Process of buying a Portuguese property

In Portugal the purchase of a Portuguese property is a regulated process. To ensure that the Portuguese property you wish to buy is free of debts and restrictive clauses, it is essential to employ an English-speaking lawyer or solicitor to protect your own interests. We also recommend that you deal with Portuguese estate agents who are government licensed, they must be identified by an AMI number.

Banking in Portugal
Opening a bank account in Portugal is not required, but it is recommended. Many foreign banks have branches in Portugal, and they can help in transferring funds and setting up regular payments for utilities so you won't have to worry about keeping a close eye on bills when you are out of the country. Property management companies can work directly with banks to set up these payments, and they can also arrange to have your Portuguese property rented out.

Personal Fiscal Number (Numero fiscal de contribuinte)
As a future owner of a Portuguese property you need to have Personal Fiscal Number, which you can obtain immediately at the Local Tax Office in Portugal. Sometimes, an advantage in opening a local bank account is that you are automatically assigned a Personal Fiscal Number by the Local Tax Office when you set-up the bank account, and therefore may not need to personally visit the Local Tax Office.

Legal process for buying a Portuguese property

The legal side falls into two parts, the preliminary "promissory buying and selling" contract (Contrato de Promessa de Compra e Venda) and the completion contract (escritura).

Stage 1: Preliminary "promissory buying and selling" contract

Once a price has been agreed with the vendor both parties will sign a preliminary "promissory buying and selling" contract, called a Contrato de Promessa de Compra e Venda and the buyer will make a deposit of 10%-30% of the purchase price (except in the case of new constructions where this deposit will be considerably less). The deposit can vary depending on the price, location and the real estate agency you work with. Many purchasers also hire a lawyer to help to negotiate a 10% percent deposit, opposed to paying a larger deposit. The "promissory" contract, similar to an exchange of contracts in the UK, legally secures the purchase, and is subject to satisfactory searches having been returned. The Portuguese law protects both parties involved. The deposit is forfeited if the purchaser does not proceed, and if the vendor withdraws double the deposit is paid to the purchaser by the vendor. This contract must be signed in the presence of the Notary.

Before signing the a preliminary "promissory buying and selling" contract, you or your legal representative will need to obtain the following legal documents:

Property Registration Certificate (Certidão de Teor)

At the local Land Registry (Conservatória do Registo Perdial) check if the seller has the ownership of the property and no one else has those rights and also if it is free of charges and mortgages. A Registration Certificate should be issued with a time limit. The Registration Certificate describes the property's legal history and proof of ownership. The Registration Certificate is required to perform the completion process at the Notary's office.

Property Tax document (Caderneta Perdial)

At the local tax office obtain an official tax document. The official tax document certifies the inscription of the property for fiscal purposes, the current owner and their fiscal number, a description of the property, and the property's unique fiscal number. The official tax document mentions how much the owner will pay in local yearly taxes. If the property is new then the official tax document will not exist in and a temporary certificate will be issued by the building developer.

License of Use (Licença de Utilização)

Obtain a copy of the usage license from the Local Town Hall. In this document you can check if the property is approved for the proposes of the original building permission. For residential property it is necessary to have a habitation license. For non residential it is necessary to have a commercial or industrial license. This usage license document needs to be presented at the stage of signing the "promissory buying and selling" contract.

Stage 2: Completion (escritura de compra e venda)

The completion of the purchase should occur approximately 3 - 4 weeks after signing the "promissory buying and selling" contract, when the "escritura" contract, called a escritura de compra e venda is ready to be signed by both the vendor and purchaser. The signing of the "escritura" can be carried out on your behalf by appointing your lawyer Power of Attorney.

At this stage the purchaser must pay the remaining balance of the purchase price (purchase price minus the deposit), transfer tax (Imposto de Sisa) plus notarial fees to the notary advogado. It should be noted that the remaining balance and transfer tax must be in the notary advogado's possession before the "escritura" contract is signed. The "escritura" is the equivalent to the Deeds of the property. From the signing of the "escritura" contract the purchaser is responsible for the insurance of all the buildings on the property. It is recommended that the policy includes cover for fire, flood, storm damage and earthquake damage.

The signing of the "escritura" ends with the transfer and new registration of the property in the presence of the official notary. Once this has been done and the property is registered at the Land Registry Office and Local Tax Office, and is legally yours. You should make sure that the registration document (Registo) is in your name in the and is lodged with the Land office and also in the Local Tax Office as soon as possible after the signing of the "escritura".

Fees and Commission

The purchaser is liable for transfer tax (known as SISA) and notarial / registration / lawyer fees.

Transfer Tax (SISA)

Transfer tax must be paid just before the "escritura" is signed. The transfer tax is Portugal's equivalent of the UK's Stamp Duty. Once the transfer tax has been paid a Transfer Tax (Imposto de Sisa) document is then issued by the tax office, which proves the payment has been made. The transfer tax to pay depends of the value of the property that is declared. The following table summarises the transfer tax rates for the year 2005 on residential property. On rural land the transfer tax is 5 %.

Updated table of the Land Tax (SISA Tax) for the year 2005
Published by the Government on (Law n.º 14 / 2005) , 30 of May 2005

Value of the property transaction	% of Tax	Amount to deduct
Under €80,000	0 %	-----------------
From € 80,000 to €110,000	2 %	€ 1.600,00
From €110,000 to €150,000	5 %	€ 4.900,00
From €150,000 to € 250,000	7 %	€ 7.900,50
From €250,000 to € 500,000	8 %	€ 10.400,00
Over  € 500.000	6%

The following example shows you how much transfer tax you have to pay for a property with a declared value of €100,000.

€100,000 X 2% = €2,000
€2,0000 – €1,600 = €400

Therefore the total transfer tax to pay on a property with a declared value of €100,000 is €400.

When looking at perspective Portuguese properties to buy, you should ask what the declared value of a property is. Often the Portuguese property is not registered at the price you are paying but at a lower value. In this case you could end up paying less transfer tax than on a similar property. Lawyers can advise further on a specific case. If you are having a property built, it is worth considering buying the plot and paying for the construction separately. This way the transfer tax is only payable on the land.

Avoiding transfer tax

In order to avoid transfer tax, buying a property in Portugal through an offshore company has been popular. Many properties in the higher price ranges are available for purchase 'offshore'. In these cases a registered offshore company owns the property. If you buy an offshore company with a property as its sole asset there is no transfer tax to pay, the property will be more saleable and the selling costs are generally lower. There is no capital gains tax on the sale, no death duties, the company can be held through a trust and the ownership of the property remains confidential.

Before you look for an offshore account, however, you should note that legislation passed in January 2002 can sometimes make using offshore companies just as costly as paying the transfer tax. It depends on the cost, size and location of Portuguese property you intend to buy. If you intend to buy a Portuguese property over the value of €500,000 then you should consider getting professional financial advice with respect to seeing if it is worth while setting up an offshore company to undertake the purchase.

Notarial fees

Other fees are one-time Notarial, registration fees and administrational fees (Omposto de selo) related to the number of types of documents that were processed (i.e. certain contracts, deeds, receipts etc.). These one-time fees normally account for approximately 2.5% of the declared purchase price. Lawyers and legal fees can account for between 1.5% and 2% of declared purchase price.

If you take out a Portuguese mortgage a further cost will be passed on to you by your lawyer for registering the charge of the lender with the land registry. Valuations are carried out by the lenders and you as the purchaser will be liable for this cost. The valuation fee is approximately €150.

If the property is not purchased with an 'offshore' company it is advisable to make a will with a Portuguese lawyer to cover such items as the property, your cars, your Portuguese bank accounts and the contents of the property. By doing this bureaucratic complications should be avoided.

Example breakdown of costs related to buying a Portuguese property

The following table shows a typical total cost breakdown of purchasing a Portuguese property for €100,000.

	Cost
Purchase price	100000
Purchase tax (see breakdown above)	400
Notaires fees (2.5%)	2500
Geometrist's costs	200
Lawyers fees (2%)	2000
Total	105,100

Differences between buying new and old Portuguese properties

Due to the high demand for new Portuguese property, most purchasers buy properties "from spec" from Portuguese property developers. This means that the purchaser will buy new Portuguese properties from the plans, and select which property they want within a particular development. Typically, purchasers who buy a new property have to make regular installments during key stages of the property development (opposed to paying for the property when it is complete), and an initial deposit of 5% to 10%. The initial deposit and regular installments vary from one Portuguese property developer to the other.

Note: If you have to make regular stage payments to the Portuguese property developer you should ensure that you receive bank guaranties for each payment. These bank guaranties protect you in the unlikely event that the Portuguese property developer has financial difficulties before the property is transferred to your name.