Buying a house in Portugal - Everything you need to know..
Guide to the main steps to be taken within the scope of a standard process of buying and selling a residential property in the country, for different uses.
The purchase of a property in Portugal - be it an apartment, a house, farm or land - is a process that takes on some complexity and implies the fulfillment of several legal requirements. Before diving into this adventure and so that everything goes smoothly, without any hassles and problems, during and after closing deals, which make you lose time and money, it is best to be well informed.
In this post I present the main steps that should be taken in the context of a standard process of buying and selling a property in Portugal, by a private individual, being addressed to anyone interested in the acquisition of a property in the country, whether for the purposes of rental, investment (long-term rental, local accommodation), holidays or housing use, among others.
* Non-resident Entities in Portugal - Obtaining the Identification Number:
One of the first steps in the process of buying and selling a property in Portugal, for entities that do not have a tax residence in Portugal, is to obtain the Tax Identification Number “NIF” from the Tax and Customs Authority. The NIF is the administrative number that identifies each natural person in Portugal before the Tax and Customs Authority, being necessary for all contracts entered into in the scope of the acquisition of a property in Portugal.
In the case of singular persons, if the buyer is married, it will be necessary to request the NIF of both spouses even if the property is only acquired by one of them.
Legal and technical audit of the Property:
Due to the large investment that the purchase of a property implies, it is recommended to carry out a legal and technical audit of the property - survey and analysis of all information and data relating to the property - before the conclusion and signing of any agreement, in order to that the buyer can correctly evaluate the property he intends to acquire and minimize the risks of the process as much as possible.
This will be the stage in which the buyer will be able to confirm, for example, what mortgages or lien charges are on the property, whether the use of the parking space is exclusive to the apartment owner, whether it is included when the property is transferred, among others.
* Promissory purchase and sale agreement (“CPCV” - Contrato Promessa de Compra e Venda):
Before signing the public purchase and sale deed, and for the purpose of binding the parties to the future business, it is recommended to enter into an agreement called a promissory purchase and sale agreement “CPCV”, through which each party will establish the terms and the conditions for the purchase and sale, committing, under the terms of the same, to the celebration of the future business, in which the property will be transferred to the buyer.
In a promissory purchase and sale contract, the conditions of the deal must be established, such as:
1. Identification of the seller and the buyer
2. Property identification
3. Purchase and sale price
4. Description of payment terms and conditions
5. Deadline for carrying out the public deed
This type of agreement is not mandatory; however, this is a common procedure when the buyer needs to use bank credit or, for any other reason, the final contract cannot be immediately signed.
The promissory purchase and sale contract should always be carefully reviewed by a qualified professional since in my professional experience I sometimes find situations in which the inadequate wording of this type of contract has resulted in the loss of the value of the down payment given by the buyer.
* Provisional Registration of the Promissory Purchase and Sale Agreement:
When a promissory purchase and sale contract is signed, registration may be requested from the Land Registry Office in order to safeguard the position of the promising buyer as the future owner of the property, before third parties.
Thus, if the seller intends to sell the property to an entity other than the promissory buyer, the latter may assert his right and, through recourse to the court, compel the buyer to comply with the agreement assumed at first and to transmit ownership of the property to the prospective buyer.
* Public Purchase and Sale Deed / Purchase and Sale Agreement (Escritura Pública de Compra e Venda)
The definitive purchase and sale contract is prepared and awarded by the parties to a notary, lawyer or solicitor, who, as the case may be, will be the entity that will certify that the purchase and sale takes place under the agreed terms, verifying the payment of the price, certifying the identity of the parties, the documents relating to the property and the payment of tax obligations, and is also responsible for carrying out the registration of the acquisition in the name of the new owner with the Conservatório do Registo Predial.
* Definitive Registration of Acquisition:
Once the public deed or final contract has been signed (Escritura Pública de Compra e Venda), the registration of the acquisition must be submitted to the Land Registry Office.
The main taxes due for the acquisition and ownership of a property are:
1) Municipal Tax on Transfer of Property (“IMT”) - This tax is due only once when the property is acquired. The IMT rate varies between 0% to 8%, according to the acquisition value or tax equity value, the rate to be applied (from 1 to 8%), its location and its purpose.
2) Stamp Duty (“IS”) - This tax is paid when the property is acquired. The fee amount is 0.8%, regardless of the purchase price.
3) Municipal Property Tax (“IMI”) - This tax is due every year by the taxpayer who owns the building on December 31 of the year to which the tax relates, with a rate between 0.3% to 0.45% taxable equity value of the property.
So that all the specificities of the different stages of the purchase and sale process are observed - preparation of the public deed of purchase and sale, payment of taxes, registration with the Land Registry Office, etc. - it is recommended that the parties, both the buyer and the seller, are duly advised by an independent professional with competence in the area of real estate law.
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