Buying in Portugal Guide
Not long ago, the idea of owning a second home in a foreign country was beyond the reach of most people. Fortunately, things have changed a great deal in recent years, with Europeans becoming more prosperous and interest rates settling at affordable levels. These days, owning a property abroad is a realistic and affordable option, as well as a sensible financial investment.
Worried about an uncertain stock market, mis managed pensions or an over-heated buy-to-let market, many people are now willing to channel their home equity and inheritance capital towards investments that they feel will enrich their lifestyles. In a country like Portugal, which offers a pleasant year-round climate, security and a reasonable cost of living, people are finding that enjoying the good life is simpler here.
Please note that this document is intended as an introductory guide to the general process of buying a new home in Portugal. It explains some of the commonly used terminology, as well as outlining the obligations of owning a home in Portugal. If you decide to buy in Portugal, we strongly recommend that you consult a Portuguese lawyer, as the legal system in Portugal is different to that of your country of residence. Your local lawyer will be able to carry out the necessary checks and enquiries and, where necessary, possess your power of attorney to enable the whole buying process to run smoothly and more efficiently.
THE BUYING PROCESS
STEP 1 - Check it out
When you’ve chosen a property to buy, we recommend you instruct a lawyer, who will carry out a number of checks on your behalf, thus reassuring you that all the important aspects for the sale are in place. For example, most lawyers will research:
- The title of the property
- If the person or company selling actually owns the property Whether there are any outstanding charges or costs associated with the property
- If the appropriate building licenses or permissions are in order should you buy a plot of land
- That the terms and conditions stipulated by the vendor are fair and legal
After carrying out these checks, the lawyer will compile a report for your consideration.
STEP 2 - The ‘Contrato de Promessa de Compra e Venda’ (CPCV) or ‘Promissory Contract’
This contract stipulates the details of the Purchaser, Vendor and property together with all conditions, payments, timings, etc. which have been agreed between all the parties.
Having reviewed the lawyer’s report and should you wish to proceed, you will be required to complete and sign a CPCV. The CPCV is the contract of sale and is legally binding.
At this stage, in many cases, you will be asked for a deposit; the amount of which can vary.
STEP 3 -Fiscal Representative
Having signed the Promissory Contract, you will need to appoint a Fiscal Representative. Under Portuguese law any non-resident purchaser of property must appoint a Fiscal Representative in Portugal. This representative will arrange the creation of your Portuguese tax number, which is required for the purchase, and manage any taxation liabilities that you may have in Portugal on an ongoing basis.
Your lawyer may handle this on your behalf, or you can ask Resident Services at Praia D’El Rey to deal with it for you. Please be aware that you may need to pay an annual fee for this type of service.
STEP 4 - Signing the ‘Escritura de Compra e Venda’ or ‘Deed’
At the time of signing the Promissory Contract, both the vendor and purchaser agree a date when the Escritura de Compra e Venda, the deed of transfer, will be signed. You will either attend the signing in person or grant your lawyer power of attorney to attend and sign on your behalf. The Escritura is signed in the presence of a notary (Notário).
A notário is the equivalent of a Notary Public; he draws up the Escritura de Compra e Venda based on the information contained within the Promissory Contract and ensures that the title deeds have been exchanged and understood by all parties concerned. Finally, following the signing of the Escritura, the notary bears witnesses to payment, or an acknowledgment that the full payment has been made, and this fact is incorporated in the title deed. The notary is completely impartial and will offer no legal advice.
In Portuguese law there is an important aspect of this step in the process that can have serious financial ramifications. The name placed on the contracts can affect your tax liability and inheritance tax, as well as the change of ownership taxes should the property change hands in the future. Your lawyer and Fiscal Representative should give you advice on this.
STEP 5 - Registering the property
After signing the Escritura, your lawyer will take a notarised copy of it to the Land Registry for registration and payment of fees. This process can take several weeks, but you should expect your lawyer to handle this on your behalf.
FINANCING YOUR PURCHASE
When considering a property purchase abroad, many people will consider raising finance via a remortgage on an existing property. Alternatively we can recommend Portuguese banks and agents of the banks that specialise in offering mortgage facilities to non-resident purchasers where the only security required is secured against the property in Portugal. This offers a way to avoid any risk to your existing home.
There are no restrictions on transferring money in or out of Portugal. It is also worth considering using a foreign exchange service if your funds are sourced from a non-Euro base. The exchange rates will be more beneficial and this is a quick, efficient and safe way to transfer funds whilst minimizing commission charges. Your lawyer or Fiscal Representative will be able to recommend a foreign exchange company.
At a later date your Fiscal Representative can help you open a bank account in Portugal, which will hold any income from rentals and the like. In the meantime we would recommend that any transfers associated with the purchase should be remitted to your lawyer’s Clients’ Account.
PURCHASE FEES AND TAXES
Lawyer’s Fees
Lawyer’s fees will vary but as a guideline will generally be between 1%-1.5% of the purchase price. As described earlier, their services include: advice about contracts, investigation of the property title, planning permission status, reporting back about enquiry results, exchange of contracts and completion, and attendance at the notary.
Notary and Land Registry Fees
Notary and land registry fees are approximately 1.5% of the purchase price.
IMT (Imposto Municipal sobre Transmissões de Imóveis)
This is the tax payable on the transfer of property (in the UK, it is equivalent to Stamp Duty). The current rate is 6,5% on any land purchase, and is as follows for the purchase of a completed property:
| Purchase Price | % of tax due | Allowance to deduct from % |
| Up to €87.500 | 1% | 0 |
| From €87.501 - €119.700 | 2% | €875 |
| From €119.701 - €163.200 | 5% | €4.466 |
| From €163.201 - €272.000 | 7% | €7.730 |
| From €272.001 - €521.700 | 8% | €10.450 |
| Over €521,700 | 6% | 0 |
For example, if you buy a property for €300.000 you pay 8% tax, less €10.450, therefore the total IMT payable is €13.550.
Please note: The figures quoted are for 2008 and apply to the purchase of second homes. This information may change every year.
IMI (Imposto Municipal sobre Imóveis)
Equivalent to Council Tax in the UK, or rates in Ireland, the IMI tax is based on the ‘valor tributável’ (official valuation of the property) registered in respect of all properties in Portugal. Rates are established by the local municipal tax authority. Currently, this tax is calculated at 0.4% of the valuation.
ONGOING OBLIGATIONS
Non-Residence
If you spend less than 6 months per year in Portugal you are classed as a non-resident. However, there are certain obligations you must meet:
- Just as when you purchased the property, you must appoint a Fiscal Representative in Portugal who will take care of paying your local annual property taxes (IMI) and paying any applicable taxes on income derived from activities in Portugal, such as renting your property.
- Insure your property and contents, with additional liability insurance coverage if the property is to be rented out.
- Pay insurance where applicable and all utility bills.
Residence
If you spend more than six months a year in Portugal, you are deemed to be a permanent resident and thus your requirements differ. You will be expected to pay taxes and social security contributions.
To help with your tax calculations, it is common practice for foreigners living in Portugal to employ the services of an accountant to advise on such matters. Your lawyer or your Fiscal Representative will be able to recommend a local accountant with expertise of foreign-owned property.
Número de Contribuinte (Tax Number)
This is an identification number granted by the Portuguese tax authority, the Ministério das Finanças (Finanças). If you buy a property in Portugal – even if you are not full time or tax resident – you need to obtain a tax number from your local Finanças office. This has to be done before you complete the deed; you lawyer would normally request this for you.
Capital Gains Taxes For those resident in Portugal for tax purposes, Capital Gains are treated as part of their taxable income for the year in which the gain is made. For non-residents, Capital Gains Tax is payable at a flat rate of 25% on the difference between the selling price and the original purchase price. Only 50% of the gain is taxable on the sale of property (apartments, townhouses, villas) if you are resident in Portugal. If not, 100% is taxable. Tax calculations are based on the prices declared in the Escritura (Deed of Transfer).
