In Portugal, cars - and other vehicles such as motorcycles, boats or airplanes - pay essentially two taxes.
One, called "Imposto Sobre Veículos" or ISV (Vehicle Tax), is paid only once when the vehicle gets a portuguese license plate.
The other, called "Imposto Único de Circulação" or IUC (Circulation Unique Tax), is paid yearly, for having a (circulation) license plate.
These taxes were implemented in July 2007, replacing "Imposto Automóvel" and "Imposto Municipal sobre Veículos", respectively. Previously, the vehicle tax ratio was focused on acquisition rather than property. With the 2007 vehicle tax reform, tax revenue was evenly distributed between property and acquisition, to spread the tax revenue influx, reducing severe impact from highs and lows in the automotive market.
The ISV for common cars is calculated considering two facts: engine cubic capacity (displacement) and CO2 emissions.
Both are declared by the manufacturer through a document called Certificate of Conformity or by the Department of Vehicles` (IMT or Instituto da Mobilidade e dos Transportes) Homologation file.
The math goes like this: (engine cc * tax per cc - fixed dedutible amount) + (CO2 g/km * tax per g/km - fixed dedutible amount).
There are three tax brackets for engine displacement and six tax brackets for CO2 emissions.
The purpose of these brackets is to charge significantly more tax if the vehicle has more cc or emits more CO2. The government official version is that ISV tries to tax the most polluting vehicles.
There are several tax reductions for several types of vehicles or owners.
Some vehicles` tax calculation doesn`t consider CO2 emissions. Hybrid or plug-in cars have a discount, electric cars don`t pay any ISV. There is a 500€ penalty for diesel vehicles that emit more than 0,002g/km of particles (meaning, all diesel cars without diesel particulate filter - DPF).
For example, cabs and car rental companies have tax breaks. The state itself and several other private institutions or individuals (firefighters, solidarity associations, persons with disabilities, diplomatic or UE staff) don`t pay any ISV on all or some vehicles.
ISV is owed for new and used vehicles. Used vehicles imported from an UE country benefit from an age discount, between 10% (up to 1 year) and 80% (more than 10 years), but only for the engine displacement tax component. Any used vehicle imported pays the CO2 tax component as if it was new.
Used vehicles imported from any other country (Switzerland or the USA for example) don`t get any discount and have to pay 23% VAT (IVA), on top of any other customs duty.
In general, ISV lets us be one of the leading countries in low car CO2 emissions. In everyday life, we have an underpowered car fleet. Cars with between 1.0 (gasoline) and 1.6 liters (diesel) of engine displacement represent the major share of cars sold.
We pay something like 500€~1.500€ of ISV for gasoline vehicles and 2.000€~4.000€ for diesel vehicles. Contrary to what these numbers may suggest, we are a diesel nation - fuel tax (ISP) is heavier on gasoline than on diesel and, corporate tax laws give more tax deductions to diesel than to gasoline.
IUC, the yearly tax, is based on the same principles. More cc, more CO2, more tax to pay.
Yet, there is a major difference between two classes of vehicles. Those that were registered before July 2007, benefit from a very low tax, because IUC was implemented on that date. Previous to IUC, average cars used to pay a yearly tax of just 10€~50€. After IUC was implemented, this yearly tax was increased to an average of 100€~300€. The most polluting vehicles, diesel +2.500cm3 and +250g/km CO2 pay something like 1.000€ every year.
IUC is payable up to the end of the month of the license plate. Example: if a car gets its license plate on 8th March 2017, one must pay IUC until 31st March in any given year. Nonetheless, IUC is due yearly, only its payment is distributed along the year, to avoid payment peaks or last minute rushes.
There is no longer a "tax paid stamp" that you need to put in the car. The police and transit authorities don´t have any legal grounds to require any proof that the tax was paid. If you pay or not, it´s only a matter of business between you and Autoridade Tributária (Tax Authority).
The tax is calculated considering the same figures of ISV calculation: engine cc and CO2 emissions. There are two tax tables, one for each figure. Then, there is a coefficient factor to penalize younger cars. From 2017 there is also a new additional surtax for cars with more than 180g/km of CO2 emissions.
Diesel cars also pay a surtax. This surtax was meant to be temporary but, until now, it prevails.
There are tax breaks for some persons (disabled) or entities (state vehicles, solidarity associations, etc.).
The tax is due until one cancels the vehicle`s license plate, meaning, it´s a tax for life.
There is a common confusion among imported used cars regarding IUC. The tax is payable, as mentioned above, until the end of the license plate´s month.
But, some years ago, because we were importing too many used cars from UE countries (Germany mainly), there were concerns that these vehicles didn´t match the wanted vehicle profile that Portugal was supposed to have. Let´s say it another way: we were importing too much junk. So, the government changed our license plates layout to add a yellow side strip that mentions the month and year of the first license plate of the car, be it portuguese or not.
So, today, we have a tax that´s payable until the end of the portuguese license plate´s month but, in the physical license plate, the one that you find in the car, you can have a completely different month.
Moreover, you can have a 2005 car, that was imported in 2010, that will be paying IUC as a portuguese 2010 car (the tax´s higher), and not a 2005 car, because the IUC is payable according only to the portuguese license plate.
The only place where you can check the portuguese licence plate date is in the DUA (Documento Único Automóvel - we have some affection for initials), the vehicle registration certificate.
Yet, the confusion´s not over. The national vehicles registry database is the one used by the "Autoridade Tributária" (Tax Authority) to notify owners and collect IUC.
Up until the tax reform, this database was a mess because there was no proper incentive or penalty to update it. Cars would exchange hands and the registry wouldn´t be updated because it would cost money, cars were scrapped and the license plate wasn´t cancelled because it would cost money. It was cheaper to avoid any new registry. So, from 2007 to today, owners that are no longer owners are getting tax notifications to pay, for vehicles that they don´t have for years.
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