Foreigners who are interested in buying property in Portugal will have to familiarize themselves with the purchase process. Buyers must first sign a promise to buy, which is similar to purchase option in the U.S., although in this case if the seller reneges the buyer will received double the down payment. The buyer must also pay a stamp duty, transfer tax and other applicable fees. The transfer of title must be registered, but buyers are not required to become tax residents. Even so, the buyer must obtain a Portuguese tax number and appoint an tax representative if he or she is not a resident of the European Union. For more on this continue reading the following article from JDSupra.
1. Which steps do I have togo through in order to buy real estate in Portugal
As a general rule, buyers have to undertake the following steps:
a) Sign a promise to purchase and sale agreement;
b) Pay property transfer tax;
c) Execute a deed or private agreement;
d) Lodge the transfer of title before the Land Registry Office and the local Tax Office.
2. What is a promise to purchase and sale agreement?
The purpose of this agreement (contrato promessa de compra e venda) is to engage both parties in the transaction whilst allowing them sufficienttime to get the necessary paperwork resolved and the funding ready.
The buyer usually fronts a percentage of the total price (between 10%-20%), which he will receive in double if the seller goes back on his promise. If it is the other way round, the buyer will lose the deposit.
3. How much property transfer tax is the buyer subject to?
Transfer tax is levied according to a sliding scale which depends on the price of purchase when real estate is bought as a permanent residence.
Real estate bought for commercial purposes is taxed at a flat rate of 6.5%. However, if the buyer is resident in an off shore jurisdiction, transfer tax is levied at a rate of 10%.
|PURCHASE PRICE||RATE (%)|
|From over 92,407 till 126,403||2|
|From over 126,403 till 172,348||5|
|From over 172,348 till 287,213||7|
|From over 287,213 till 574,323||8|
4. Are there any other taxes?
Yes, there is stamp duty levied at a rate of 0.8% on the price of purchase and real property tax charged at a percentage of the rateable value. In this last case rates will vary according to the municipality your real estate is located in (from 0.3% to 0.8%).
5. Is it a good idea to acquire property through an off-shore company?
This should be assessed on a case-by-case basis, but potential buyers should know that in this situation real estate tax is levied at a much higher 7.5% rate. As stated in question 3, transfer tax is levied at a rate of 10%.
6. Do all transactions gothrough a notary’s office?
Until 2008 transfer of title could only take place through the intervention of a notary. However, that has changed and a private agreement is enough.
7. What happens after the deed or private agreement?
The transfer of title must be lodged before the relevant Land Registry Office and the local Tax Office.
8. Is tax residency mandatory?
Buyers need not become tax residents in Portugal. However, they must obtain a Portuguese tax number and appoint a tax representative if they are non-EU residents.
This article was republished with permission from JDSupra.