If you are thinking about buying your first property in Portugal, it may at first seem a little daunting. Have a look at our quick guide below to give you an idea of what the process entails.
The Process in Detail
Whether you have arranged a Letter of Intent or not, there are a number of legal procedures to complete ahead of the Promissory Contract. Technical due diligence should also be carried out, but an offer may be made (or the preliminary agreement may be executed) subject to a condition that such investigations will not reveal any material issue or defects. This is often the case where the buyer is generally satisfied with the result of a preliminary due diligence and only a few aspects need to be investigated or finalised.
Document Checklist
It is important that the following legal documents are verified. These can be handled by your lawyer, who will make searches to confirm that the property registered conforms to the building and plot being sold, and that the vendor has clear title of ownership and no one else has rights, charges or mortgages over the property.
Fiscal Number
For a non-resident buyer of property in Portugal, it is mandatory to have a Portuguese Fiscal Number from the local tax office. This Number will be used to open a bank account and will appear on documents relating to the purchase of the property and associated taxes.
Use Licence
All properties constructed after 1951 need a Use Licence stating what the building can be used for. This also confirms that the property complies with planning permission and building regulations. If the property was in existence prior to 1951, a certificate to state this must also be obtained.
Technical Habitation Certificate
This is a mandatory document regarding properties destined for residential purposes completed after March 2004.
Land Registry Certificate
Issued by the Land Registry Office.
Tax Registry Certificate
Issued by the Tax Office.
Energy Certificate
This is a legal requirement and serves to certify the energy performance of the property.
Promissory Contract
Once an offer has been made and accepted, a Promissory Contract is typically drawn up between the owner and the buyer. This sets out the terms of the transaction, such as the identity of the owner, a detailed description of the property and land boundaries, registration and tax numbers, purchase price, deposit and date of completion. It is usually prepared by the purchaser’s lawyer and might include conditions such as completion of any building work or building permits. The Contract secures the purchase until the sale is concluded. Signatures must be authenticated by a notary or lawyer. At this point, the buyer pays a deposit, usually between 10% and 30% of the purchase price.
Portuguese law protects both parties in case one fails to fulfil any contractual obligation. If the buyer fails to complete the purchase, they risk losing their deposit. If the owner fails to complete the sale, they must repay twice the amount of the deposit. The parties may also agree to subject the Promissory Contract to ‘specific performance’ in the event of a default. This requires legal action so that the other party fulfils the contract (insist on the sale being completed rather than gaining compensation).
Real Estate Transfer Tax (IMT) & Stamp Duty
Two taxes must be paid before completion: the Portuguese Real Estate Transfer Tax (IMT) and Stamp Duty.
Urban property used exclusively for residential purposes: up to 6%*
Rural property: 5%
Urban property not intended exclusively for residential purposes: 6.5%
Property purchased by a company resident in a tax haven: 10%
* Progressive rate due on either the tax value of the property (as set by the Tax Department) or the acquisition price, whichever is higher. Online calculators are available; the official one is http://apemip.info/info/IMT.cfm
Stamp Duty
Onerous or free transfers of ownership or parts thereof: 0.8% of the value of the transaction or value of the property, whichever is higher
And
1. When you inherit a property;
2. When a property is a donation from someone (spouses, descending and ascending relatives who inherit a property or who are the beneficiaries of a donation are exempt) 10% Stamp Duty is payable
Completion
To complete the sale, the buyer must show proof of payment of IMT and Stamp Duty. All parties involved in the purchase/ sale must attend, unless the buyer or seller grants power of attorney for another party to act on their behalf, often their lawyer.
The balance of the purchase price is paid and the notary records the transaction in the official record. Once the deed and all other associated transactions are complete, the (new) owner must register the acquisition (definitively, if the Promissory Contract was signed and registered before) at the Land and Property Registry Office, to ensure the transfer of the ownership and the legal proof of ownership.
To develop commercial buildings or carry out large construction projects, usually a protocol of agreement between the Town Hall and the developer is required. It is advisable to request previous confirmation from the Town Hall, in order to ensure the successful implementation of the project.
Corporate Ownership
It is also possible to acquire property indirectly through an equity stake in an investment vehicle owning such property – often done to mitigate tax consequences.
Ongoing Costs of Ownership
IMI: REAL ESTATE TAX The IMI tax is based on the rateable value of the property as set by the Tax Department. The rate varies from 0.3% to 0.8% a year.
Urban property: 0.3% to 0.45%
Rural property: 0.8%
Property owned by residents in certain off-shore jurisdictions: 7.5%
ADDITIONAL IMI (AIMI) The IMI surcharge (Adicional ao IMI), is due by individuals and companies that own urban real-estate properties located in Portuguese territory. However, urban properties classified as commercial, industrial or service-providing are outside the scope of the AIMI. The AIMI is assessed on the sum of the taxable value of the urban properties owned by each taxpayer as of January 1 of each year.
RATES: INDIVIDUALS
Up to the value of €600,000: no AIMI
On the value between €600,000 and €1 million (married taxpayers and unmarried cohabiting couples who opt for an aggregated taxation are granted a deduction of €1.2 million): 0.7%
On the value that exceeds €1 million (married taxpayers and unmarried cohabiting couples who opt for an aggregated taxation are granted a deduction of €2 million): 1%
These rates also apply when a property owned by a legal entity is allocated to the personal use of shareholders, members of the corporate bodies, or of any administrative, management or supervisory bodies (or their spouses or relatives in the ascending or descending lines).
RATES: COMPANIES
On the global sum of the taxable value of eligible properties (companies are not entitled to any deduction): 0.4%
Due on the global sum of the taxable value of eligible properties, whenever the company is resident in a tax haven: 7.5%
Exemptions: Urban properties which have benefited from an IMI exemption in the previous year are excluded from the surcharge taxable basis.