There are three questions that you need to ask when buying a Portuguese property. These are:
1. What are the conditions and payments schedule?
2. What is the intended timing to enter into the promissory contract and to final completion?
3. With regards to properties that are not yet built or undergoing construction, what is the maximum timing for its conclusion and does the seller agree to be obligated by such a time frame?

Always use – at a lesser or greater degree, based on your specific needs – the services of a law firm or of a Portuguese lawyer. Portuguese law is very specific and different from the practice in the United Kingdom. Never sign any document and never make any payment to the seller or to the estate agent without your lawyer having 'authorised' that it can be done, unless it's dealing with a specific amount, aimed, for example, to reserve the property for a certain period of time.

The transaction when buying
When you are buying, the first step in a transaction for a Portuguese property is the reservation. Although not used in all transactions, parties sometimes start their legal relationship by signing a Reservation Form or similar. The main purpose of such a reservation is for those buying to assure that the Portuguese property is taken off the market – usually for a limited period of time – and for the seller to assure that the purchaser is really intending to proceed.

Although not mandatory, and whether or not reservation has preceded it, normally both parties enter into a promissory agreement identifying the Portuguese property to be sold and detailing the conditions of the transaction: this is the Promissory Contract of Sale and Purchase (Contrato Promessa de Compra e Venda). This type of contract is used in almost all transactions made in Portugal and is legally binding on both sides. This contract must establish in detail all procedures by which the transaction will be effected and the conditions of sale, such as stage payments (when applicable) and the maximum term allowed for completion. A deposit (sinal) must be simultaneously paid by anyone buying Portuguese property to the vendor and normally this varies between 10 and 30 per cent of the total purchase price agreed.

When the above requirements have been completed, and the Transmission Tax duly paid, the formal act of sale and purchase can proceed at any notary office in Portugal. This act, known as the Public Deed of Sale and Purchase (Escritura Pública de Compra e Venda), takes place in front of the selected notary and consists of a formal record of the purchase and sale that is printed in the official and public books of the notary.  After it has taken place the Notary Office will issue as many certified copies of the corresponding entry as required. These serve as official proof that the transaction has lawfully been made and the price fully paid.

The copies will 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 specified in English law. After the Public Deed of Sale and Purchase, the transmission of ownership has to be registered at the local property registrar office. Simultaneous-ly, it is also necessary to provide a certified copy of the Public Deed of Sale and Purchase to the local tax office and request the property to be inscribed in name of the new owner.

Costs of Portuguese property purchase
The taxes that must be paid before completion are:
1. Local Property Transmission Tax (Imposto Municipal sobre Transacções). This tax must be paid before the Public Deed of Sale and Purchase at any Tax Office. The amount of tax to be paid depends on the nature (rural, commercial or residential) and price of the property. Rural land is subject to a flat rate tax of 5 per cent based on its price and commercial property to a flat 6.5 per cent rate;

2. Stamp Duties Tax (Imposto de Selo). This tax corresponds to 0.8 per cent of the price of the Portuguese property and it is paid simultaneously with the notary costs. After completion the owner of the Portuguese property pays one regular tax: Municipality Tax on Property (Imposto Municipal sobre Imóveis). This is an annual municipal tax, paid in two installments. Its rates are based on a valuation of the property by the tax authority and as a general rule the fiscal valuation is lower for older properties. Current rates of this tax do not exceed 0.8 per cent of the value of the property.

When a Portuguese property is rented, the rental contract must be registered with the tax authorities. Then Income Tax of 15 per cent should be deducted from rental income. Notary costs are paid immediately after the execution of the Public Deed of Sale and Purchase. These costs are of the order of 300 euros to 350 euros, assuming only a purchase and sale are involved, and are independent of the price of the property. The Portuguese roperty registrar costs are paid when registration at the property registrar is applied for. These costs are again about 300 euros to 350 euros assuming that only a purchase and sale is involved, and are also independent of price. Usually lawyer's fees average at between 1 and 2.5 per cent, depending on the value of the transaction. These fees include all services related with the purchase.

Click here to read the World of Property interactive i-mag FREE

Search and browse Portuguese property

Related articles about Portuguese property:
Property in Portugal remains popular
Living and working in Portugal

Article published in June 2007