In 2016, as part of the 2017 State Budget, an additional municipal property tax was approved called “Adicional ao imposto municipal sobre imóveis” (henceforth also referred as “AIMI” or “Additional tax”).

The revenue from this Additional tax is consigned to the Social Security Financial Stabilization Fund.

The regime of the new Additional tax determines the following:

• Who will be subject to this tax: 

Individuals, regardless of the citizenship and respective tax residence; companies, independent of their headquarters being located outside of Portugal; other legal persons (including undivided inheritances) who are owners, usufructuaries or superficiaries of urban buildings located in Portuguese territory.

In the case of undivided inheritances, the heirs can inform the Portuguese Tax Authority about each one’s share and avoid taxation of the inheritance as a corporate entity and be taxed on a personal basis, with the rules applicable to individuals.

• Calculation of the taxable base:

The additional municipal property tax is levied on the sum of the taxable asset values (VPT) registered on January 1st of the year to which the tax relates, of the urban properties located in Portuguese territory. This calculation is done per individual, company or entity and considers all the urban properties owned or similar located in Portuguese territory, except for urban buildings classified as “commercial, industrial or for services” and “others”.

• Tax rates:

AIMI has different tax rates depending on whether the owner is a company or an individual. 

In the case of companies, a rate of 0.4% is applied to the total asset value of urban residential buildings and construction land.

For individuals, the Additional tax comprises three tax brackets: 

• 0.7% tax rate on the sum of the taxable asset values (VPT) exceeding €600,000 up to €1m;
• 1% tax rate when the sum of the taxable asset values (VPT) exceeds €1m up to €2m;
• 1.5% tax rate when the sum of the taxable asset values (VPT) is above €2m.

In case of individuals with joint taxation, the value of the tax brackets double, per example, the 0.7% tax rate will be applicable on the sum of the taxable asset values (VPT) exceeding €1.2m up to €2m.

• Deadline:

The amount of the AIMI due is notified during June and should be paid only once during the month of September.

The value of the AIMI is deductible for Personal Income Tax and Corporate Income Tax purposes against rental income derived from the properties subject to the tax.

The qualification of this Additional tax as a wealth tax is not clear, neither consensual. However, when comparing to other countries who effectively have taxes identified as wealth taxes, this Additional tax shares many similar characteristics to those taxes.

Notwithstanding, for reference, the taxable asset values of the urban properties in Portuguese territory are not similar, nor close to the market value of the same properties. The taxable asset value tends to be three times, or more, lower than the market value of the property. Therefore, to achieve a minimum of €600,000, per individual without joint taxation, it would be required several high-level properties.

To sum up, despite the similarities with wealth taxes in other countries, perhaps this Additional tax is not yet prepared to be deemed as a wealth tax as the impact of applicable tax rates is much lower than those which are effective wealth taxes.