Portugal, like all countries, has its own legal and taxation procedures surrounding the purchase and sale of property. Mapro Real Estate and its experienced sales team will be happy to guide you through the ins and outs of investing in Portugal, ensuring that when you make your decision, it will be an informed one. In this section we bring you a concise introduction to the Portuguese real estate transaction process, highlighting inherent costs and documentation.

As you enter the buying process on a property it makes obvious sense to find out as much as you can about its legal and financial status before making any commitment. Appointing an experienced local lawyer to verify the property prior to purchase will ensure peace of mind. Your lawyer will make the appropriate checks in the relevant institutions as to the property’s registration, ownership and taxation history. For added buyer confidence, you can also appoint an independent surveyor to check the building’s structural condition. Once the property has been given a clean bill of health, the first step in the buying process can be taken.

The path the property transaction takes depends on its current ownership. If the property in question is owned by an individual(s) then a Promissory Contract of Purchase and Sale (Contrato Promessa de Compra e Venda) is drawn up by the purchaser’s lawyer. This document contains all the conditions of the transaction and a time limit is established for the signature of the final deed in accordance with the wishes of the parties. The contract is signed by both parties or their legal representatives, at which point a 10% deposit is paid, or as otherwise agreed. This legally binding document proves that the purchase has now been contracted and sealed in accordance with Portuguese legislation. If a buyer defaults on the contract he loses any deposit paid. If the vendor defaults, the double the deposit is paid back. Completion on this kind of purchase takes place in the presence of a notary, or alternatively the registry office or a lawyer registered with “Casa Pronta on-line”. Checks are made that the IMT (property transfer tax) has been paid and the content of the final deed of purchase and sale is verified, before being read out to the parties (or their representatives). The deed is then signed and the balance of the transaction price is paid. The original of this document remains where the transaction was completed, bound into the official records. Authenticated copies can be obtained at any time to prove ownership. A copy of the title deed is then immediately lodged in the local Land Registry office and Tax office and the change of ownership registered.

If the property is deemed an asset of a company, i.e. a corporate entity, the transaction involves the purchase of the company’s shares. In such cases corporate entities are usually based in Malta or Delaware for example, with the transaction subject to the jurisdiction of these bases. Your lawyer will investigate the history of the company and draw up a due diligence report. Once approved, a Share Purchase Agreement will be drawn up and a deposit paid. The sale’s completion is a straightforward affair and relatively swift, with monies being transferred between the parties lawyers on exchange of the company shares and documents. In the corporate scenario the buyer is freed from paying any stamp duty.

Some of the costs and taxes involved in real estate transaction in Portugal have been alluded to in the text above. To ensure you are fully aware of any possible costs you may have to face when making your investment, we’ve compiled a typical costing scenario for you here.

Costs break down into two categories: service charges and local transaction taxes. Service providers employed within the purchase and sale of a property for the purchaser include a lawyer (fees can be calculated to between 1% to 2.5% of purchase price), and possibly a surveyor (between €400 and €700 depending on property size and type). Service costs for the vendor include the estate agent’s fee of 5% plus IVA (added value tax)

Transaction taxes to be paid by the purchaser include:

IMT – Property Transfer Tax. This tax is levied on the purchaser immediately prior to the signing of the final deed with various percentile rates (2% to 6% of the purchase price) calculated in accordance with the value of the property. Properties priced over €550,836 are subject to single percentile rate of 6%. Building plots are subject to a rate of 6.5%.

Stamp Duty - Paid by the purchaser and levied on the deed at a rate of 0.8% of the purchase price.

IMI – Municipal Property Tax.

IMI is an annual property tax levied on all properties in April and September (referring to the previous year). IMI rates vary from council to council and property to property – between 0.3% and 0.8%. Some exemptions to paying this tax for a certain timescale can apply to purchasers if the property is bought as a primary residence.

Transaction taxes to be paid by the vendor:

Change of ownership is automatically reported to the tax authorities by whoever performed the property transaction. Capital Gains Tax will need to be paid on the sale of property. Your capital gains are calculated according to various criteria. In general your net taxable profit results from the difference between the purchase and sale prices, after these prices have been subjected to a series of adjustments. These include anything from taking into account inflation, deducting costs (agent commissions and other fees) or any documented improvement costs (from the final five years). Your gain is then taxed according to your residential status. Non-residents pay a flat rate of 25%. For residents, the gain is immediately halved before being added to your final tax declaration, for which the rates are considerably lower. Another advantage for residents is the three-year rollover period for sales profit tax exemption when the property is your main residence and you reinvest your taxable profit in another main residence property.

Disclaimer
Every effort has been made to offer information that is current, correct and clearly expressed. The information in this summary is intended to be no more than a general overview of the position and certain details have been deliberately omitted. The contents of this guide should not be taken as an authoritative statement of Portuguese law and practice. Neither the author nor the publisher are responsible for the results of actions taken on the basis of information contained in this summary, nor for any errors or omissions. This text is not intended to render legal, accounting or tax advice. Readers are encouraged to seek professional advice concerning specific matters before making any decision.