 Portugal
Your Best Value in Portugal
Portugal – Buyers guide and purchase costs
There are a number of stages involved in finding and securing your property in Portugal, and a number of important legal implications and costs to consider.
Stage 1 – Reservation
When you have found the property in Portugal that you would like to buy, you may sign a reservation contract with the vendor.
The main purpose of such a reservation is for the purchaser to ensure that the property is taken off the market – usually for a limited period of time – and for the seller to assure that the purchaser is really interested to proceed.
The Promissory contract (see below) is a more detailed contract, but for a number of reasons may take some time to prepare. So a reservation agreement is a commitment from both sides that there is a firm interest in buying and selling the property.
The reservation implies that the Promissory Contract will be signed within a pre-determined period and if that does not happen the property will be again placed on the market.
The ‘Reservation Form’ should include identification of the parties and the property and at least define the amount to be paid upon its signature, the total price, payment conditions and the period in which the Promissory Contract will be signed. The amount paid on reservation is deducted from the total price to be paid by the purchaser. The form should also establish the consequences of (i) not signing the Promissory Contract and (ii) any of the parties withdrawing from the transaction.
Stage 2 – Promissory Contract
The second step will be the signature of the Promissory Contract. Although not mandatory, and whether or not reservation has preceded it, normally both parties enter into a promissory agreement identifying the property in Portugal to be sold and detailing the conditions of the transaction. This is the Promissory Contract of Sale and Purchase, known in Portuguese as the (‘Contrato de Promessa de Compra e Venda’). This type of contract is used in the vast majority of property transactions made in Portugal and as a rule is prepared by the buyer’s lawyer. Usually, the Promissory Contract of Sale and Purchase is legalised by a Notary that certifies the signatures of the parties. Alternatively, the parties may by agreement decide not to legalize the contract, which saves the Notary fee. In either case the Promissory Contract of Sale and Purchase is legally binding on both sides.
This contract must establish in detail all procedures by which the transaction will be effected and the conditions of sale, such as stage payments (when applicable) and the maximum term allowed for completion, such as 30 days typically for a resale property.
A deposit (‘sinal’) must be simultaneously paid by the purchaser to the vendor and normally this varies between 10 and 30% of the total purchase price agreed.
Portuguese law protects both parties in case one of them fails to accomplish any contractual obligation. In some cases, the innocent party is allowed to start court proceedings requesting the judge to formally replace the other party and perform the act that this party is refusing to perform. It is the so-called ‘specific performance of the contract’ (‘execução específica’), normally introduced by the parties in this kind of contracts. There are other specific rules relating to the Promissory Contract of Sale and Purchase that your lawyer will be able to explain. The other consequence in case of non compliance with the contract which is used in alternative to the "specific performance of the contract" is, for the buyer recovering double the deposit paid and, for the vendor, keeping the deposit paid.
The Promissory Agreement of Sale and Purchase can be signed personally by the parties or by the lawyers acting for them, if they have been granted Power of Attorney.
Stage 3 - Completion.
Once the seller’s lawyer has presented the Notary with all appropriate documents, all final searches have been done, and the Transmission Tax duly paid, the formal act of sale and purchase of the property can proceed at any Notary Office in Portugal. This act, known as the Public Deed of Sale and Purchase (‘Escritura Pública de Compra e Venda’), takes place in front of the selected Notary and consists of a formal record of the purchase and sale that is printed in the official and public books of the Notary.
The Deed is prepared by the lawyers of the parties together with the Notary and is then signed by the parties and by the Notary.
The main tasks of the Notary are (i) to assure that all appropriate rules are applied, (ii) to check that all taxes due have been paid and (iii) to protect as far as possible the interests of both parties. Therefore, the Notary must check prior to the execution of the Deed that all necessary documents are in order (mainly those referred to above), with the purpose of ensuring that the transaction can lawfully proceed. At the same time, payment to the vendor is normally concluded, the balance of agreed purchase price for the property being made according to the Promissory Contract of Sale and Purchase.
As stated, the Deed of sale and purchase for the property is recorded in the Notary books. After it has taken place the Notary Office will issue as many certified copies of the corresponding entry as required, and these serve as official proof that the transaction has been lawfully completed and the price fully paid. The copies will bear the official seal of the Notary Office but, as further official certified copies can be requested at any time, these documents should not be confused with a ‘Title Deed’ as in English law.
As with the Promissory Contract of Sale and Purchase, the Public Deed of Sale and Purchase can be signed personally by the parties or by their lawyers with Power of Attorney.
After the Public Deed of Sale and Purchase, the transmission of ownership (‘transmissão de propriedade’) has to be registered at the local Property Registrar (‘Conservatória do Registo Predial’). This means that it is necessary to ‘inform’ the Property Registrar that the sale has been completed (by providing a certified copy of the Public Deed of Sale and Purchase) and to request the property in question to be registered in favour of its new owner. It is recommended that this registration be made immediately after the execution of the Public Deed of Sale and Purchase.
Simultaneously, it is also necessary to provide a certified copy of the Public Deed of Sale and Purchase to the local Tax Office (‘Serviço de Finanças’) and request the property to be inscribed in name of the new owner.
Property Purchase Costs in Portugal
A number of fees and taxes are payable by the buyer when purchasing a property in Portugal. These are sometimes known as completion expenses or completion or closing costs. They are difficult to predict with total accuracy at the outset of a transaction. This is because there a number of variable factors that will not become clear until later. We can, however, give a general guide or “rule of thumb” that you can work to.
These costs are calculated on the basis of the price declared in the Escritura. The amount of these expenses, together with the Portuguese dislike for paying tax, has led to the habit of under-declaring the price in the Escritura, similar to the practice that exists in Spain.. These days are now largely over and what was before the rule is now the exception, thanks to European Money Laundering regulations. We recommend that you should avoid under-declaring the purchase price of your property in Portugal.
Estate Agency fees
You do not have to pay estate agency fees, as they are inherent in the property price. But remember, the agent acts on behalf of the seller and works on commission, like a UK Agent, and the law is not so strict in terms of any claims an agent might make about a property. An agent’s first priority is to sell the property, and they will almost certainly not have any necessary or formal legal qualifications. Therefore, when you decide to buy a property in Portugal, always take independent legal advice before signing any contract and the final Escritura. Only this way it will be possible for you to have an accurate search at the Land Registry, Tax Office and Town Hall. We also recommend that you seek independent legal advice that you have sourced for yourself, and not a lawyer that is recommended by an agent or developer.
Legal fees
Usually between 1% and 2% of the purchase price of the property.
Notary and registration fees
When the Notarial profession was privatised, Notary fees changed substantially and now depend on the office where the Escritura is signed. As for Land Registry Fees, if the property is bought without a mortgage they will be in the order of €200.00. However they will easily increase to about €600.00 if there is a mortgage involved.
Taxes
Portugal imposes a number of different taxes on purchase, ownership and disposal of real estate located in the Country. These include:
IMT (Real Estate Tranfer Tax) -
This is payable by the buyer. The tax payable on residential property depends on the price of the property. The average will be in the order of the 5% or 6% of the declared price.
For plots for construction the Portuguese authorities have set out a fixed rate of 6.5% and if the property is classed as a rural property, the rate is 5%.
IMI (Municipal Property Tax) -
This is an annual tax that is levied by the municipality on an annual basis and it is levied on the following terms:
* Rural property: 0.8%
* Urban property : 0.2% to 0.5%.
Stamp Duty -
Transfer of real estate is liable to 0.8% stamp duty. Donations to a spouse, descendants or antecedents are exempt from taxation while other types of donations are liable to a 10% stamp duty tax. Also exempt of tax are inheritances to a spouse, descendants or ascendants. Assets left to anyone else are liable to a 10% tax.
Mortgage Costs in Portugal (if Applicable)
If you are taking out a mortgage in order to buy your property in Portugal, there will be additional costs. These typically amount, altogether, to about 4 per cent of the amount borrowed.
To find out more about mortgages in the Portugal, and begin your fast-track application, please complete the Enquiry Form. You will receive contact from one of our consultants within 24 hours.
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