Buying a property in Portugal it’s a straightforward process provided you stick to the letter of the law and are advised or represented only by competent and reputable specialist;

Use an Estate Agent who is Government Licensed with an AMI number (Mediador Autorizado) and Lawyers or Solicitors (Advogados ou Solicitadores) who are fluent in a language you understand. 

As we say is a procedure that requires proper research and guidance. For this reason we “Vernon” provide a detailed stepped approach of the property acquisition procedure, in order to clarify all the issues relating to the purchase.  

From an offer being accepted to the drawing up of a Promissory Contract (Contrato de Promessa compra e venda) takes between 1 to 4 weeks, depending on whether you, as a purchaser, need a mortgage or finances arrangements and on whether all the vendor’s documents are in order. From the Promissory contract to a final Deed (Escritura), can take as little as 7 days but is normally 30 to 60 maximum 90 days. This is usually defined mostly by the parties financial issues, either related to an eventual mortgage application by the purchaser, or to an eventual mortgage redemption by the vendor

Step 1) Property search and viewing  

Step 2) Make an offer on the chosen property through the agent

Step 3) Select a Lawyer or Solicitor to represent you and act if you wish on your behalf, giving him/her power of attorney to sign any documents on your behalf. Included in their legal fees they will provide with a full search on all legal documentation of the selected property in order to know if you can safely proceed by; checking the Land Registry Certificate (Certidão de Registo Predial), compare it with the Tax Certificate (Caderneta Predial ou Rustica) and the Habitation License (Licença de Utilização/Habitação), among other necessary documents and also provide some tax, inheritance and financial advice, in order to ensure that the process is done in the most efficient way possible

Step 4) Pay reservation fee to the Estate Agent or Lawyer/Solicitor – This Deposit means that the seller agrees to take the property out of the market for an agreed period to provides time to organize and to check legal documentation

Step 5) Clear mortgages requirements or finances arrangements if necessary

Step 6) Agree dates between buyer and vendor for the setting of Promissory contract and final Deed

Step 7) Promissory contract – Upon the signing of the Promissory contract the payment of usually 10% to 20%  of the purchase price is paid to the vendor or vendor´s solicitor– Whereby all conditions for the sale agreed with the vendor will be stated including, price, installments, un-fulfillment regime, inventory, completion date etc. It can be signed in front of a Notary or not and it is legally binding on both the buyer and the seller.

Step 8) Pay IMT tax (Property Transfer Tax) and stamp Duty prior to the signing of the final Deed. The amount payable varies with the value of the property.

Step 9) Completion, payment of the balance of the purchase price to the vendor at the same time that the final Deed is signed in the office of a public Notary.

Step 10) Registration; Finally, register the property in the name of the new owner(s) at the local Land registry (Conservatoria do Registo), and submit the IMI form to the local Finances department (Finanças)

Step 11) Installation of water, gas, electricity, Telephone and others – Applications for installation of the mentioned services where appropriate, are made to the authorities concerned, after the deeds have been affected. 

• All residents and non-resident foreigners with financial affairs in Portugal must obtain a tax card (cartão de contribuinte)/a fiscal number (número de identificação fiscal/NIF). The tax card is necessary before you can purchase a home in Portugal. (Your solicitor will do this for you).  Since 2008 to obtain the Fiscal card/Fiscal number non-residents must designate a resident entity to serve as a Fiscal Representative to fulfil all compulsory tax obligations.  It is a legal requirement.

TAX CARD/FISCAL NUMBER: You need to complete a form at the local tax office (Finanças) in any area, preferable in the area where you will be buying a home and provide a photocopy of the identification pages of your passport.

A permanent number will automatically be given to you as your fiscal number (NIF). Your fiscal number must be used in all dealings with the Portuguese tax authorities, when paying property taxes and in various other transactions, e.g. without a fiscal number you cannot register the title deed of a property or open a bank account in Portugal.

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              saseFISCAL REPRESENTATIVE: All non-residents who intend to buy or already own a holiday or second home in Portugal must nominate a local resident (of any nationality) as their fiscal representative, (be it a friend, lawyer, accountant, or others) who will receive all communications from the Portuguese tax authorities. You can also have your fiscal representative receive your bank statements, ensure that your bank is paying your standing orders (e.g. for utilities bills and property taxes) and that you have sufficient funds to pay them.

If you let a home in Portugal through a Portuguese company, they may perform the above tasks as part of their services.

This type of ownership is not to be confused with the Timeshare all be it that the two types of ownership may have common factors. There are successful resorts operating Quarter shares ownership regimes. Such as Rocha Brava complex in Carvoeiro, Pestana resorts in Carvoeiro and recently the new Vale de Oliveiras also in Carvoeiro.

In essence each owner may sell, mortgage, gift or otherwise dispose independently of his or her Quarter share or such other shares into which the property has been formally divided. 

The property may be owned by a number of persons and each formally agrees to use and occupy the property in accordance with a co-owners agreement. (which is attached to the final deed). The more sensible and usually well drafted agreements provide for the property to be used by each of the co-owners yearly in rotation subject to the payment of a proportion of the annual maintenance and service charges costs as well as contributions to a sinking fund (normal used for painting or any unexpected costs).

The ownership of the property may be in the co-owners own name or through the medium of a company. Each has its advantages and disadvantages.    

This is a quick guide to introduce you to some terms more commonly used and the Portuguese equivalent which you will encounter throughout the buying process:

• Property Documentation: it maybe useful to known the name of the important documents
 

- Property Registration = Certidão de teor:  Confirms that the seller has title to the property, that it is registered in his/her name and advises whether there are any outstanding mortgages on the property.

-  Property Tax Document = Caderneta predial Urbana or Rustica: Is held by the tax office (Finanças) and confirms the size of the property, its location and boundaries.

- Habitation/Utility Licence =  Licença de Utilização/habitação: Is issued by the town council (Camara Municipal) confirming that the property is in accordance with the building project submited to the council. Non- residential licences need to stipulate the appropriate or industrial use.

- Property B.I. = 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.

- Property Plans = Plantas de de Arquitectura; The 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.

- Seller identification; is the identification document of the seller (B.I., or passport) and his/her tax number (Cartão de Contribuinte) that will be provided to your lawyer.

•  Power of Attorney = Procuração:

A person can instruct another (a friend/lawyer/solicitor or any other third party) to represent him/her before a Notary, remaining public offices and all the necessary formalities by giving Power of Attorney.

• Reservation = Reserva:

It is common to enter into a reservation agreement by paying a reservation value of  between 2.500 € to 5.000€  to secure a property where certain conditions need to be met, such as for example; obtaining a mortgage offer, sorting a financial situation, obtain a surveyor report, obtain outline planning permission.     

• Promissory contract = Contrato de promessa compra e venda:

This exchange contract is normally executed by the buyer’s lawyer and contains the usual terms and conditions for buying the property together with the evidence of title and the plans provided by the seller.  i.e. (Identification of the parties, Identification of the property, Values agreed and ways of payment, Agreement terms and condition of the contract.

Upon the signing of the Promissory Contract the seller becomes bound to sell the property and the buyer bound to buy. The deposit is then payable to the seller. If the buyer defaults, the seller is entitle to retain the deposit, If the seller defaults the buyer is entitle to receive twice the amount of the deposit.

• Provisional Registration = Registos Provisórios

This is only required if you purchase a property through a mortgage. The mortgage or the purchase is registered at the Land Registry prior to the purchase of the property. 

• IMT Tax (Property Transfer tax) = IMT (Imposto Municipal sob transacções) Previous known as SISA.

This is the Portuguese Property Transfer tax and will need to be paid at the Tax office (Finanças) before the transfer of the property takes place and proof of transfer delivered to the Public Notary. The amount payable varies with the value of the property.

For more info. on this IMT tax please go the next section " What additional costs & taxes are involved to purchase a property in Portugal" 

• Stamp Duty  = Imposto de Selo

This must also be paid at the tax office together with the IMT tax 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%

•   Deed = Escritura:

Used to refer to the transfer of the property. Proper title to the property comes with the final deed of conveyance (escritura) which is signed in the office of a Public Notary whereby the parties agree to purchase the property on the terms and conditions agreed in the promissory contract. All the relevant documents (from the property and the identification documentation of the parties and powers of attorney etc) have to be checked  before the contract is read aloud and if any of the parties do not speak or understand Portuguese a Translator = Tradutor(a) will be necessary to translate the whole contract and he/she will also sign the deed attesting as to the authenticity of the translation. The Notary always retains the originals and following completion, issues Certified copies.  

•  Notaries  & registration fees = Notario e Registos: 

These will have to be paid by the purchaser on completion. The Notary charges max of 0.5% of the purchase price for drafting and witnessing the execution of the title deed and a normal registration can cost you minimum of 200 euros.

• Registration after completion = Conservatoria do registo  

Finally, register the property in the name of the new owner at the local land registry (Conservatoria de Registro). Do it without any delay. Registration is effective since the day it is applied for (your lawyer should do this for you)

Note: here in Portugal ownership is not established by the possession of a document (title Deed) but precisely by updating the records (certidão de registro) reflecting the ownership change.

•  IMI Tax (Property Tax = IMI (Imposto Municipal sob o Imovel)

General rates are payable annually or splited in 2 payments (to be paid in Abril and September) 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:

If you intend to purchase in Portugal these are the typical costs & taxes involved in a property purchase. (it is useful to know the name of the important taxes)

• IMT Tax (Property Transfer tax) = IMT (Imposto Municipal sob transferências) Previous known as SISA.

This is the Portuguese Property Transfer tax and will need to be paid at the Tax office (Finanças) before the transfer of the property takes place and proof of transfer delivered to the Public Notary. As of 1st January 2007 there are two separate rates to be applied, depending on whether you are buying a property for permanent living (table I) or a second or holiday home (Table II)

The amount payable varies with the value of the property. Please see the tables below updated in May 2010:

                           Table I -  IMT TAX for Permanent Occupation

                                                   Table II -  IMT TAX for Non Permanent Occupation

The above mentioned figures only apply to residential villas or apartments. Tax exemption applies to:

• Purchases below € 90.418 and a maximum of 6% applies to purschases above € 561.960 or € 538.978.
• Rustic Property (agriculture land)  is 5%
• Non residential purposes (commercial) and urban land (building plots) is 6.5%

The following is an example on how to assess the amount of IMT (for a permanent occupation / table I) to be paid on a €100.000 property:

€100.000 x 2% = €2.000 - €1.808.36 = €191.64 (IMT to be paid)

• Stamp Duty  = Imposto de Selo

This must also be paid at the tax office together with the IMT tax 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%.

Example: €100.000 x 0.8% = € 800 

• Notaries  & registration fees = Notario e Registos: 

These will have to be paid by the purchaser on completion. The Notary charges max of 0.5% of the purchase price for drafting and witnessing the execution of the title deed and a normal registration can cost you minimum of 200 euros.

 Further information regarding Notaries (portuguese Notaries who speak foreign languages) click here

• Legal Fees = Honorarios do Advogado:

 These are usually 1% of the purchase price, plus IVA at 21% (the equivalent of VAT).

•  IMI Tax (Property Tax = IMI (Imposto Municipal sob o Imovel)

General rates are payable annually or splited in 2 payments (to be paid in Abril and September) 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:

The IMI rates (Council Tax) are as follows:

With regard to exemptions of (IMI) Tax for permanent residence and property lease, the exemption period is determined in accordance with the following table:

Regarding Offshore Co.: Since 2006 the Portuguese Government, has ajusted the IMI tax (property tax) for the Companies registered in an Offshore base included in a "Black List" to pay 1% IMI per annum, properties registered in "white listed"companies are taxed at the same rate as on shore properties. There are still a number of ways to alleviate this increase (on black Listed companies) and advice should be sought from your lawyer. 

• Other extra costs  

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.

If you intend to become a resident in Portugal, advice should be taken from a local account.

 Contact us for further information or if you would like us to introduce you to:

• Lawyer in Portugal
• Tax Advisors in Portugal
• Banks in Portugal

Any company, wherever it is registered, is allowed to buy property in Portugal. Some countries offer tax advantages to companies that own property abroad and do not exercise any commercial activity in the country of registration. This is the case of Malta and the state of Delaware and some other states in the USA. Several other countries offer the same benefits but they are subject in Portugal to extra rate taxes.   

There are considerable advantages to owning a home in Portugal through an offshore company, particularly for non-residents, although the Portuguese tax authorities have in the past years introduced new tax measures designed to impose taxes on offshore companies.

Under new legislation introduced in 2002/3 several restrictive measures were introduced meaning that now it isn’t as advantageous to buy through an offshore company. (i.e. increase in Property tax value and rental tax is also payable on all properties whether the property is rented or not).

BUT there are still advantages, however, and you should consult with a fiscal expert if you are considering this option. Owning a property through an offshore company is often an advantage when you’re selling, as the sale can be carried out much easier, quicker and cheaper and it may help to increase the asking price (although a prospective buyer may not appreciate or want the advantages). Some of the advantages include:

• Avoidance (in most cases) of IMT (transfer tax), and notarial and registry charges upon resale of a property. IMT, legal, notarial and registry fees can amount to as much as 15 per cent of the value of a property.
• Ease of the sale of the property, which simply involves transferring ownership of the company shares to the buyer. This also avoids the lengthy and protracted procedures which are necessary to register a title in Portugal, resulting in lower legal fees.
• Avoidance of local inheritance taxes on the property, including any potential liability to double taxation.
• Ease of transfer to heirs in the event of the owner’s death and avoidance of local succession laws, which may stipulate to whom the property must pass. A number of people (e.g. in a family) can be part owners, each holding a number of shares, or a couple can own a property as a joint tenancy (which isn’t recognized in Portugal) and on the death of either partner a simple transfer of his or her shares can be effected.
• The shares of an offshore company can be used to secure a loan for the purchase of the property. The shares are charged to the bank in return for a loan equal to a percentage of the value of the property.
• Confidentiality (In some cases the buyer can remain anonymous), asset protection and limited liability.
• By holding a property through an offshore company, the company shares can also be held on trust.

• A property can be purchase by more than one owner. The shares can be easily divided in proportion to the capital that each of the parties injects in the purchase. If and when one of the partners wants to withdraw the shares can be easily and economically sold to either the remaining partner(s) or to new ones.  

There are a few disadvantages in owning a Portuguese property through an offshore company, one of which is the cost of setting up the company and annual fees (although this is potentially less than the possible savings). The cost varies according to who establishes the company and where it’s incorporated, but there’s usually a set-up fee of between €1,050 and €3,240 plus an annual amount (from €800 to €2,450) for administration fees and taxes. There are a number of companies who can establish an offshore company, Sovereign Trust is one of them, a long established company located in Lagoa, Algarve 

Purchase an offshore registered property with mortgages.

Several banks will grant mortgages for off shore registered properties also known as Corporate ownership; Totta Santander, one of the largest Spanish-Portuguese banking groups, has offices in London and deals in mortgages for Offshore Co. properties

For further information contact the specialist:

Please bear in mind that the laws regarding the ownership of Portuguese property through offshore companies are currently in a state of change and all advantages or disadvantage may be affected in the future.

When buying an off-plan property, i.e. a property still to be built or which is partly built only, it is usual to pay a small holding deposit, e.g. €2500, to reserve a property until a promissory contract is signed (usually around four weeks later).

When buying off-plan, payment is made in stages. Stage payments vary considerably and may consist of a 20 to a 30 per cent deposit on the first stage;

Example A:

20% on signing the contract

20% on completion of the roof;

20% on tiling the bathroom and kitchen (or when the doors and windows are installed);

20% when the building is complete;

10% when the exterior work is completed (such as the patio, pool and landscaping);

and the remaining 10%t on completion (5% of these 10% may be withheld with your lawyer for 6 or 12 months as an insurance against defects, provided you can get the builder to agree to this in the contract).

Example B

An alternative may be;

30 % on signing the contract,

20% per cent on the completion of the foundations, and the walls,

20% on the completion of the roof

25% on tiling the bathroom and kitchen, and on installation of doors and windows;

5% on completion.

If a property is already partly built, the builder may expect a higher initial payment, depending on its stage of completion.

The contract must contain the timetable for the property’s completion; stage payment dates; the completion date and penalties for non-completion; guarantees for building work; details of the builder’s insurance policy (against non-completion); and a copy of the plans and drawings. The floor plan and technical specifications are signed by both parties to ensure that the standard and size of construction is adhered to.

The contract should also contain a clause allowing you to withhold up to 5 per cent of the purchase price for 6 to 12 months as a guarantee against the builder not correcting any faults in the property. (if agreed with builder). The completion of each stage should be certified in writing by your own Lawyer, agent or architect before payments are made. It’s important to ensure that payments are made on time, otherwise you could lose all previous payments and the property could be sold to another buyer.

It’s important to verify that the builder or developer has an insurance policy (or ‘termination’ guarantee) to protect your investment in the event that he goes bust before completing the property and its infrastructure.

Do you fancy buying a holiday home or investment property in ?Portugal?? We explain the basics of getting a Portuguese mortgage for UK citizens.

The biggest advantages of obtaining a Portuguese mortgage are the low interest rates and the amount of capital you commence paying off from month 1.  Typically as a raw example, if a mortgagee borrowed 100,000 Euros at a rate of 4% over 20 years, the monthly repayments would be around 606 Euros, of which approximately 400 Euros would be capital reduction every month.   This capital repayment increases with shorter terms.    Consider borrowing the same from a UK bank, i.e. £100,000 and want to sell your property after 5 years.   Because of the high front-loaded interest charged, you will have paid back very little, whereas with a Portuguese mortgage, approximately 23% would have been paid off the capital.   It really is as simple as that. 

The maximum loan-to-value ratio (LTV) for Portuguese mortgages is typically 80% and the mortgage term can be between 10 and 30 years, but loans must be repaid by the time you reach 75 years old.   The LTV ratio is based on the valuation (made after a mortgage approval), not the paid price to the vendor.   Because of this, cosmetically, a mortgagee can obtain a much higher LTV and up to 100% is possible in some cases. There is also a new facility to have the property valued prior to the mortgage process, to ensure all the figures are on the table and that clients fully understand the interest rates and monthly payments involved, before proceeding with the application.  

In order to be approved for a Portuguese mortgage, you will need to meet your lender’s eligibility criteria and prove you have the ability to repay the mortgage.  When applying for a Portuguese mortgage, you will be required to provide supporting documentation proving that you can afford the repayments. These include proof of identity and residence, proof of income and outgoings (P.60), bank statements, certificate of income of company.    A full list of supporting documentation required for a mortgage process can be forwarded on request.

There are several types of mortgages available in Portugal – simple repayment, interest only start, equity release, remortgage, residual value mortgage, and fixed rate.  Each has its own advantages and disadvantages and which will suit you better depends on your own personal circumstances, which you should discuss with your mortgage broker.

If you are thinking about buying a property in Portugal, and required a mortgage, you need to ensure you get professional advice. We have our own mortgage expert available at any time of the year to speak with clients.   Peter Evans does not charge for his services and tailors the best possible mortgage to a client’s requirements      and obtains the lowest rates possible.   A full mortgage process can be achieved by email but it is highly advantageous to have a general discussion with Peter to fully understand the mortgage process and its advantages here in Portugal.

Since June 26, 2009 the new law which simplifies the requirements to obtain the touristic licence has entered into force.

Holiday rental licence (Alojamento Local) smaller holiday rental properties such as villas, apartments and guest houses, are now classed as “Local Lodging” or “Alojamento Local” under the new legislation governing Tourist Rental properties.

The following information’s includes all the specific requirements to register this type of property.

Local lodging properties may be classed in one of these three categories:

A)      House = villa, town house, family house

B)      Apartment = self contained apartment or a self sufficient partition of a building

C)      Guest House = property where the rooms are the units to be let.

The lodging properties must fulfil the following requirements:

A)      Be in well preserved buildings (interior and exterior)

B)      Be connected to the water mains or alternatively have a private, licensed water supply system.

C)      Be connected to the mains electricity

D)      Be connected to the main sewage system or have a septic tank

E)       Have running water supply, both cold and hot.

The lodging units must:

A)      Have a window or balcony facing the exterior, with good ventilation conditions.

B)      Be furnished and equipped accordingly

C)      Have any kind of system to allow blocking the light from outside.

D)      Have security equipment on the doors that allows the client’s privacy

E)       Have a minimum of 1 sanitary facility for every 3 rooms, with washing basin, toilet and bath or shower.

Capacity:

Te capacity of the rental properties is determined by the number of fixed beds (individual r double) to rent in the property. There can also be folding beds (extra) as long as these do not exceed the number of fixed beds.

Safety requirement:

The local lodging properties must comply with the general fire safety regulations and the following requirements

A)       Accessible fire extinguishers and fire blankets, a minimum required is one fire blanket in the kitchen by the oven and one large fire extinguisher or 2 medium ones in each floor of a property to rent. In a Guesthouse or small Bedroom and Breakfast establishment, the requirement is a smaller fire extinguisher in each room.

B)       First aid equipment to EU standard

C)       Instruction Manuals of all electric appliances existing in the units, in the absence of these information about the use and functioning of these appliances must be provided.

D)       Visible information of the national emergency number (112).

How to register and to get the holiday rental licence for these smaller holiday rental properties:

The registration starts with a request (a draft of this request can be collected in the Council), to the local Council hall President “ ao Presidente da Camara” along with the following documents:  

A)      A document providing the legitimacy of the person requesting, i.e., owner, representative of the owner, Management Company.

B)      A certificate of compliance issued y a certified technician, stating that the electricity, gas and water heater installations are according to the law in force.

C)      A plan of the property indicating the units for rent

D)      Property rates document “Caderneta Predial Urbana” issued by the local Finance Department

Once submitted, the requirement stamped by the local council is a valid document to open to public.

Within 60 days after presenting the request the local council will do an inspection to make sure that all the requirements are met. In case any of the requirements are not met, the registration is cancelled and the applicant must return the stamped requirement in their possession.

Once you receive the licence:

The publicity, commercial documentation and merchandising of the rental property, must show the name of the place followed by “Alojamento local" or just “AL” and wish to do publicity

The rental properties may have outside the property and near the main entrance, an informative board provided by the local council.

As any place open to the public these properties for rent are also required to have a complains book (livro de reclamações)