A Brief Guide to Buying Property in Portugal

If you propose to buy a property in Portugal you are required to obtain a Fiscal Number from the local Tax Office ((Finanças).).

When you have found your property, the Vendor or their legal representative will obtain a certificate (Escritura) from the local Land Registry confirming that the property is available to sell. At this stage it is vital to have any checks or surveys carried out because one the initial contract is signed you are committed to its conditions and content.

Shaking hands

It is quite normal for both Parties to initially enter into a Promissory Contract detailing the conditions of Sale – "Contrato de Promessa de Compra e Venda". This Contract is then legalized by registering it in the Notary Office. This Contract is legally binding on both sides. If the full purchase price is being paid immediately, a purchase contract will be drawn up by the Vendor's legal representative, covering the details of the contract, purchase price and date of completion. At the time of signing the contract, the Purchaser will pay a deposit usually about 10% of the agreed purchase price.

If the purchaser should withdraw from the contract this deposit will be forfeited, whilst if the vendor should withdraw they will be obliged to forfeit double the value of the deposit.

Solicitor / Lawyer

Whether you elect to use the same Notary as the Vendor or appoint your own the next stage is to examine the Escritura which means the Notary checking that any searches and other legal requirements have been carried out. It is important to ensure that any plans in the Town Hall referring specifically to the property do physically agree with the existing construction. A property for living purposes must have the following documentation:

Commercial and Industrial properties require both Points b and c.

Signing the contract

The transfer of title will then be prepared and will be signed by both parties or by their notaries if Powers of Attorney have been given. It is often found practical for the buyer to appoint a third party such as their lawyer to act for them legally in the matter. A document named “Procuração Pública” is prepared with the necessary details and then in the Notary Office this document is signed and registered by the Notary. This official document can also be created in the Portuguese language outside Portugal in a Portuguese Consul in a foreign country, or in a Notary in the language of the country concerned. In the case of the latter the document must have the Seal of the Notary and an Apostil.

In any event the signing must be in the presence a notary. The balance of the purchase money can then be handed over. The contract will be retained by the notary and a copy registered with Public Records. You will then have to arrange for registration with the Land Registry which ensures your proof of legal ownership. The Inland Revenue will also be notified for your property and rating taxes.

Fees

Fees will usually be a total of about 15% of the purchase price, slightly less for countryside property. The costs include Solicitor/Notary fees, Stamp Duty and Transfer Tax (SISA)

Property Tax

Property Transfer Tax (SISA), is payable when the registered owner of the property changes in Portugal and is currently under review. The rates where:

Up to €80,000 - 0%
2% - 6.5% thereafter
5% for land

A municipal tax is levied by reference to the ratable value, from 1%. For offshore companies the rate is now 2%. From 1st January 2004 this will rise to 5%. Buying a property using real estate holding companies is a popular tax efficient method of investing in a second home. It can allow buyers to minimise property transfer taxes and avoid capital gains on sale and inheritance tax in the event of death.

Prior to the act of purchase, the purchase will usually be subject to a State payment called “CEMI” which is carried out in the local Tax Office nearest to the property. The amount charged is dependent upon the nature of the purchase and does vary. In certain cases the buyer may be exempt from paying this Tax.

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When all the above requirements have been completed the act of sale can proceed in any Notary Office. This act is known as the “Escritura de Compra e Venda” which takes place in front of the selected Notary and is recorded in his official books. The Notary will check prior to the act of sale that all the necessary documents are correct to ensure that the sale can proceed according to the facts provided. It is at this moment that payment is normally completed to the seller. After the act is recorded the Notary Office will issue a photocopy of the entry, which is the proof to the buyer that the act has officially taken place. The photocopy will carry the seal of the Notary but as further official copies can be requested at any time this document should not be mistaken for a “Title Deed” – as known in the UK.

On completion of the above act the property in question has then to be registered in the new owners name in the Land Registry (Conservatória do Registo Predial). This next registration is not obligatory until the owner wishes to sell the property. However, it is strongly recommend that the previous owner make this registration immediately after the Notary act as a preventative measure against a possible financial abuse.

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