New Home in the Algarve – Do I have to pay IMI Local Council Tax?

Local Property Tax in Portugal – Who & When to Pay

Introduction

The IMI tax in Portugal is not the same as the council tax in the UK and other European countries, but it does serve a similar purpose in funding local services. 

As this year’s IMI tax is due for payment during this month, May 2023, in this article, we are outlining the IMI tax and also addressing the additional AIMI tax that may affect some properties.

The IMI tax is an annual property tax paid by property owners in Portugal. It is based on the property’s rateable value and funds local services, such as schools, hospitals, and other public facilities.

While the IMI tax does not explicitly cover police or refuse removal services, its revenue goes into the general funding pool for local services. 

This means that it indirectly contributes to the funding of these services, along with other sources of revenue such as central government funding, additional taxes, and fees.

The IMI tax in Portugal, also known as the Municipal Property Tax, is used to fund local services and is based on the rateable value of a property. 

Which Public Services Does the IMI Tax Cover

Municipalities use the revenue collected from the IMI tax to fund a wide range of public services and facilities, such as:

1. Schools and education
2. Health care services
3. Public transportation
4. Waste management and recycling programs
5. Urban planning and development projects
6. Public parks and green spaces
7. Cultural and sports facilities
8. Fire and emergency services
9. Social welfare programs and services

In summary, the IMI tax in Portugal funds various local services and facilities that benefit the community.

AIMI Additional Property Tax Explained

There is also an additional property tax called AIMI. This tax only applies to properties worth more than €600,000. The amount of tax you pay depends on the value of your property. For example, if your property is worth €1 million, you will pay 0.7% of the matter in tax.

AIMI bills are issued in July, and they are due in September. You may be fined if you do not pay your IMI or AIMI taxes on time.

Here are some tips for paying your IMI and AIMI taxes on time:

• Set a reminder in your calendar so you do not forget to pay your taxes.
• Make sure that you have the correct address for the tax office.
• Pay your taxes online or by bank transfer.
• Contact the tax office immediately if you cannot pay your taxes on time.

Check to See if Your Property is Exempt

Buying a house implies a series of charges concerning taxes, but there are situations in which taxpayers may be exempt from paying IMI. Know which ones.

Buying a house involves a series of charges, particularly concerning taxes. You must count on the Municipal Property Tax (IMI) payment in May every year—or at least part of that expense. IMI is calculated based on the property’s taxable value (VPT) and location.

The rates to be applied are set by the Municipal Councils within minimum and maximum limits:

· Urban Buildings – from 0.3% to 0.45% (or up to 0.5% in exceptional cases);

· Rustic Buildings – up to 0.8%.

What are the deadlines for paying IMI?

The IMI payment can be made at once, in May, or in instalments, depending on the amount of the tax. According to Article 120 of the IMI Code, the deadlines for paying IMI are:

If the IMI is less than 100 euros, the payment must be made in May in one lump sum.

If the IMI is more significant than 100 euros and equal to or less than 500 euros, the first instalment must be paid in May and the second in November.

If the tax to be paid exceeds 500 euros, the payment of the first instalment must be made in May, the second in August and, finally, the third instalment in November.

It is important to remember that, in all cases, you can settle the IMI immediately in May.

Who is the AIMI Property Tax Aimed at?

AIMI is an additional property tax that applies to urban properties. It’s important to note that this tax applies to everyone, regardless of where they live. The tax is calculated based on the rateable value of all a taxpayer’s urban properties on January 1st of each year.

If you’re an individual property owner, you’ll need to pay AIMI if the total rateable value of your properties is €600,000 or more. The total rateable value must be €1.2 million to trigger the tax for married or cohabiting couples who file joint tax returns. 

The tax is calculated at a rate of 0.7% on the sum of all rateable values over €600,000 and up to €1 million, 1% on the sum of all rateable values over €1 million and up to €2 million, and 1.5% on the sum of all rateable values over €2 million.

If you own properties through a company, you must also pay AIMI. In this case, you’ll be charged an additional 0.4% on the total rateable value of the properties. 

Suppose the company is registered in a ‘blocked jurisdiction’. In that case, which is a country or region that doesn’t meet specific tax transparency criteria, the company will have to pay 7.5% of the total rateable value of the properties as AIMI, in addition to the IMI charge of 7.5%.

AIMI bills are issued in July and need to be paid in September. If you have any questions or concerns about AIMI, contacting a tax professional who can help you navigate the process is always a good idea.

Our IMI/AIMI Tax Conclusions

Suppose you have already bought your Algarve property or are in the process of looking for your dream Algarve home. In that case, it is advisable to seek professional advice on all due payments needed to stay within the regulations of the Portuguese system.

At Gatehouse International, we have over 20 years of experience helping clients avoid unnecessary fines and judgements against their Algarve properties. If you have any questions regarding the legal terms and obligations of living in the Algarve, please do not hesitate to contact us.

For more information about the legal terms and their meanings, please read our Jargon Buster article that explains in detail the Portuguese terms and documents you may come across while living here in the Algarve.