PORTUGAL - A BUYERS GUIDE
We hope you will find the information provided below an invaluable insight into the procedure and costs involved in buying a proeprty in Portugal. Please note that whilst we aim to be 100% accurate with the information we provide, you must satisfy yourself as to it's accuracy.
Initially.
Any property must be purchased through a government licensed Estate Agent, like our agents. We will guide and assist you through the buying process once you have found the property you wish to purchase. We also recommend that you take professional advice before entering into any contract from either a lawyer or financial advisor. In this respect, we do have our own in-house lawyers available to give you initial guidance on any aspect of the transaction, but it is also advisable to have an independent English speaking lawyer representing you throughout the purchase process.
Your legal advisor will require full information about the property, which we will provide. Taxes and legal fees are of course paid by the buyer and are based on the value of the property being bought. See buying costs for more information.
Non-Residents and Fiscal Representation.
You will need to apply for a fiscal number (número de contribuinte) from the local Tax Office (Finanças). This is a tax number, in the form of a card, and is required to open a bank account and pay the rates and utilities on the property.
Under current Portuguese legislation, it is mandatory in most instances for non-residents with income arising in Portugal to have fiscal representation. The Fiscal Representative is obliged to see that the non-resident meets compulsory compliance commitments. As the liaison between the taxpayer and the Tax Office, the Fiscal Representative can also help guide the non-resident through Portuguese bureaucracy.
Reservation Deal.
Once you have chosen a property and the purchase price has been agreed, we would ask you to sign a Reservation Deal, which simply confirms that you are a serious buyer and the seller will then take the property off the market.
At this stage, we would ask for a deposit (“sinal”) which is usually 10% of the purchase price. The deposit cheque is made payable to the seller, but remains in our office and is not presented for payment until all parties are ready to sign the Promissory Contract - usually up to 30 days after the reservation is signed.
Documentation.
At this stage your lawyer will get involved in the transaction, and you can give him Power of Attorney to sign the documents on your behalf, if you would prefer. He will obtain the following documents from the seller:
• Certidão de Teor confirms that the seller has title to the property, and advises whether there are any outstanding mortgages on the property.
• Caderneta Predial is held by the tax office and confirms the size of the property, its location and boundaries.
• Licença de Utilização is issued by the town council confirming that the description of the property is in accordance with the property you are buying.
• Plantas seller will provide plans of both the property you are buying and sometimes the whole development too. These allow both you and your surveyor (if instructed) to identify all parts of the property as planned and registered by the town council.
• Ficha Tecnica de Habitação a new document and applies to all properties built from 1st January 2004. This gives all the information about the property such as the builders’ details, the materials used and who supplied them.
• Seller identification is the identification document of the seller and will be provided to your lawyer along with his tax number.
Promissory Contract.
Once all documents are available (and normally these documents have already been obtained from the seller when the property was put on the market and listed in our books) both parties will sign a Promissory Contract. This is a legally binding contract between sellers and buyers and signed before a Notary. It is prepared by a lawyer and all agreed items will be specified clearly in the document to avoid future problems. It will include the following:
• The identification of the parties, and their representatives (if applicable).
• The identification of the property, its registration number, description, details of its Construction Licence and confirmation that there is clear title.
• The price agreed for the sale, including the form of payment.
• The amount of the deposit to be paid before the Final Deed is signed.
• The deadline for execution of the Final Deed (Escritura) and any conditions that the parties must meet before then.
• Usage of the property by the parties before the Final Deed is signed and whether the buyer may build on the property in the interim period.
• Whether interest is payable if there are any delays to the completion of the sale and the conditions in the event of default on the contract.
Upon execution of the Promissory Contract the deposit cheque is passed on to the seller and it will be presented for payment. At this stage, should the buyer default on the Contract, the deposit monies will normally remain with the seller, but if the seller defaults, he is required to refund the buyer twice the amount of the deposit.
Property Transfer Tax.
Prior to the Final Deed, the property transfer tax (IMT) must be paid at the local Tax Office. This tax can constitute a major cost for the buyer, to get an idea of the values involved please check our IMT cost page.
This tax has to be paid at least three days prior to the signing of the Final Deed once the original proof of payment has to be presented to the Notary during the act of signing the final deed.
Final Deed.
The Final Deed is also prepared by a lawyer and contains similar details to the Promissory Contract. Both parties attend at the Notary’s office for the public reading and signing of the document (which will of course be translated into English by us on your behalf) and the balance of the purchase price is then paid to the seller.
Stamp duty and registration.
Stamp Duty must paid at this time.
Finally, the property is registered in the name of the new owner at the local Land Registry. At this stage, you should contact the various utility companies and also the Tax Office in relation to the payment of general rates (IMI). The latter must be registered in your name within 60 days of the Final Deed, but we are happy to assist you in this regard.
General Buying Costs
Property Transfer Tax
This is now known as IMT, having replaced SISA tax on 1st January 2004. As of 1st January 2007 there are two separate rates to be applied, depending on whether you are buying a property for permanent living or a second or holiday home.
For permanent residents, the following table applies:
Value of Property Rate to apply Deduction
Up to €85,500 0% Nil
€85,500 - €117,200 2% €1,710
€117,200 - €159,800 5% €5,226
€159,800 - €266,400 7% €8,422
€266,400 - €532,700 8% €11,086
Over €532,700 6% Nil
* For example, if the purchase price is €150,000, the formula is: €150,000 x 5% = €7,500 less €5,226 = €2,274
However, for clients buying a holiday home, this table would apply:
Value of Property Rate to apply Deduction
Up to €85,500 1% Nil
€85,500 - €117,200 2% €855
€117,200 - €159,800 5% €4,371
€159,800 - €266,400 7% €7,567
€266,400 - €532,700 8% €10,231
Over €532,700 6% Nil
* For example, if the purchase price is €150,000, the formula is: €150,000 x 5% = €7,500 less €4,371 = €3,129
Exceptions:
• Other urban property, such as building plots or land to build an urban dwelling: 6.5%
• Rustic property (agricultural land): 5.0%
• When a company listed in one of the black-listed jurisdictions acquires a property in Portugal: punitive tax rate of 15%. (Note that if a company listed in a white-listed jurisdiction acquires a property, the same rates apply as shown in the table above)
Stamp Duty.
This must also be paid by the buyer on all deeds, contracts and financial transactions. This tax is levied on the value of each taxable deed or operation at a tax rate which varies according to the type of deed. For real property, this is assessed at 0.8%.
Legal fees.
These are usually between 1% and 1.5% of the purchase price, plus IVA at 21% (the equivalent of VAT). We can of course recommend a lawyer to you.
Property Tax - (IMI).
General rates are payable annually and are assessed by the local authority (rather like council tax in the UK). As a guideline your annual property tax may be levied at up to 0.72% of the market value, which is assessed based on five components:
• Construction area and implementation
• Type of usage
• Age
• Location
• Quality of construction
Extras.
Annual maintenance (called a condominium) is payable when buying an apartment or villa on a complex, which covers the upkeep of common areas, gardens, swimming pools, etc. This of course varies from property to property, depending on the level of service provided by the maintenance company. In addition, you will need to pay for insurance and utilities (gas, electricity and water). It is usual to pay for these services monthly, by direct debit.