The decision to buy Property in Portugal should be immediately followed by making contact with a lawyer who will be able to advise you of all the formalities and costs involved and assist you in the process of purchase before you make any commitment. The process will be different depending if you acquire a property or if instead you acquire the shares in a corporation that owns the property. In both situations however your lawyer will be able to make the appropriate checks in the relevant departments such as Land Registry, tax department and County Council. If Property is owned by a Corporation your lawyer will have to further undertake due diligence on the Company, investigating the legal and tax situation of the company trying to obtain as much current and historical information as possible.
Once these searches are completed to yours and your lawyer satisfaction, it is time to commit yourself by either signing a:
- promissory contract of purchase and sale – if you are buying the property or a
- share purchase agreement if you are buying the shares of the corporation that owns the property
To buy Property in your individual name, you need to obtain a fiscal number but your lawyer can advise and assist you on this.
In both situations a deposit (usually 10% but parties can agree otherwise) is paid at this stage. When you are buying a Property the deposit is to be paid to the Vendor. When you are buying the shares in a corporation it is advisable that the deposit is kept by the vendor’s lawyer pending completion or a security for the money paid should be obtained.
In the promissory contract and in the share purchase agreement all conditions of the transaction shall be stipulated including the identification of the parties , of the property , price, payment conditions, time limits to complete the purchase , penalties for breach of contract , eventually guarantees as well as any other relevant conditions of the transaction . In a share purchase agreement will further be identified the Company, its officers, shareholders and beneficiaries and given by the Vendor warranties and indemnities regarding the status of the Company.
These contracts can either be signed by you if you are available or you should give a power of attorney to your lawyer so that he/she can represent you in the signing not only of the promissory contract but also of the notarial deed and or of any other documentation required for completion of the purchase.
Once you have signed the promissory contract of purchase and sale or a share purchase agreement, you have a legally binding contract. In accordance with Portuguese law if to the first instalment (s)of the price paid is given the nature of a “sinal” it is considered by law that the penalty should the Buyer definitively defaults and fails to complete the contract as agreed, is the loss of the amount paid . If however the definitive default is on the Vendor he will have to refund in double the amount received. Parties can agree in the contract that in case of breach instead of the penalty above they can apply for specific performance of the contract in courts.
The Completion procedure will vary depending if you are buying a Property or a Corporation as follows:
- Buying a Property– prior completion you have to pay, transfer tax (IMT) and Stamp Duty (at rates as mentioned below) and notary and registration fees on completion. The purchase shall be formalised through either a notarial deed signed at a notarial office and in the presence of a Notary, through Casa Pronta entity linked to the Land Registry office or through a private contract which can be executed by a lawyer although this is not common practise. At this stage further checks are made to make sure all in order with the documentation of the Property and of the parties and that there has been no alterations since signing of the initial contracts , that taxes are paid and all formalities and requirements met. Final deed of purchase and sale or contract of sale is executed, verified and read out loud to the parties (or their representatives), and signed upon payment of the balance of the purchase price to the Vendor.
Once the deed or contract of sale is signed the transfer of the Property to the Buyer takes place. The original of this document remains where the transaction is completed and is officially recorded there. Authenticated copies can be obtained at any time. Immediately after signing the deed or contract of sale a copy of the document should be lodged at Land Registry Office to register the change of ownership and such change should be communicated to the tax authorities.
- Buying a Corporation– The process will take place at the lawyers offices where all documentation will again be verified and necessary forms / instructions to transfer the shares in the Company shall be delivered to the Buyer or his representative together with all other documentation of the Property and Company as mentioned in the share purchase agreement and balance of the price paid. Your lawyer will then coordinate with the company managers, wherever they are located, the process of formalising the transfer of the shares. The purchase of shares in a non Portuguese resident Company by a non Portuguese resident will in principal not attract payment of taxes in Portugal hence being a vehicle very often used to acquire properties here.
- Taxes plus notary and registration fees :
- IMT – If you buy Property you have to pay transfer tax in accordance with the nature of the Property and rates below based on the sales price or on the rateable value in the unlikely possibility of this being higher than the purchase price.
- Properties for non permanent habitation
|Price of Property||Tax||Value to Subtract|
|0 – 92 407.00 €||1%||0.00 €|
|+ 92 407.00 € – 126 403.00 €||2%||924.07 €|
|+ 126 403.00 € – 172 348.00 €||5%||4 176.16 €|
|+ 172 348.00 € – 287 213.00 €||7%||8 163.12 €|
|+ 287 213.00 € – 550 836.00 €||8%||11 035.25 €|
|+ 550 836.00 €||6%||0.00 €|
- Plots of land for construction, Comercial properties and others –rate of 6.5%.
- Rustic land –5%
- Stamp Duty – Paid by the purchaser simultaneously with the IMT above at a rate of 0.8% of the purchase price.
- Notary fees – between € 500,00 and € 900,00 depending on the Notary and value of the purchase and registration fees;
- Registration – € 300,00 to € 350,00
1.1 Charges for professional fees
- a) Lawyers’ fees are generally around 1% of the agreed property purchase price; however this is to be agreed between the buyer and the appointed lawyer and will also depend of the nature and complexity of the transaction.
- b) A surveyor´s fee (if required) will depend on the location size and type of property and type of survey to be carried out. Shouldn’t exceed € 700,00 .
ANNUAL PROPERTY TAXES
IMI – Municipal Property Tax. IMI is the annual property tax levied on all properties and based on its rateable value at the rate of between 0.2% and 0.5%. This tax is paid in April, July and November and refers to the previous year. Each local Council has the right to annually fix the rate applicable to properties’ located in its jurisdiction within the above mentioned rates. The rateable value is calculated using a coefficient that takes in account the year of build, construction area, location and amenities –In the Loule Council area this rate is currently at 0,39% of the rateable value.
If you buy the Property to use it for your primary residence you can be exempt of the payment of this tax for a certain number of years but have to apply for this benefit
Stamp Duty – for properties which rateable value exceeds 1 million Euros an annual stamp duty tax is applicable at the rate of 1% payable in instalments together with the IMI tax mentioned above .
Capital Gains Tax (CGT) – Is due in Portugal on the profit you make when selling a Property and is calculated on the difference between the purchase price of the Property and or duly invoiced construction costs, as applicable, duly index linked or its first rateable value index linked whichever is the highest and the sales price. Non-resident individuals pay a flat rate of 28% and non-resident companies 25%.There are other costs that you can use to offset against this tax such as invoices of certain refurbishments made to the property in the past twelve years, taxes, notary and registration fees paid at the time of acquisition of the property, and the real estate agent fee. For residents, the gain is taxed in half but added to your annual income so the final rate will depend on your final income. Being resident in Portugal and the property you are selling your main residence if within 3 years you reinvest totally or partially the proceeds of the sale in the acquisition of another main residence in the EU you can be exempt of CGT or have your bill reduced depending on the amount you reinvest .
Inheritance tax- not presently applicable in Portugal to inheritance occurring between close relatives i.e. parents/children and spouses however on gifts even between close relatives you have a 0,8% stamp duty based on the rateable value of the property. Any other situations of inheritance or gift are subject to an extra stamp duty at a rate of 10% of the VPT.
Fiscal Representation – Compulsory to appoint a Portuguese resident to be the fiscal representative of any non EU citizens or entities buying property here. The fiscal representative will be responsible for your tax affairs and will be the person/entity to whom tax authorities will address any communications. Not compulsory although advisable for EU citizens.
Please note this is general information and for specific advice you should contact a lawyer or tax advisor.