Buying a home overseas can be challenging. Having to cope, most of the times, with a new language and an unfamiliar culture, and having to deal with different legal and practical issues, it's important that you have a clear notion of what you can expect from the entire process.
That's the reason why we strongly recommend the reading of this guide, provided to assist people who are looking for investments in Portugal and want a better understanding of the country's system.
We at Life Investments are proud to present you some of the best investment opportunities and we guarantee you the support from a team of professionals that will guide you, step by step, from deciding on the type of property that is right for you, to finally taking possession of your dream in the sun - and beyond.
As a future owner of a Portuguese property you must start by getting a Portuguese Fiscal Number (número de contribuinte), which can be obtained by yourself at the local tax office (finanças), or by someone with a letter of attorney. This document will be your personal identification for payments related to the property, taxes, opening a bank account and so on.
Assuming that you have found the property you want to buy and that you will contract a mortgage application, Life Investments can help by presenting you some banking institutions, acting has an interface between you and the bank and by helping you compare and decide over the loan proposals, through the analysis of our loan experts.
Our professionals assure you that nothing can go wrong. All the properties we present to our clients are submitted to a constant check up. Before you sign any commitment concerning any property, we access all relevant entries in the Land Registry (Conservatória do Registro Predial), in and the Tax Office (Finanças), and at the local council (Câmara Municipal), assuring first and foremost that the seller has clear title and that there are no other rights or charges on it. This procedure also assures the correspondence between the official description of the property and the existing one, discharging future inconveniences.
Having confirmed through our services that all the relevant aspects concerning the property are correct, you are in condition to go to the next stage – settling the final terms and subjecting to contract.
The promissory contract (contrato promessa de compra e venda) represents the first real commitment binding the seller and buyer’s will. This document must obviously be signed by both parts or someone with a letter of attorney and, as a promissory contract, it must not only include full details of the vendor and you as purchaser, but also full details of the property, the agreed price, and any special terms or conditions. A deposit (sinal) must be done at this time and its value usually varies between 10 and 30%. Portuguese law protects both intervenients in the process. If the buyer changes his mind he will loose the deposit, if it is the seller the one who changes his mind he has to return the deposit in double. This contract should be signed in the presence of the Notary (notário), although, under particular terms, this notary recognition can be legally excused.
Life Investments assures that all the documents are translated into a language that you can understand before you sign them.
On the local Land Registry (Conservatória do Registo Predial), and through the analysis of the property registration certificate document, it’s checked if the seller has the ownership of the property and also if the property is free of any other rights or charges.
On the local tax office it is obtained an official tax document, which certifies the registration of the property for fiscal purposes and also identifies the owner, his fiscal number and the description of the property (areas, number of rooms, area and type of plot, history etc). This informations should match the details registered in the Land Registry. It also identifies the property with a unique fiscal number (matriz predial) and mentions how much the owner will pay in local yearly taxes. This certificate is always necessary in the transaction of the property. If the property is new this will be replaced by a form while the certificate is not issued.
The copy of the usage license can be obtained in the Local Town Hall (Câmara Municipal). This document allows us to verify if the property is approved under the purpose of the original building permission. For residential properties it is necessary a habitation license, for non-residential it is necessary a commercial or industrial license. It is also necessary to present this document in the buying and selling contract when signed in the presence of the Notary.
This is a property purchase tax that must be paid before the Final Deed. As the payment takes place, a document is issued by the Local Tax Office, which proves its payment. The tax to pay depends on the price of the property or, if higher, on the ratable value that is registered on the Property Tax document. A sliding scale applies, and a maximum of 6% is applied to values over 532.700 Euros. Rustic property (without building permission) will be charged at a flat rate of 5% and commercial property or land for construction will be charged at a flat rate of 6.5%. If the property is purchased by any offshore company concerning the development of Residential tourism it’s applied an IMT tax of 8%. Blacklisted Offshore Companies pay a flat rate of 15%.
The 2003 Property Tax Reform created what is called the ‘VPT’ Evaluation System (Valor Patrimonial Tributário). Comprised of five basic components, this calculation is based on ‘market value’. This ‘market value’ is calculated taking the following into consideration: Constructed Area and Implantation, Type of Usage, Age, Location, and Quality of Construction. The best and simpler way to do this is to use the Tax Office simulator on the Internet. As a guideline your annual property tax (IMI) may be levied at up to 0.8% of the ratable value for privately owned properties and properties registered in a white-list corporate structure (with domicile in Malta, Delaware or UK). For properties registered in a corporate structure, in one of the blacklisted jurisdictions (for example Gibraltar), the IMI will be levied at 5% of the ratable value. If the property is owned by any offshore company concerning the development of Residential tourism it is applied an IMI tax between 1% and 2%.
You will be responsible for paying these notary and registration fees once the final deed is signed. Expect to pay around 2% of the total sale price. For example, when signing a deed, the purchaser must pay the stamp duty, which varies according to the type of deed or operation. For real property, a Gift or Sale is assessed at 0.8%.
The title of the property is done on the deed of conveyance signed in the presence of an official Notary. All the mentioned documents are necessary. The contract will be read aloud and might be translated into English.
Finally, the title deed must then be entered into the Land office and also in the Local Tax Office so that your ownership is fully protected against third parties. This procedure should be done with no delay.
Once the property is in your name, you will have to register with the various utility companies - electricity, gas, water, telephone, cable and so on. Many buyers ask their power of attorney to act in their behalf.
There have been sweeping changes affecting the taxation of Portuguese properties. This is due to European Community legislation regarding offshore tax havens and the necessity for Portugal to standardise the rating system in the country as a whole. It is therefore more important than ever to decide how you wish to own your property and there are basically two separate routes:
Transfer Tax (IMT) is payable upon purchase, and, as we saw previously, it's applied at banded rates, but averages out to be around 6%. Annual Rates (IMI) are at the lowest levels, approximately 0.5%. There are significant tax breaks for Portuguese residents: on sale Capital Gains can be rolled over to a new property purchase; also there are exemptions of inheritance tax to direct family members. All family members (spouse, children, grandchildren, parents and grandparents) are exempt from tax on gratuitous transfers due to either Gift or Inheritance. Note that non-residents must now have a fiscal representative (Portuguese Accountant), which has an annual cost.
The annual municipal tax (IMI) levied on property owned by companies based in tax havens exceeds significantly the rate applied to non-offshore held property. On the other hand, when purchasing a property using a corporate entity, there is no IMT to pay on the purchase.
The recent changes in the law regarding corporate ownership and Blacklisted Offshore Companies have cleared up the grey areas. Buyers and sellers have the confidence that their properties comply with Portuguese requirements and that properties are owned under an acceptable jurisdiction, like white listed. It is now quite normal to see Portuguese properties described at the market as owned in Malta or Delaware and it is completely acceptable for properties to continue to be owned by such companies. The majority of 'prime' properties, especially in the Algarve, continue to be sold by the sale of the shares in the companies now based in Malta or Delaware.
Portugal has long been a popular choice for those, particularly from the colder climates of Northern Europe, looking to purchase a holiday house or a retirement house. Traditionally they have done so using offshore companies. At the time of purchase, these people were advised that the usage of an offshore company would avoid liability to Portuguese inheritance tax and that resale could be achieved by a transfer of the shares in the offshore company, thereby avoiding Portuguese capital gains tax and high transaction costs. Because the property itself is an asset of the company, the buy of the property occurs trough the purchase of company's shares;
Portugal has recently introduced new legislation that imposes tax on property owned by companies located in "blacklisted" jurisdictions. Most popular offshore financial centres appear on the Portuguese blacklist. These owners then considered transferring the property back into there own names, but this would remove the advantages of offshore ownership;
What's happening is that the owner's redomiciliate the offshore companies to a tax efficient jurisdiction that is not on the Portuguese blacklist. A number of jurisdictions are suitable but the preferred option is Malta. Malta is now a full member of the European Union and has a tax treaty with Portugal, but it practice a highly advantageous tax regime. When a company is redomiciliated in Malta, the annual taxes imposed under the new legislation in Portugal will no longer apply but all the advantages of offshore ownership remain - avoidance of Portuguese inheritance tax, avoidance of capital gains tax on resale since the capital gain taxes can be avoided or indefinitely deferred (tax only applies if and when the company ever sells the property), avoidance of Portuguese transfer buyer's taxes (IMT) on resale and assures the anonymity. This also means that there would be no need to transfer the properties out of the corporate structure and thereby trigger immediate capital gains and sales tax costs.