There are fees and taxes payable by a buyer when purchasing a property in Portugal. They are sometimes known as completion expenses or completion or closing costs. They are impossible to predict with total accuracy at the outset of a transaction. This is because there a number of variable factors that will not become clear until later. We can, however, give a general guide.
These costs are calculated on the basis of the price declared in the as the Escritura. The size of these expenses, coupled with the Portuguese dislike for paying tax, has led to the habit of ‘accidentally’ under-declaring the price in the Escritura. These days are now largely over and what was before the rule is now the exception. We, as solicitors, can only recommend you to declare the full purchase price when purchasing a property in Pourtugal.
Estate Agent’s fees for buyers
Like Spain, you do not have to pay Estate Agent’s fess. But remember, an Agent acts on behalf of the Seller and works on commission, like a UK Agent, and the law is not so strict in terms of any claims an agent might make about a property. Therefore, when you decide to buy a property in Portugal, always take independent legal advice before signing any contract and the final Escritura. Only this way it will be possible for you to have an accurate search at the Land Registry, Tax Office and Town Hall.
Usually between 1% and 2% of the purchase price
Notary and registration fees
When the Notarial profession was privatised, Notary fees changed substantially and now depend on the office where the Escritura is signed. As for Land Registry Fees, if the property is bought without a mortgage they will be in the order of €200.00. However they will easily increase to about €600.00 if there is a mortgage involved.
There are carious fees associated with mortgages (spese istruttoria). All lenders charge an arrangement fee for establishing a loan, usually around 1 per cent of the loan amount. There’s a mortgage tax (imposta ipotecaria) of €129.11 fir resident first-home buyers and 1 per cent otherwise, and fee of 0.25 per cent (imposta sostitutiva) is payable to the notary (notaio) for registering the charge against the property at the registry (catasto). Most lenders also impose an ‘administration’ fee of around 1 per cent of the loan value, and it’s compulsory to take out insurance cover with the lender against fire, lightning strikes and gas explosions. The insurance is usually a one-off payment of 0.21 per cent of the property’s value and valid for 20 years.
Portugal imposes a number of different taxes on purchase, ownership and disposal of real estate located in the Country. These include:
IMT (Real Estate Tranfer Tax) –
This is payable by the purchaser. The tax payable on residential property depends on the price of the property. The average will be in the order of the 5%, 6% of the price.
For plots for construction the Portuguese authorities have set out a fixed rate of 6.5% and if the real estate is a rural property, the rate is 5%.
IMI (Municipal Property Tax) –
This is an annual tax that is levied by the municipality on an annual basis and it is levied on the following terms:
Stamp Duty – Transfer of real estate is liable to 0.8% stamo duty. Donations to a spouse, descendants or antecedents are exempt from taxation while other types of donations are liable to a 10% stamp duty tax. Also exempt of tax are inheritances to a spouse, descendants or ascendants. Assets left to anyone else are liable to a 10% tax.
Mortgage Costs (if Applicable)
If you are taking out a mortgage, there will be additional costs. These typically amount, altogether, to about 4 per cent of the amount borrowed.
Portuguese Banks will lend to someone in permanent residence in Portugal and offshore Banks will usually finance only 65% of the property. Mortgage periods are shorter and usually are no longer than 20 years. The rates are lower than the ones in the UK but there is the disadvantage of having to be subject to the exchange rate of the day when the mortgage payments are due.
Miscellaneous Other Charges
Architect’s fees, surveyor’s fees, UK legal fees (typically 1 per cent), first connection to water, electricity, etc. Most of these will be subject to Portuguese IVA [VAT] at 21 per cent, buy your UK lawyer’s fees will be outside the scope of English VAT.
Buying your property
Here are the main stages:The first step to purchase a property in Portugal is to find the right property. You will need to look at issues like is the property for an investment, for holidays or for retirement.
Once you’ve found the property of your dreams, next comes the “Reservation Form”. This is not used in all transactions. This procedure is usually followed when the parties cannot enter immediately into a Promissory for any reason, such as: the legal document, have not been provided or examined; the buyer cannot immediately pay a deposit; a new construction has not yet been approved by the Town Hall or is still in progress.
The main purpose of such a reservation is for the purchaser to ensure that the property is taken off the market – usually for a limited period of time – and for the seller to assure that the purchaser is really interested to proceed.
The reservation implies that the Promissory Contract will be signed within a pre-determined period and if that does not happen the property will be again placed on the market.
The ‘Reservation Form’ should include identification of the parties and the property and at least define the amount to be paid upon its signature, the total price, payment conditions and the period in which the Promissory Contract will be signed. The amount paid on reservation is deducted from the total price to be paid by the purchaser. The form should also establish the consequences of (i) not signing the Promissory Contract and (ii) any of the parties withdrawing from the transaction.
The ‘Reservation Form’ must be dated and signed by both parties.
The second step will be the signature of the Promissory Contract. Although not mandatory, and whether or not reservation has preceded it, normally both parties enter into a promissory agreement identifying the property to be sold and detailing the conditions of the transaction: this is the Promissory Contract of Sale and Purchase (‘Contrato de Promessa de Compra e Venda’). This type of contract is used in almost 100% of transactions made in Portugal and as a rule is prepared by the purchaser’s lawyer. Usually, the Promissory Contract of Sale and Purchase is legalised by a Notary that certifies the signatures of the parties; alternatively the parties may by agreement decide not to legalize the contract. In either case the Promissory Contract of Sale and Purchase is legally binding on both sides.
This contract must establish in detail all procedures by which the transaction will be effected and the conditions of sale, such as stage payments (when applicable) and the maximum term allowed for completion. A deposit (‘sinal’) must be simultaneously paid by the purchaser to the vendor and normally this varies between 10 and 30% of the total purchase price agreed.
Portuguese law protects both parties in case one of them fails to accomplish any contractual obligation. In some cases, the innocent party is allowed to start court proceedings requesting the judge to formally replace the other party and perform the act that this party is refusing to perform. It is the so-called ‘specific performance of the contract’ (‘execução específica’), normally introduced by the parties in this kind of contracts. There are other specific rules relating to the Promissory Contract of Sale and Purchase that a lawyer will be able to explain. The other consequence in case of non compliance with the contract which is used in alternative to the “specific performance of the contract” is, for the buyer recovering double the deposit paid and, for the vendor, keeping the deposit paid.
The Promissory Agreement of Sale and Purchase can be signed personally by the parties or by the lawyers acting for them.
The final step will be Completion.
Once the seller have presented the Notary with all appropriate documents, all final searches have been done, and the Transmission Tax duly paid, the formal act of sale and purchase can proceed at any Notary Office in Portugal. This act, known as the Public Deed of Sale and Purchase (‘Escritura Pública de Compra e Venda’), takes place in front of the selected Notary and consists of a formal record of the purchase and sale that is printed in the official and public books of the Notary.
The Deed is prepared by the lawyers of the parties together with the Notary and is then signed by the parties and by the Notary.
The main tasks of the Notary are (i) to assure that all appropriate rules are applied, (ii) to check that all taxes due have been paid and (iii) to protect as far as possible the interests of both parties. Therefore, the Notary must check prior to the execution of the Deed that all necessary documents are in order (mainly those referred to above), with the purpose of ensuring that the transaction can lawfully proceed. At the same time, payment to the vendor is normally concluded, the balance of agreed purchase price being made according to the Promissory Contract of Sale and Purchase.
As stated, the Deed of sale and purchase is recorded in the Notary books. After it has taken place the Notary Office will issue as many certified copies of the corresponding entry as required, and these serve as official proof that the transaction has been lawfully completed and the price fully paid. The copies will bear the official seal of the Notary Office but, as further official certified copies can be requested at any time, these documents should not be confused with a ‘Title Deed’ as in English law.
As with the Promissory Contract of Sale and Purchase, the Public Deed of Sale and Purchase can be signed personally by the parties or by their lawyers.
After the Public Deed of Sale and Purchase, the transmission of ownership (‘transmissão de propriedade’) has to be registered at the local Property Registrar (‘Conservatória do Registo Predial’). This means that it is necessary to ‘inform’ the Property Registrar that the sale has been completed (by providing a certified copy of the Public Deed of Sale and Purchase) and to request the property in question to be registered in favour of its new owner. It is recommended that this registration be made immediately after the execution of the Public Deed of Sale and Purchase.
Simultaneously, it is also necessary to provide a certified copy of the Public Deed of Sale and Purchase to the local Tax Office (‘Serviço de Finanças’) and request the property to be inscribed in name of the new owner.
Inheritance Tax has been abolished in Portugal. There is still a 10% stamp duty charge on transfer of assets. Gifts or donations to a spouse, children, parents or grandparents are exempt.
Rental income from letting out your property, is subject to progressive rates of up to 40% for Portuguese residents. You may be classed as a resident if you are domiciled in Portugal for more than 183 days in any one financial year.
If you would like legal help buying a property in Portugal you can contact Kobalt Law LLP
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