Purchasing a Property in Portugal
On any purchase and sale of a Property in Portugal it is advisable that both parties appoint a lawyer to prepare and execute all the process. Usually the appointed Purchaser’s lawyer will prepare a draft of a Contract of Purchase and Sale (the Promissory Contract) of the property, which is signed by the Purchaser and the Vendor. At this point the Purchaser and Vendor will agree namely on the price, details of the property including the clear title of the ownership, penalty clauses in the event that any of the parties do not fulfil the contract (usually under the Portuguese Law if the Vendor does not fulfil the contract he is liable to pay back the deposit in double to the Purchaser; If the Purchaser does not fulfil the contract he loses the deposit already paid to the Vendor), completion date, schedule of payments, etc. On the signature of the Promissory Contract the Purchaser will pay the agreed deposit (normally 10% of the agreed purchase price) and usually the contract is legally signed in the presence of a Public Notary.
Prior to paying over any money or signing any Promissory Contract, the Purchaser should instruct his legal representative to undertake thorough pre-contract enquiries. The Vendor should have a complete set of Title Deeds showing that he is the person legally entitled to sell. As well at this stage it is important to check if there is any charge, mortgage, encumbrance, etc, registered on and/or against the property. The property, if the construction is made after 1950, should have a valid Habitation Licence, which is similar to planning permission and confirms that the local authorities have approved the construction of the property.
1 – Land Registry
This certificate is a public record. Each property has a unique certificate. The lawyer will make a search and acquire details of: Ownership – (contains the property’s legal history); Title – (Identifies the current legal ownership); Description of property; Mortgages or any third party interests;
2 – Caderneta Predial
Every property has to have a Caderneta Predial, which is a tax identification and sets, among other things, the rateable valuation. This valuation is important for the determination of local property tax (IMI – former contribuição autárquica payable every year – rates);
3 – Habitation Licence
All residential properties constructed since 1951 need a Habitation Licence, which confirms that the Câmara (Council) has inspected the property and that it complies with planning permission and building regulations.
Exchange of contract and completion
There will usually be a period between Promissory Contract and completion. This will vary from purchase to purchase and depends on the particular circumstances of the parties. At this stage the Purchaser should have a Portuguese Fiscal number, and if he has not one already, his fiscal representative should apply for one. Completion of a property purchase takes place at the offices of a Public Notary. The Notary records the transaction, which is often referred to as the Escritura. The Purchaser will now take possession of the property.
After the transaction has been entered into the Notary’s records, a copy of the “Deed” is registered at the Land Registry. This formally notes the Purchaser’s legal ownership of the property in a public record. To get an update certified copy of the Land Registry showing the new owner of the Property duly registered can take several months from the application of that registration depending how busy the local Land Registry is.
Costs and charges
In addition to the searches, your lawyer will ensure that there are no outstanding charges against the property for utilities and maintenance costs as infrastructure charges, property tax, condominium fees, etc.
Taxes, conveyance fees, Power of Attorney and ownership
IMT (former SISA)
This is the Portuguese Property Acquisition Tax and should be paid by the Purchaser prior to completion. The amount payable varies with the value of the property on a sliding scale up to 6% (this rate is applicable to all properties with a price higher then €500,000.00 – value referred to the year 2004) if it is a plot for construction the IMT applicable is always 6.5% of the price without any variation. Your lawyer will advise of this figure before incurring any expenditure.
– Notary and registration fees
These will have to be paid by the Purchaser on the signature of the deeds of conveyance of purchase and sale at the public Notary and on the Land Registry when the registration of the transfer of the ownership of the Property is applied for. As a rule, these fees will be approximately 1.8% of the purchase price.
– Power of Attorney
In order to conduct the transaction on your behalf your lawyer will require a Power of Attorney in his/her favour. The alternative is for attending at his/her offices and at the Notary’s office to execute each document.
Company owning a property
In circumstances where a company already owns the property and you decide to purchase the Shares of the Company, your lawyer will certify the title of the company to the property in the usual way. He/She will then prepare an agreement to transfer either the shares or the beneficial ownership in the company to the Purchaser. A conveyance on the company is carried out in addition to the property conveyance. On completion the ownership of the property will not have changed, only the ownership of the company. Depending on the location of the Company some Portuguese taxes, like IMT or Portuguese Inheritance tax may or may not apply. However we strongly advise the Purchaser to look for an opinion from a tax adviser in his country regarding the tax impact that purchasing through a company and the impact that this ownership structure could cause in his/her tax plan. Nowadays, it is important to check the jurisdiction where the company is incorporated once that Portugal has produced a list of 83 jurisdictions that the Portuguese Government considers as «tax havens» and therefore apply a much higher rates per year (almost 8 times more then the other situations).
When the legal ownership of the property is transferred from the Vendor to the Purchaser, new contracts will have to be submitted to the utility companies for electricity, telephone etc.
Should you decide to purchase a Portuguese property I recommend consulting a legal adviser in order to him/her help you to decide the best structure that would serve your best interests and allow you to fully enjoy your property.
Browse Algarve Villas here