Buying in Portugal, benefits and procedure

In recent years, Portugal has become the location of choice for expatriates and pensioners. This drawing power can be explained by several factors. The cost of living is 35% lower than in France – OECD numbers. A difference reaching 50% between Lisbon and Paris.

In addition to this argument, we can mention the 2800 hours of yearly insolation and the financial incentives aiming at attracting foreign investors. Thus, the Franco-Portuguese chamber of commerce and industry declares that 7000 French have settled in Portugal in 2014, among which 3680 have purchased a property.  80% of these new owners are retired and 10% are self-employed.

Before signing

To enjoy your beautiful sea view house or apartment in the Algarve, surround yourself with trustworthy professionals who will help you throughout the process. Chose an authorized real estate agent with a AMI number (Portuguese professional licence). The same applies to the lawyer and the solicitor recognised by the Portugal bar.

In order to purchase a property in Portugal, you have to get a tax number (numero de contribuinte), delivered by the local tax office and mandatory for every tax formality (opening a bank account, tax settlement and invoices). If you are non-resident or absent for 6 months a year or more, it is necessary to designate a proxy   living in Portugal.

Remember to consult the local land register (with la Conservatoria do Registo Predial) to check that the seller has full ownership. You also have to provide a property record book (cadernerta predial) and its technical sheet defining the type of building, the numbers of rooms, its location… Then, the buyer has to provide a copy of the licence of use (or licença de utilização). Finally, you need to provide a house licence which substantiates that the property has been inspected by local authorities and that it is in compliance with the existing standards and laws.

If the property is located in a touristic complex, it is advised to check the validity of its licences with the city council and the existence of a constituent deed registered to the land registers office and the national tourism office (Turismo de Portugal LP).

Most of the time, the lawyer and the real estate agent carry out the research and keep a record. Specialized legal counsel is also necessary to draw up the deed of sale and check the property subrogation condition; which transfer all the seller claims (tax, mortgage…) to the buyer at the time of the sale.

Before the signature, you will need to pay the town financial transaction tax. It is determined according to the property value, with a 6% fixed rate for transactions exceeding 500.000€ for villas and apartments. For a land, the town financial transaction tax is 5%, while the sale of a residential property worth less than 80.000€ is exempt from this tax.

Once all the conditions are met, the sale deed (contracto de compra e venda) can be signed. It is a restrictive agreement committing both parties. In case of a failure from the seller, the latter has to pay twice the security deposit to the buyer. If the buyer defaults, he will lose its advance payment.

Finally, the definitive bill of sale (escritura) is signed at the solicitor. All the documents are corroborated and read audibly, even translated in the buyer’s language if he does not speak Portuguese.

Young owner and soon-to-be non-regular resident

The new owner is registered as such to the local land register and will have to pay local taxes.

The IMI (Imposto municipal sobre imoveis) is the annual property tax that falls to every owner. It is determined according to the estate value dependent on the property, being between 80 and 90% of the market value. Others taxes are to be expected such as yearly costs of stamp duty for a purchase exceeding 1 million euros, rental income tax or capital gains tax in case of sale.

One of the benefits of becoming owner in Portugal is to gain the non-regular resident status, thus enjoying tax exemption. This status, defined by the statutory order n°249-2009 completed by the circular 9-2012, aimed at professional worker and European pensioners.

The application for residence visa is done with the Portuguese authorities (www.secomundidades.pt). To obtain it, you must not have been a resident in Portugal during the 5 years preceding the application. However, it is mandatory to stay on the Portuguese territory more than 183 days a year or to signal your intent to stay in your property as in your main residence.

With this status, the residents perceiving an income from a high-added-value profession (high socio-professional categories, physician, architect, engineer…) enjoy a 20% income tax rate for 10 years. This status of non-regular resident is also favourable for French pensioners. The private pensions of resident living abroad are no longer taxable in France and are exempt from Portuguese income tax for 10 years. Only the pensions for former civil servant are still taxable.

If the benefits appear numerous, it goes without saying that before investing abroad it is better to inquire into your future host country. Portugal has undeniable advantages and is ranked 24th among the best countries to do business (Forbes 2012). To make you are doing the right thing, visit www.visitportugal.com, www.turismodeportugal.pt or stay in a splendid seaside vacation rental to discover the country.

Translated by Sylvain Muller – Meretdemeures.com.