Real estate purchase process in Portugal
We recommend that you not go through this alone and instead look for the help of a lawyer who will represent you and will safely guide you through the entire process of purchasing the property. At this point, we recommend lawyers cooperating with our agency – Loco Real Estate, who will be happy to support you at every stage of purchasing your dream property, incl. in obtaining a NIF, opening a foreign bank account, making a reservation, and signing a preliminary contract.
- Required documents
- Preliminary agreement /developer agreement
- Notarial act
The required documents are a passport or ID card (for EU citizens) and a NIF number. It is a Portuguese tax identification number, without it you will not be able to do anything in Portugal, incl. you will not open a bank account – needed for tax purposes. The administrative costs of obtaining a number are approximately 15 € . You do not need this number to sign the reservation form or preliminary contract.
Reservation – a simple document that takes the property off the market for a period of 7 to 14 days. This is a good time for an attorney to thoroughly check the status of your property. This procedure involves a small deposit (approx. 2 000 – 6 000 € ) transferred to the owner’s account.
Preliminary agreement – purchase and sale agreement (CPCV) specifies the conditions and the date of purchase of the real estate. Under it, the buyer undertakes to make an advance payment on the property – usually, it is 10-25% of the purchase price of the property. The date of the notarial deed is usually set at 30 to 60 days after signing the preliminary contract.
Developer agreement concerns real estate under construction and differs from the preliminary agreement in two respects: the down payment depends on the stage of completion of the construction, but usually, it is higher than in the case of the preliminary agreement and amounts to 40% of the property value. The second issue concerns the date of signing the notarial deed – it depends on the date of construction completion.
Notarial deed – is signed with a Portuguese notary, who then undertakes to register the acquisition of the property on behalf of the new owner in the Portuguese land register. Then the remaining part of the property purchase price is paid in.
The costs associated with the purchase of real estate in Portugal
The costs associated with the purchase of real estate include payment of a fee to the Tax Office, payment of a notary, and entry in the Land and Mortgage Register, and IMT (Imposto Municipal Sobre Transações Onerosas de Imóveis) – property transfer tax. Stamp duty in Portugal amounts to 0.8% of the property value, and the costs of the notary and entry in the Land and Mortgage Register amount to 0.5% of the property value. On the positive side, the buyer never pays for the agency’s salary – this is always on the seller’s side. However, the total cost of buying a property in Portugal is the purchase price and the so-called closing costs (additional costs), which are usually around 6-10% of the purchase price. The largest expense is IMT and it depends on the type and type of real estate (e.g. a country house or a city real estate, real estate for rent or real estate for the buyer), location, and value of the real estate. Usually, it is 2-8% of the real estate purchase price – the calculation is individual.
Property maintenance costs – as in the case of taxation upon purchase – vary depending on the type of property. The property owner must pay the following two taxes each year and the additional costs listed below.
- Real estate tax (IMI) – determined and updated by the commune in which the real estate is located (municipal buildings: from 0.3% to 0.45%; country houses: up to 0.8%).
- Property Tax (AIMI) – This is in addition to the IMI tax and is payable when the value of the property exceeds 600 000 €. It is charged on the appraised value of the property.
From 600 000 € to 1 000 000 € = 0.7%.
From 1 000 000 € to 2 000 000 € = 1%.
From 2 000 000 € = 1.5%.
- The rent to the community and media – individual payments.
- Insurance – depending on the type of insurance and the individual company, it is a cost of approx. 250 € to 700 €.
- Non-resident tax representative – the annual cost of the representative is approximately 250 €.
People who plan to move to Portugal and live in the property purchased can take advantage of the NHR (NonHabitual Resident) program, which offers various tax benefits, including no property tax, the possibility to benefit from tax exemption on almost all income from foreign sources or special treatment in the settlement of personal income tax for 10 years. NHR tax exemptions are only possible for representatives of certain professions that are considered “added value” in Portugal. This group includes architects, engineers, designers, geologists, lecturers, psychologists, archaeologists, dentists, physiotherapists, doctors, medical analysts, biologists, programmers, tax advisers, auditors, directors, and artists. Professionals in these professions only pay a 20% income tax on their income earned in Portugal.
To legally rent a property in Portugal, the landlord must apply for a special Alojamento license and the city’s tax code – this is required for short-term rentals. Obtaining it is not complicated – it is enough to meet individual security rules by the property. There are specific taxes associated with renting a flat. Non-residents who rent property purchased in Portugal must pay tax on the rental income, which is 28%. It is worth noting that taxation may be lower due to the perspective of deducting the costs indicated below:
- remuneration of the rental agency,
- expenses for repairs and small improvements,
- costs of utilities and insurance,
- remuneration for all kinds of real estate services, eg pool cleaning, gardener, security.
Non-residents must appoint a Portuguese tax representative who will be the guarantor that the landlord meets the tax obligations in Portugal. The annual cost of having a representative is approximately 250 € .
Every year Portugal attracts an increasing number of investors in the real estate market. Profits from short-term and medium-term rental are higher than in Spain or France. It is a solid investment, especially in the residential tourism sector. If you are interested in buying a property in Portugal, contact us. We are pleased to present you with interesting investments that will bring you passive income.