of this restructuring, a new Property Assessment Fund will be set up to ensure that property owners pay their property taxes in full.
According to the report, this will not only save taxpayers money but will also make the property market more attractive to property developers.
However, Bens explains that, despite this, it still remains unclear whether this new fund will actually increase property prices.
“There is still a big question mark over whether the Property Assessment fund will increase the prices of property, since it is already very expensive,” she points out.
“A lot of people, especially property developers, are trying to make it as cheap as possible, but this has been proven to be very expensive for the real economy.”