Once you have found the property that you would like to buy; your real estate agent will commence purchase negotiations with the owner on your behalf. When a price has been agreed you will need to sign, with your agent, a letter of intent for the purchase of the property, where, in addition to the purchase price, the dates of the Promissory Contract (exchange) and the Deeds or completion, it will also list any extras to be included in the price of the property such as furniture or a golf title etc.
Your lawyer will carry out the necessary legal searches and ensure that there are no outstanding charges against the property before drawing up the Promissory contract. In Portugal a deposit of between 10 and 20% of the purchase price is generally paid upon signing of the Promissory contract. Under Portuguese legislation, if the buyer should then withdraw from the contract his deposit is non refundable. Alternately, if the vendor should withdraw, the deposit will be refunded in double.
The Promissory contract will confirm, the details of the property, the identity of the buyers and vendors; an inventory will be attached and it will also state the date for the Deed of transfer or ‘Escritura’. This contract would normally be signed before a notary, but, since January 2009 most property transactions can be carried out by lawyers without the aid of a notary or at "Casa Pronta" (since January 2008), making the process simpler and more efficient.
The period between the signing of the Promissory contract and the signing of the Deeds is normally between four and six weeks but this can vary according to the terms and, for example; if a mortgage is involved. Your lawyer will advise you on acquiring a Portuguese Fiscal (Tax) number at this stage and also a Fiscal representative; a legal requirement if you are not a resident in Europe. Your representative will guide you through Portuguese bureaucracy and be responsible for seeing that your fiscal obligations are met, such as your IMI (annual property tax or rates) for which he will receive your payment request twice or three times a year depending on the amount to be paid.
IMI is a variable calculation of between 0.3% and 0.8% of the property value, taking into consideration factors including age, location, construction and plot size.
Before completion the purchaser must pay the IMT (Property Acquisition tax), which in 2016 for an amount up to €550.836 could vary between 1 - 8% on a sliding scale. All properties above that value are taxed at 6%. For a plot the IMT amount would be 6.5%.
Legal fees will include lawyer’s fees which vary between 0.8% and 1.5% of the purchase price, Stamp duty which is 0.8% and also the Land registry fee.
Here in Portugal the Real Estate agent’s fees are paid by the vendor.
Once the Deed or Escritura has been signed and exchanged you have ownership of the property and as soon as possible it must then be registered at the Land Registry under your name.
Upon the sale of a property in Portugal by a non-resident any profit will be subject to a Capital Gains Tax (CGT) of 28%. However, there are many expenses which are deductible including legal fees, acquisition taxes and official invoices for structural works done within five years of the sale.
In the Algarve it is quite usual for higher value properties to be owned within a corporate structure (a company domiciled abroad, usually Malta or Delaware). In this case buyers will purchase the shares of the company whose sole asset will be the property.
Legal searches will be carried out in the same way by your lawyer; a Share Purchase agreement will be drawn up, a completion date agreed and a deposit paid to the vendor’s lawyer. This is an interesting alternative as, depending on the location of the company, some taxes ie IMT (Property Acquisition tax) and CGT may not apply.
We can guide you regarding the advantages and disadvantages of corporate ownership, but would always advise that you consult your lawyer or tax adviser for more complete information.
If you have any queries about the buying or selling process please do not hesitate to contact us.