The Real Estate market in Portugal
Portugal has experienced a steady economic recovery since the 2008 financial crisis, with robust GDP growth and a stable property market. Unlike the erratic booms and busts seen in some countries, Portugal’s property prices have risen gradually and sustainably. This steady growth is a positive indicator for long-term investors, as the market is not subject to wild fluctuations.
This high quality of life, combined with relatively low living costs and a stable political situation, further enhances the appeal of owning property in Portugal. As more people move to the country, demand for property continues to rise, ensuring a strong market for years to come.
The legalities of buying a property in Portugal
The legal process of purchasing a property in Portugal is a big attraction for many buyers as it is considered safe, protecting buyers and sellers. However, you can never be too careful. So, we have compiled your definitive guide to the legal process of buying a property in the Algarve to ensure you don´t get any unwanted surprises.
Always use a lawyer
Using a legal representative (solicitor or lawyer) is highly recommended when buying or selling property in Portugal. The solicitor undertakes essential acts such as drawing up the Promissory Contract for the purchase and sale, verifying that all paperwork concerning the property is in order, checking with the tax office to confirm that no taxes are outstanding, and booking the transfer deed with the notary office, relieving the purchaser of future encumbrances.
Legal and tax requirements
Capital gains taxes are reasonable, and property tax rates are relatively low compared to other Western European countries.
Another big pull is that there is no inheritance tax. Although the inheritance tax has been abolished in Portugal, a stamp duty (Imposto do Selo) of 10% can be applied to inheritance. This stamp duty applies only to assets located in Portugal, such as real estate and other local assets. Assets located abroad are, therefore, not subject to this tax in Portugal, which can be a significant advantage for foreign property owners. However, legitimate heirs, including spouses, children, grandchildren, parents, and grandparents, are exempt from stamp duty on inheritance. This means these direct heirs will not pay the 10% stamp duty on inherited property in Portugal. This exemption aims to reduce the tax burden on families and facilitate wealth transfer among family members.
The government’s openness to foreign investors and favourable tax laws make Portugal a financially savvy choice for property buyers. However, it is vital to consult a tax advisor before buying in Portugal to ensure you understand all of your tax implications.
Use a licensed real estate agent
It is highly recommended that both vendor and purchaser engage the services of a government-licensed Real Estate Agency, like Ten Hoopen Realty. Our multilingual team consists of driven, dedicated professionals who strive to provide our clients with the best possible advice and service.
Legal Expertise: Licensed real estate agents in Portugal understand complex property laws, ensuring compliance and minimising legal risks.
Efficient Process Management: Agents handle essential paperwork, regulatory checks, and negotiations, saving you time and reducing potential errors.
Market Knowledge: Local agents offer valuable insights into the Portuguese market, aiding in accurate property valuations and favourable negotiation outcomes.
Multilingual Support: A multilingual team bridges language barriers, especially important for international buyers or sellers navigating local regulations.
Access to Verified Listings: Licensed agencies provide access to vetted properties, ensuring transparency and security in the transaction.
Property Tax
1. IMT (Property Transfer Tax) is based on the purchase price, type of property, and area it is located in. The amount due is variable, depending on the property’s price and whether it is a second home or primary residence, and it is based on a sliding scale. The maximum rate is 6.5% of the property price, and you should ask a professional to calculate this for you before making an offer on a property. IMT is payable at the local tax office in Finanças or Casa Pronta just before the final act of sale.
2. Stamp Duty: This tax is based on the purchase price of the property and the loan amount, if applicable, at a rate of 0.8% on the purchase price or 0.6% on the loan.
3. IMI: This is the annual municipal tax or rate based on the value of the property and varies between 0.3% and 0.8%. Buyers should be aware that they can and should request a “pro-rata” adjustment. This adjustment is necessary because the tax is always settled the year following the year it applies to. For example, suppose a property is purchased in November 2024. In that case, the sellers are responsible for paying the IMI from January 2024 up to the date of the sale, and the buyers are responsible for paying the tax from that date through December 31, 2024. The “pro-rata” is a legal calculation that ensures both parties agree on how the seller’s share of the tax will be handled.
For those purchasing an individual property unit, it’s also necessary to obtain a statement from the Condominium Administration confirming that there are no outstanding debts or other issues related to that unit.
4. Capital Gains Tax (Mais Valias) In Portugal, capital gains are payable on profits made from selling property for a price higher than the original purchase. This tax applies differently depending on residency status: residents pay tax on 50% of the gain at progressive income tax rates, while non-residents, as of 2023, are taxed similarly on 50% of the gain but with rates ranging from 13.25% to 48%.
However, exemptions are available for vendors who reinvest the proceeds into a new primary residence within Portugal or the EU/EEA within specific time limits—generally 36 months after the sale or 24 months before. Additional exemptions apply for those over 65 or retired if gains are reinvested into eligible retirement products, making the structure advantageous for residents and non-residents alike who meet the criteria.
Document check-list when buying a Property
The legal requirements for buying a property in Portugal are relatively straightforward. You will need the following to qualify for buying a property:
1. Portuguese Fiscal Number: To purchase a property in Portugal, whether as a resident or non-resident, you will need a Portuguese tax (fiscal) number, número de contribuinte, which can be obtained at the local tax office Finanças while you wait. You will need to provide proof of your identity and address to apply for one. Non-EU buyers are required to appoint a fiscal representative in Portugal. This representative, usually a lawyer or agency, communicates with Portuguese tax authorities on their behalf and ensures all tax obligations are met.
2. Portuguese Bank Account: This fiscal number will also be required to open a Portuguese bank account and for connecting water, electricity, telephone, etc.
3. ID: Buyers will need to provide, as identification, either of:
- Portuguese Citizen card Cartão de Cidadão, or
- A Passport and Portuguese tax number numero de contribuinte.
Property due diligence checklist
Your solicitor or lawyer will check that the property’s documents are in order before advising you to proceed with the purchase. Due diligence must be done to ensure that all municipal rates and taxes are in order and that condominium maintenance and service fees (if applicable) are up to date. The lawyer will also check that the property you are buying matches the paperwork.
The following documents should be checked by your lawyer/solicitor:
Certificate of the Land Registration (Certidão de Teor da Descrição Predial): The local Land registry office uses this document to prove the property ownership.
Property Tax Document (Caderneta Predial): This is issued by the tax department and will confirm that the property has been registered for tax purposes.
Habitation licence (Alvara de Licença de Habitabilidade/Utilização): This license is issued by the local Town Hall (Câmara Municipal) and proves that the building complies with the relevant building regulations. A recent change in legislation, ‘Licensing Simplex,’ means that from January 2024, the presentation of the Habitation License is no longer a legal requirement at the point of sale, so most councils are no longer issuing one, instead using PIPs, provisional approvals and the architects signing off on new construction.
“Ficha Técnica de Habitação” (Technical Document of the House) for all houses built after 2004.
Energy Certificate: All property owners must have an energy certificate of the property ready and available to be presented at the time of the signing of the deed. This certificate evaluates how efficiently the property uses energy; without it, the public deed (escritura) cannot be signed. Certified companies and engineers issue energy certificates and take approximately 14 days to be completed. The cost of the certificate depends on the type and size of the property. In most cases around Euro 200 for an average-sized two-bed apartment, and it is the vendor’s responsibility to apply and pay for it. It is valid for 10 years is handed to the new owner when the deed is signed. Vendors can ask the team at Ten Hoopen Realty to help you apply for the certificate with a local engineer.
Purchase process:
Simply put, there are three essential processes for selling a property.
1) Signing the Promissory Contract
2) Signing the Property Transfer Deed
3) Paying taxes
Two legal contracts dictate the purchase process. In property transactions where buyers and sellers live abroad, lawyers are often given power of attorney to act on their client’s behalf. This is a fairly easy process carried out in a notary.
1. Promissory contract: The contrato de promessa de compra e venda, known as the CPCV, is a preliminary contract signed by both parties. It reserves the property until, for example, the mortgage comes through.
It should include all details of the property, the terms and conditions agreed upon, price, completion date, inventory, etc. The purchaser will then pay the vendor or their legal representative a deposit (entrada) of between 10 and 20% (depending on what was previously agreed to by both parties). This contract serves to confirm the intention to buy and sell the property.
A deposit of at least 10% of the purchase price is usually required. It is legally binding, so if the purchaser backs out, they lose the deposit, and if the buyer reneges on the contract, they are obligated to double the deposit.
2. Property Transfer tax (IMT): This tax is payable by the purchaser before the granting of the final deed (Escritura de compra e venda). The notary requires proof of payment.
3. Final Deed (Escritura de compra e venda): The final deed is done before a notary and is prepared and drawn up based on the property’s documents. It is usually the responsibility of the purchaser (or their solicitor) to book a time and date, agreed by all involved, for the transfer deed to be signed. The presence of both parties (vendor and purchaser) or their legal representatives is required to sign the deed. At this stage, payment of the balance of the price must be made. Before the deed, all expenses and taxes relating to the property must be in order; otherwise, you might be responsible for those payments (eg., rates, electricity and water bills).
If one of the parties present does not speak Portuguese, a translator is required to accompany them. After the deed is signed, all the keys are handed over to the new owner.
4. Land Registration (Registo Predial): After obtaining a certified copy of the deed, you must apply for registration of your property so that it will be registered in your name.
5. Notary and registration fees: The purchaser is responsible for these payments, which are approximately €1300.
6. Utility Bills: Following the deed, make sure all utility bills (rates, gas, water, electricity, telephone) are transferred into your name. Your lawyer can assist you with this.
In conclusion, purchasing a home in Portugal offers a secure and attractive investment opportunity, thanks to the country’s robust legal framework and clear documentation requirements. The stringent property laws ensure that every transaction is transparent and legally sound, providing domestic and international buyers peace of mind. Portugal’s dedication to protecting property rights has made it a top choice for investors, second-home seekers, and retirees alike. As long as buyers follow the established legal procedures and seek the necessary professional guidance, they can confidently navigate the buying process and enjoy all the benefits of owning property in this beautiful and vibrant country.
Note: Please be aware that this information is not a substitute for professional advice, and we cannot accept responsibility for any loss or damage.
