Portuguese Tax Authority Closes IMT Exemption Loophole for Horizontal Property Conversions
The Portuguese Tax and Customs Authority (AT) has adopted a stricter interpretation of the tax code that effectively eliminates a key tax benefit for real estate developers and investors involved in property resale. According to a recent clarification reported by Jornal de Negócios, the exemption from the Municipal Tax on Onerous Property Transfers (IMT) for entities that purchase real estate for resale will no longer apply if the property is converted into a horizontal property regime. This change means that if a developer buys a building and subsequently divides it into individual apartment units for separate sale, they will retroactively lose the tax exemption on the initial acquisition. The ruling specifies that this loss of exemption is particularly certain if the division process results in an alteration of the property's official Taxable Asset Value (VPT).
This new understanding from the Fisco (tax office) considers the act of creating a horizontal property a "deviation from the initially intended purpose" of simple resale. The AT's position is based on legal changes introduced in the 2023 "Mais Habitação" (More Housing) package by the previous government. As a result, entities that followed this common development model will now face an obligation to pay the full IMT amount on the original purchase, plus any applicable interest. This represents a significant financial adjustment for many ongoing and future real estate projects across Portugal, especially in urban centers like Lisbon and Porto where such conversions are prevalent.
The IMT Code traditionally allows entities "normally and habitually" engaged in the business of buying and selling real estate to benefit from an IMT exemption at the time of purchase. This benefit is contingent on several conditions: the entity must be properly registered for this activity for tax purposes (IRS and IRC), it must prove a history of reselling properties in the prior two years, and the acquired property must be resold within one year. A crucial, and now more narrowly interpreted, condition is that the property cannot be given a "different purpose" before its resale.
The AT's stance effectively reclassifies the division of a building into fractions as such a "different purpose," fundamentally altering the financial calculus for investors. This policy shift will require developers to either absorb a significant new tax cost, potentially impacting the final price of the renovated apartments, or to reconsider their strategy of dividing buildings into individual units. The decision underscores the evolving regulatory landscape for real estate in Portugal and highlights the importance of careful tax planning in property investment strategies. Navigate Portuguese property regulations with expert guidance at realestate-lisbon.com.
