When I started looking for properties in Madeira, I didn’t know anything about the taxes and rules on the island. After a while and a few conversations with local friends, I found out what I had to pay in addition to the price of the house or property when buying it. Right now I’m in the middle of buying a small strip of land that is right next to my property and have to deal with paying taxes again. So I thought this might be a good opportunity to write down everything I know.
Taxes before signing the deed
Let’s say you’ve found the perfect property and you’re actually going to buy it. Before signing the deed, you already need to pay some taxes: the IMT tax and the stamp duty.
The IMT tax is what most of us know as the Property Purchase Tax and here they distinguish between permanent residents and non-permanent residents. You are going to count as a permanent resided if you are living in Madeira for at least 6 months a year. The tax-free limit (as of today) for the IMT tax is around 115.000 for permanent residents (I say around because I have found the limit of 115.509). Above this limit there is a scale up to 8% of the purchase price for a property purchase up to 717.903,75 Euro and there is always a deductible amount. I am not so familiar with the datails here because I was lucky enough to find a cheap piece of land. What I’ve heard however is that if the purchase price is above 717.904 Euro, the IMT tax is 6%. Also, if you are only buying land than your IMT tax is 6.5% – regardless of the purchase price.
In case you are a non-permanent resident like me right now, the scale is similar to the first one, except that the IMT is 1% even for purchase prices below 115.000, so there is no tax-free limit.
With this distinction between permanent and non-permanent residents this tax might seem a little complicated but it is not so bad. I think the important thing is to know the approximate amount and some of the numbers, and to have a realtor or lawyer who can then confirm or tell you the details.
The stamp duty (known as Imposto de Selo in Madeira) is 0.8% of the purchase price. This tax is in fact charged for pretty much anything regarding your real estate, including deeds, contracts and bank mortgages – so all legal affairs regarding your property.
Taxes when signing the deed
The notary and land registration fees are taxes that you have to pay to the notary for the work and the land registry in order to register your property in your name. These amounts vary depending on the price and location of your property but should in general not exceed 1.000 Euro. These are the taxes that are most important to you in the beginning. Later on, you will have to deal with more taxes.
In case you have a lawyer, then of course you will have to pay for his or her work as well. The price depends on the lawyer and what he or she is doing for you. I have a lawyer in Madeira who is allowed to buy land in my name, ask for documents, change documents, and many more things. For what I needed him to do in 2018 (which was a lot, starting from translating documents and requesting a fiscal number to checking the documents of the land I was buying and attending all the meetings) I had to pay in total 850 Euro.
Costs involved specifically when buying land
When buying land in Madeira, and especially when buying in rural areas, you may face additional costs on top of the costs and taxes mentioned above. The reason is that many of the lots are not properly registered and you will likely need to update the papers regarding the size of the lot you purchase.
Some background information: In rural areas, land is passed on from parents to their children, then to their children and so on. Therefore, quite often it has been a long time since the area of a particular land was measured and put on paper. Errors occur everywhere and they were not as precise back then as they are now, so this could be one of the reasons why the area of a land is not exactly what it claims to be on paper. Another reason has to do with taxes. When you own something in Madeira, you have to pay annual taxes based on what you own – which means based on the value of what you own. The smaller a piece of land, the less you have to pay. Do you see where this is going? Whatever the reason, in many cases the area of a property in the papers is not the actual area of the property.
Anyway, at some point you will want to put a house on your property and this is also the point where you really should update the area of the land you own. You will have to change the area in the tax services (Serviço de Finanças), which costs about 70 Euro per plot, and you will have to update the area in the land registration service (Conservatoria de Registo Predial) which costs around 20 Euro per plot.
Oh and there is also a reason I say per plot: I own 4 pieces of land. In all fairness this is not uncommon in Madeira where you are buying a property owned by many cousins, whose properties are all registered as one piece of land in the land registry. So I bought four lots and had to update them all and register them as one lot.
As you see, there are many different taxes and fees in Madeira and it is an advantage to know about them – or have a really good lawyer (let me know if you need the contact details of my lawyer). And by the way, in the picture above you can see Paul do Mar from above – just a short walk from my plot. Peace out, lotsa love, Hana.
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