When you purchase a property in Portugal you have various fees and taxes that are payable by the buyer. These these completion costs are impractical and hard to predict with accurately because there is an amount of varying factors that will not become totally known until the transaction occurs.

We can, nevertheless, give a generalized guide on how to get the best estimate on the costs of your property for sale in Portugal.

The costs are accounted based on the price of the property written on the Escritura. Because these expenses are heavy and with an added dislike of paying tax by the Portuguese there existed a habit of accidentally under-declaring the price of the property for sale. In the past this was almost certain, but nowadays it rarely ever happens. As a group of solicitors we can only advocate you to declare the full price of the purchase when buying a property in Portugal.

Real Estate Agent Fees

In Portugal the buyer doesn’t have to pay Real Estate Agent fees because the real estate agent acts on behalf of the seller and not the buyer. He receives a commission, like a real estate agent in the United Kingdom. Consequently, when buying a property in Portugal, it is always important and recommended that you take independent legal advice before signing any kind of contract. Only this way it will be possible for you to have an precise search at the Land Registry, Tax Office and Town Hall.

Legal fees

The legal fees amount up to 1% to 2% of the purchase price of the property.

Notary and registration fees

When the Notaries profession was privatized, Notary fees changed substantially and now depend on the office where the Escritura is signed. This means that the prices may vary depending on the notary. The Land Registry

Fees, will be around 200€ when the property is bought without a mortgage. When there is a mortgage involved they can increase up to 600€.

Taxes

In Portugal there are several different taxes on the purchase, possession and disposal of property. These taxes include:

IMT (Real Estate Transfer Tax) – This tax is payable by the purchaser. The tax payable on residential property depends on the price of the property and the average will be between 5% and 6% of the property price.

In the case of construction plots the IMT has a fixed rate of 6.5% and if the property is located in a rural area, the IMT rate is 5%.

IMI (Municipal Property Tax) – This tax is to be paid annually and it is levied by the municipality on the following terms:

  • Rural property: 0.8%
  • Urban property: (not revalued according to the new valuation rules): 0.4% to 0.8%.
  • Urban property liable to the new valuation regime (revalued according to the new valuation rules): 0.2% to 0.5%.

Stamp Duty or Imposto de Selo – The transfer of property is liable to 0.8% stamp duty. In case of a donation to a spouse, descendants or antecedents are exempt from taxation while other types of donations are liable to a 10% stamp duty tax. Also exempt of tax are inheritances to a spouse, descendants or ascendants. Assets left to anyone else are liable to a 10% tax.

Mortgage Costs

If you are taking out a mortgage for your property, there will be additional costs that typically amount, altogether, to about 4 per cent of the amount borrowed.

The Banks in Portugal will loan to someone in permanent residence in the country and offshore Banks will usually finance up to 65% of the property value. Mortgage periods are shorter and usually are no longer than 20 years. The rates are lower than the ones in the UK but there is the disadvantage of having to be subject to the exchange rate of the day when the mortgage payments are due.

Other Charges

There are several other minor charges that can add up a bit. These are the architect’s fees, surveyor’s fees, UK legal fees (typically 1 per cent), first connection to water, electricity, etc. Most of these will be subject to Portuguese VAT at 20 per cent; however a UK lawyer’s fees will be outside the scope of Portuguese VAT.

Buying your property

There are various phases to the acquisition of property in Portugal, I will now describe to you the main parts of the property sale. After you have chosen the Portuguese property of your desires, the first step will be to sign a Reservation Form. This form will include the identification of both parties and identification of the property and also define the amount to be paid upon its signature, the total price, the payment conditions and the period in which the Promissory Contract will be signed. The amount paid on reservation is subtracted from the total price to be paid off by the buyer. The contract also makes clear the consequences of not signing the Promissory Contract and any of the parties withdrawing from the transaction.

The second step is the signature of the Promissory Contract. While not compulsory, and whether or not reservation has anteceded it, generally both parties enroll into a promissory agreement identifying the property to be sold and detailing the conditions of the transaction: this is the Contrato de Promessa de Compra e Venda. This contract is used in almost 100% of property transactions in Portugal and is prepared by the purchaser’s lawyer.

Usually, the Promissory Contract of Sale and Purchase is legitimatized by a Notary that indorses the signatures of both parties; as an alternative the parties can agree not to legalize the contract. In either case the Promissory

Contract of Sale and Purchase is legally binding on both sides.

The Promissory Contract of Sale and Purchase establishes all the procedures and conditions on how the property sale will be made. These include stage payments and the term allowed for completion of the property sale.

With the signing of this contract a deposit (‘sinal’) must be paid at the same time by the buyer to the seller. This generally this varies between 10 and 30% of the purchase price of the property.

Portuguese law protects both parties in case one of them fails to accomplish any contractual obligation. In some cases, the innocent party is allowed to start court proceedings requesting the judge to formally replace the other party and perform the act that this party is refusing to perform. It is the so-called ‘specific performance of the contract’ (‘execução específica’), normally introduced by the parties in this kind of contracts. There are other particular rules concerning to the Promissory Contract of Sale and Purchase that a lawyer will be able to explain. The other consequence in case of non compliance with the contract which is used in alternative to the “specific performance of the contract” is, for the buyer recovering double the deposit paid and, for the vendor, keeping the deposit paid.

The Promissory Agreement of Sale and Purchase can be signed personally by the parties or by the lawyers acting for them.

The final step is done once the seller has delivered the Notary with all appropriate documents and the when the Transmission Tax is duly paid. The formal act of the property sale and purchase can proceed at any notary office in Portugal. This is known as the Public Deed of Sale and Purchase (Escritura Pública de Compra e Venda), happens in the presence of the chosen Notary and consists of a formal record of the purchase and sale that is printed in the official and public books of the Notary.

The Deed is prepared by the lawyers of the parties together with the Notary and is then signed by the parties and by the Notary.

The main tasks of the Notary are the following: Assure that all appropriate rules are applied, check that all taxes have been paid and to protect the interests of both parties.

Consequently, the notary public must ascertain prior to the carrying out of the Deed that all required documents are in order, with the purpose of ensuring that the transaction proceeds in compliance with the law.

Simultaneously, the payment to the seller is concluded, according to the agreed purchase price of the Promissory Contract of Sale and Purchase.

As said, the Deed of sale and Purchase is put down in the Notary books. After this the Notary Office will issue as many certified copies of the related entry as required, and these serve as official proof that the transaction has been lawfully accomplished and the price was paid in full. The copies bear the official seal of the Notary Office but, as further official certified copies can be requested at any time, these documents should not be confused with a ‘Title Deed’ as in English law.

As with the Promissory Contract of Sale and Purchase, the Public Deed of Sale and Purchase can be signed personally by the parties or by their lawyers.

After the Public Deed of Sale and Purchase, the transmission of ownership (‘transmissão de propriedade’) has to be filed at the local Property Registrar (‘Conservatória do Registo Predial’). Meaning that it is required to ‘inform’ the Property Registrar that the sale has been completed by providing a certified copy of the Public Deed of Sale and Purchase and requesting that the property in question to be registered in favour of its new owner. It is recommended that this registration be made immediately after the execution of the Public Deed of Sale and Purchase.

Simultaneously, it is also necessary to provide a certified copy of the Public Deed of Sale and Purchase to the local Tax Office (‘Serviço de Finanças’) and request the property to be inscribed in name of the new owner. I hope this has given you a clear idea on the costs of buying and selling property in Portugal. If you have any questions or suggestions, please leava a comment below!