How does the process of buying real estate in Portugal work?
Once you have selected the property that you wish to buy, you should seek advice from a lawyer to help you with the contracts and legal paperwork.
There are several ownership options available, such as purchasing in the buyer's own name or in the name of a corporation. Each option will have different legal and tax implications; therefore, it is essential to consider all options and seek legal and tax advice.
Procedures and legal acts involved in acquiring a property in Portugal:
Property Reservation: The buyer and seller, or their legal representatives, sign a Reservation Form as a receipt for a down payment, which is normally refundable (the value of which may vary depending on the acquisition value of the property).
Fiscal / tax number: the buyer must obtain a fiscal number at any tax office to open a bank account in Portugal.
Promissory Contract: The buyer and seller sign a promissory contract (CPCV), which details all of the agreement's terms, including how payments will be made. At this point, a predefined percentage of the acquisition value is typically due. There may be several stage payments, as agreed, depending on the specific circumstances.
Public Deed: once the property is finished and all legal documents are in place, legal ownership is transferred by signing the Deed in an official Notary’s Office or another entity.
Final Registry: after the Deed, the Notary will register the new owner of the property at the Estate Registry and at the Tax authorities.
Real Estate in Portugal (Taxes & Legal Information)
Portugal offers fantastic opportunities for investors considering that it is one of the safest nations in the world and has a stable political situation, including:
1 A mature, open real estate market
2 Appealing tax benefit system provided by the Golden Visa Program and the Non-Habitual Residents Status.
3 Excellent connectivity to the rest of Europe, the Middle East, Africa, and the Americas; • Relatively low cost of living; • Temperate climate, excellent beaches, and variety of golf courses
4 Higher rental occupancy rates and yields, generated by improved infrastructure, overall facilities, and high tourism performance.
5 The residential real estate market in Portugal, namely in Algarve, has witnessed consistent growth rates in recent years. Limited construction activity of new homes in recent years and increased demand are resulting in a shortage of supply and driving property prices to increase.
Tax reductions and exemptions for real estate buyers
Examples of tax benefits in Portugal include tax exemptions for gifts or inheritances to spouse, ascendants, or descendants.
Moreover, there are two special tax regimes that are particularly appealing for those who invest in property in Portugal - the Non-Habitual Tax Residents regime (NHR) and the Golden Visa Program.
Non-Habitual Residents Regime
The NHR is a very favourable tax regime applicable to individuals transferring their tax residence to Portugal. The regime is granted for a period of 10 years and is available to any individual who becomes a resident taxpayer for Portuguese Personal Income Tax (PIT) and who has not been taxed in Portugal, as tax resident for PIT purposes, in the previous five years.
To be considered as a tax resident under Portuguese domestic rules, the individual is required to spend more than 183 days in Portugal during the relevant fiscal year, or to have a home in Portugal, on 31 December of that year, that qualifies as a habitual residence.
The benefits provided in the NHR regime include:
Passive Foreign-source income (e.g., pensions, dividends, interest, rental income) is fully exempt in Portugal and this exemption apply irrespective of the taxation applicable at source (i.e., it is possible to achieve double non-taxation of this type of income)
Active Foreign-source income (e.g., from employment and self-employment) resulting from “high value-added activities” may also be fully exempt provided specific conditions are met.
Portuguese-source income resulting from “high value-added activities” is subject to a flat rate of 20% (instead of the general progressive tax rates).
The high value-added activities are identified in a statutory list and include software developers, academics, researchers, tax advisors, senior company personnel and, in certain cases, board members, CEOs and CFOs.
After an individual registers as a NHR in Portugal, they can request a certificate of residence to the Portuguese tax authorities. This document can then be sent to the tax authorities of the individual’s foreign source of income and that should enable them to be exempt of tax in that jurisdiction unless a withholding tax applies.
GOLDEN VISA PROGRAM
The Golden Residence Permit (“GRP”) is a special residence permit aimed at attracting new investments in the Portuguese economy. This regime opens the possibility for non-EU nationals to apply for a Portuguese residence permit and freely circulate within most of the European countries (within the Schengen Area).
The GRP welcomes international investors and fosters a long-term relationship, also enabling the applicant to claim Portuguese nationality under certain rules.
The GRP is granted to non-EU nationals carrying out in Portugal an eligible investment for a minimum period of 5 years, subject to certain conditions, including but not limited to:
1 Acquiring real estate located in Portugal worth at least EUR 500,000 per investor (reduced to EUR 400,000 if the property is located in a low-density area i.e. regions having less than 100 inhabitants per square kilometre or a per capita GDP of less than 75% of the national average);
2 Transferring capital in the amount of at least EUR 1.000,000; or
3 Creating at least ten jobs.
After being granted a GRP, the investor is free to circulate in any of the European countries that are part of the Schengen Area, whilst being required to spend only 7 days in Portugal in the first year, and 14 days per each of the following two-year periods.
The process of obtaining the GRP is usually simple and should be provided through a Portuguese platform under which all documents supporting such request and making proof of the investment are sent. It is also required that the investor comes to Portugal and hence required to have a Schengen Visa in place so that his/her own personal data is collected (fingerprints and photo) at a local Portuguese Foreigners and Borders Service (SEF).
The GRP is an individual residence permit granted to the investor. However, the investor can request a residence permit also for close relatives (e.g., spouse, children, parents…). With the benefit of the “family regrouping” regime, the investor’s relatives may be granted a residence permit like the GRP without being required to carry out an additional investment themselves.
From 01/01/2022 the GRP is granted to non-EU nationals carrying out in Portugal an eligible investment for a minimum period of 5 years, subject to certain conditions, including but not limited to:
1 Acquiring real estate located in Portugal worth at least EUR 500,000 per investor.
2 Transferring capital in the amount of at least EUR 1.500,000.
3 Transferring capital in the amount of at least EUR 500,000 + creating at least five permanent jobs for a minimum period of three years.
What are the taxes and costs related to the transfer of real estate?
There are some taxes and costs related to buying a property in Portugal, borne by the buyer: Stamp Duty, Property Transfer Tax (IMT), Notarial, registration and legal fees. Some of these are fixed costs and others are based on the price of the property.
1 Stamp Duty is charged at the rate of 0.8% on the price of the property.
2 IMT Paid on the acquisition of a property, or Property Purchase Tax is payable by the purchaser prior to completion of the transaction. The rate is 6.5% in the case of touristic units (usually located in Resorts) or, in the case of residential property (permanent and usual residence), there is a progressive rate, with a maximum limit of 6% or, if the property is priced at €1,000,000 or more, the tax is 7.5%. The rate is calculated on the price of the property or on the taxable value (VPT), which is the official valuation of the property for tax purposes), if greater.
If the buyer is a company domiciled in a “blacklisted offshore area”, the IMT tax will always be 10% of the price of the property.
3 Notarial and registration fees amount to approx. €2,000.
4 Legal Fees - Finally, for legal fees expect around 1% of the purchase price.
Note: IMT and Stamp Duty are payable prior to the signature of the final deed. The buyer is required to present proof to the Notary, on the date of the notarial Deed, confirming the payment of such taxes.
Taxes related to ownership of real estate
Ownership of real estate is subject to Municipal Property Tax (IMI). This tax is due on an annual basis in 1, 2 or 3 instalments and is payable by whoever owns the property on 31 December of the year for which the tax is due (previous year).
IMI is calculated on the taxable value (VPT – Valor Patrimonial Tributário) of the property. The applicable rate is determined by the local municipality each year and ranges between 0.3% and 0.5%.
An Additional to Municipal Property Tax (IMI) is also applicable in some cases, with the following rules.
0.7% on the VPT exceeding €600,000
1% on the VPT exceeding €1,000,000
Applicable tax rate on the touristic exploration income
The net income arising from the touristic exploration of a property is taxable at the rate of 25% for non-resident taxpayers in Portugal. There are several costs and expenses that can be deducted to offset against the touristic exploration income.
The owner must appoint a tax representative in Portugal for the Portuguese Tax Authority, who will do some of the following on behalf of the owner:
a) Register the touristic exploration activity with the Tax Authority.
b) Issue the invoices referring to the income obtained every six months.
c) Proceed to waive the VAT exemption.
d) Submit VAT returns periodically.
e) Submit tax returns to the Tax Authority every year.
You can obtain further details from a fiscal / tax advisor, including simulations of touristic exploration income after tax, adapted to your specific fiscal situation. We can recommend independent accountants or fiscal / tax advisors who will assist you with ownership options and tax advice.
Capital gains tax on the sale of property
Capital gains tax liabilities in Portugal depend on whether you are resident, non-resident or approved under the non-habitual residents’ regime.
There is a Capital Gains tax in place in Portugal on the sale of a property at a rate of 28% for individuals and 25% for companies (non-residents).
This tax is calculated on the difference between the sales price and the purchase price and there are costs that can be offset against this tax such as invoices of certain refurbishments made to the property, taxes, notary, and registration fees paid at the time of acquisition of the property, and the real estate agent fee.
There are a few exceptions to Capital Gains tax in Portugal. For example, if the property you are selling is your main residence and if you reinvest the proceeds of the sale, within 3 years, in the acquisition, construction or refurbishment of another property designated as your main residence, within the EU territory or in a territory belonging to the European economic area with whom Portugal has agreements for the exchange of information in tax matters, you can avoid the payment of this capital gains tax.
Inheritance tax in Portugal
Between close relatives, there is no inheritance tax in Portugal i.e., parents/ children and spouses. However, on gifts there is a 0.8% stamp duty based on the VPT. Any other situations of inheritance or gift will be subject to stamp duty at a rate of 10% of the VPT.