Legal Steps
Once you have enjoyed the lovely Portuguese climate, the friendly people, the excellent golf courses, the golden beaches - you may well decide to buy property in Portugal.
You will listen to your friends’ experiences; make enquiries; read brochures; visit property exhibitions or tour around Portugal to find the property and area of your dreams.
Now you need to know all that buying property in Portugal entails.
General Advice
You begin looking for the right property, trawling through newspapers, brochures or scanning “For Sale” signs, all of which can be time consuming and confusing.
There are professionals who will provide the assistance you need in selecting the property of your dreams – the Real Estate agents.
You will notice once you start looking for a property, how many people have “just the right property”, “the right consultant, architect, lawyer” or “the right friend to assist you” – often people not qualified to provide the services they offer.
Surround yourself with professionals and you will discover how straightforward purchasing a property in Portugal can be.
Before you start, find yourself a reputable lawyer.
At this stage you will have various questions:
- Should I buy property through a company?
- Should I buy property in my children’s name(s)?
- Should I make a will in Portugal?
- Should I buy this piece of land? What can I build on it?
Obtaining the right advice will be both invaluable and money saving in the long term.
Surveying the property
Your lawyer or Real Estate agent can recommend a surveyor, who will inspect the property and prepare a report highlighting any defects. This will save you unpleasant surprises later and, depending on the defects discovered, may result in a reduction in the sale price, oblige the vendor to rectify, or require additional guarantees in the contracts.
One thing is certain; you will know what you are buying.
Property searches
Only a lawyer, experienced in working with Portuguese official departments and property documents, has the knowledge and expertise to investigate and certify that the property has clean title.
Your lawyer will ensure that:
- The property is registered in the vendor’s name;
- No charges, mortgages or encumbrances are registered on the property;
- There are no fiscal debts;
- The property was built in accordance with Portuguese regulations and planning permission granted, by means of a document called the habitation licence.
These are the basic documents required to ensure the property has clean title:
- Land Registry search – “Certidão de teor da descrição e inscrições em vigor”;
- Finance Department search – “Caderneta predial”, “Certidão de teor matricial” or “ Modelo 1 do IMI”;
- Certified copy of habitation licence “licença de utilização”.
You may also require:
- Notarial deed of purchase and sale “escritura” of the previous owner.
- Update or alteration projects approved by the City Council.
- Rules of the development – “Alvará de loteamento” if buying a plot for construction in a development.
- Rules of the condominium-“Regulamento da Urbanização” - if buying property in a development.
Other documents may be necessary depending on the search results and/or the specific case of the property you wish to buy.
Promissory Contract
Once the searches indicate the property has clean title you are in a position to commence written agreements.
To secure the sale, it is advisable and normal in Portugal to sign a Promissory Contract “contrato promessa de compra e venda”, where all conditions of sale agreed are outlined, including the completion date. A deposit amount agreed by both parties is payable on the signing of this contract.
The Promissory Contract is not obligatory, however, once signed becomes fully binding for both parties.
Notarial deed of purchase and sale
Completion of the property sale is known in Portugal as “escritura de compra e venda” whereby ownership is transferred. All property documents must be submitted to the Notary, with proof of payment of property transfer tax, “IMT – Imposto Municipal sobre Transmissões”, usually required. This “escritura” is signed at a Notary on the completion date stipulated. At this stage, the balance of the purchase price is paid to the vendor.
Registration
Property registration grants you full security of ownership. A certified copy of the “escritura” is needed to submit the property registration in your name.
The legal purchase steps are finished when the registration is completed.
Once purchase procedures are concluded, a file is prepared with copies of the main property documents showing ownership in your favour.
Pending matters
Although the purchase is formally complete, there is a time period where property expenses are verified, usually between representatives of the vendor and purchaser, and contracts for electricity, telephone, insurance, etc. are changed in accordance with new ownership. In some cases, “Modelo 1 of the IMI” has to be filed with the Finance Department after signature of the notarial deed.
To safeguard against unexpected surprises a sum of money should be retained from the purchase price to cover estimated expenses.
Estimated Costs
- Notarial and registration fees – 1% of purchase price;
- “IMT – Imposto Municipal sobre Transmissões” – up to 6,5% (depending on property type and price);
- Lawyer’s and surveyor’s fees subject to agreement. Fees subject to VAT. (Currently 21%).
The above does not include cases where a loan is required to purchase the property.
Property holding companies
A large number of properties are held in company structures, in which case you will probably be buying the company. Searches must be carried out on both property and company. A Share Purchase and Sale Agreement will need to be executed and signed by both parties with a deposit usually payable.
All conditions of sale must be outlined in this document, together with any warranties concerning the company or property. This is extremely important to avoid unpleasant surprises, as you may inherit liabilities from the previous owner.
A Completion Date will be defined in this agreement, where, on payment of the balance of the purchase price, the company is transferred to you.
Tax issues
When purchasing property in Portugal, it is of the utmost importance that you discuss with your lawyer and tax advisor any tax implications arising from the acquisition of overseas property.
When considering property owned through a property holding company, your lawyer should research the company history and advise accordingly. You should not automatically turn down a prospective purchase due to company ownership.
Properties are subject to annual City Council tax “IMI – Imposto Municipal sobre Imóveis” payable in two instalments. The amount varies depending on property type and location.
When purchasing property in your name “IMT – Imposto Municipal sobre Transmissões” is payable, up to a maximum of 6,5% depending on property type and price.
Capital Gains Tax at 25% for non-residents, based on the difference between purchase price, adjusted by currency devaluation rate, and sales price, is applicable when selling property.
Details of any tax issues applicable in your case should be examined individually.
Loans / Mortgages
There are banks specifically geared to lending to overseas buyers on residential properties in Portugal.
Property financing involves complex legal issues, whether you require a loan in your name or a property holding company. Once the bank approves the loan, they require a first legal charge - “hipoteca” - on the property. A deed of mortgage is signed at the Notary, simultaneously with the deed of purchase and sale, and registered at the Land Registry Department (some banks require registration at an earlier stage). Other legal documents will be required if the loan is approved to a property holding company.
You should ensure loan approval prior to signature of the Promissory Contract or Share Purchase and Sale Agreement.
Wills
Should you purchase property in Portugal in your own name, it is strongly recommended you instruct your lawyer to prepare a will for your Portuguese assets. This does not affect your will in your country of domicile.
The most common type of will is signed at a Notary and is strictly private & confidential.
Power of Attorney
In the event that you are unavailable to sign the Promissory Contract and “escritura”, your lawyer should prepare a draft Power of Attorney, and any applicable formalities, so this document can be executed abroad and accepted in Portugal.
Fiscal Representation
It is obligatory by law for non-residents to appoint Fiscal Representation when purchasing property. This entity is responsible for submitting tax declarations and tax payments arising from property ownership. Fees are payable to the Fiscal Representative and quotations should be sought beforehand.
Conclusion
Even though conveyance procedures in Portugal are different from those in your country, as long as you follow the right steps you will certainly complete the purchase of your Portuguese home with a smile in your face!
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