It’s a known fact that Portugal has been a very attractive location for foreigners, not only as a touristic destination but also as a favorable location to invest in real estate properties. Due to this huge demand, more professionals specialize in the real estate brokerage activity. Moreover, new estate offices were licensed recently, with an average of four new estate agencies per day in 2017. Therefore, it’s important to remind investors that are interested in investing in the Portuguese real estate market about the main legal and tax matters.
After choosing an area where he wants to acquire properties, either for owner-occupied housing, future resale, or renting purposes, the investor should obtain specific information about the property. That kind of information can be consulted in the certificate of registry emitted by the Conservatory ( Certidão da Conservatória do Registro Predial do Imóvel) and in the official tax document ( Caderneta Predial do imóvel). These documents have information related to possible associate charges or about the owner that wants to sell the property.
The future owner also needs to consult possible restrictions and use permits in the Municipality where the land is located, as well as the Development Plan and regulation related to soil use in case he wants to acquire the right of land ownership. Finally, it may be necessary to analyze the user license that defines the property’s intended purpose and the home licensing in case the future owner intends to acquire the building ownership or its fraction.
After checking all these documents, the investor can seek the preparation of a pre-contract agreement before the final contract, because this pre-contract brings more security to both sides until the final agreement. This pre-agreement regulates a maximum deadline for the contract conclusion; property’s price; warranties related to the property’s physical state or lack of debts for example; implementation conditions in case one party doesn’t comply with the contract; assurance for compliance by the buyer; and others. This agreement and the user license will be personally recognized by a notary while the first one is signed by the parties.
Lastly, the Real Estate Purchase Agreement will be drawn up with the public property conveyance deed (escritura pública) or a private document signed by the parties as long as it’s properly authenticated. After the conveyance deed, the property is registered in the buyer’s name and then she has the effective right to the property.
It’s important to mention the most important taxes that must be paid for the one that decides to invest in estate properties, regardless of the reason for purchasing. The first one is the Municipal Tax on Real Estate Transfer - IMT. This tax is paid once by the purchaser when the contract is concluded. However, it’s a progressive tax that varies depending on the business purpose, for owner-occupied housing or other purposes, and depending on the type of property, urban or rural. The maximum tax for urban buildings when the exclusive intention is owner-occupied would be 6%, and it’s charged over the value indicated in the conveyance deed or over the value indicated by the Tax Authority, whichever is higher. There are special situations where the buyer doesn’t need to pay the IMT, for example if the property is acquired by a real estate company if it’s resold in three years and is in the same state as when it was bought.
The other relevant taxes are called Stamp Duty taxation and Municipal Tax over Real Estate - IMI. The first one has the same reserve base as the IMT, over the conveyance deed value or the taxable patrimonial value, and the tax is 0,8% of this value. The IMT and Stamp Duty are paid when the purchase is made. The IMI, however, is paid annually, in April, by the owner through a single collection document. The payment can be prorated in three times if the value is greater than 500 euros. This tax is based on the taxable patrimonial value and varies between 0,3 and 0,5% of this value. Finally, the owner can be exempt of IMI tax payment if the property’s value is not greater than € 125.000 and the owner’s income was not higher than € 153.300,00 during the previous year.
The buyer is also responsible for other administrative costs such as the deed value, which varies depending on the place, while the seller is responsible for the payment of a State tax that charges 50% over the sale’s added value (mais-valia). The seller also needs to pay the likely costs related to the process documentation, registry certificate, energy certification, and others, as well as the cancellation of the mortgage.
This is a brief but complete summary of important legal aspects during the purchase and sale’s process, specially for the investor. It also addresses the main taxes that must be paid during and after this process. Finally, it’s also important to seek legal advice from a specialized lawyer before the purchase of a real estate property. In the next articles I will write about Real Estate Funds and Urban lease.