GUIDLINES FOR BUYING AND SELLING PROCESS

This guide covers the most important issues you need to consider when purchasing a property in Portugal. However, we strongly recommend you to seek advice of qualified and competent lawyers and accountants, who understand the local customs and will be able to accompany you throughout the purchase. In order to assist you, we will be happy to provide independent lists of acknowledged professionals for you to choose from.

• Lawyer prepares promissory contract
• Payment of a deposit (usually 10% of settled value) to vendor
• Provisional registration of a first legal charge to the bank
• Legal search (Town Hall, Tax and Land Registry Office, Suppliers…)

Loan Approval

• Provisional registration of a first legal charge to the bank
• Payment of the property transfer tax (IMT)
• Title deeds of purchase and finance contract signed simultaneously at Notary
• Remaining funds available to Vendor
• Documents recorded at the Tax Office and Land Registry Office
• Arrange insurance

Buying a Property

Are you looking for an apartment with sea views, a townhouse with pool and garden or a luxury villa on a golf course? We will certainly uncover the property that you are wishing for. Together, we can select the properties you would like to view, set appointments and visit homes within the pace most convenient for you.

Prices and areas differ greatly along the Algarve. If you already know the area and type of property you want you can heavily reduce the amount of time required when viewing.

Once you have found the property of your dreams, request an inspection by an independent surveyor, which is meant to define the structural and mechanical condition of it.

Once you have agreed on the price and the purchase terms with the vendor, it is essential you appoint a lawyer to legally represent you and provide advice before signing any agreement or contract. If you wish, we can provide a list of approved English speaking lawyers. Please take note that it can lead to major complications if you decline to use a lawyer. Also you should not use the same lawyer who is representing the vendor.

Your Lawyer will conduct the appropriate search and investigation regarding the property at the Town Hall, to verify the property has a valid habitation license or construction license, the Tax office to make sure there are no debts and the Land Registry office to confirm the person selling the property is the actual owner and whether there are any charges on the property and will confirm all registrations match.

A promissory contract of purchase and sale will be prepared, including all terms and conditions negotiated. The promissory contract shall ensure that, at the date of transfer of the title to your name, the property is properly registered and free of any liens. At this stage, a down payment of 10% on the sales price is usually paid to the vendor, in order to reserve the property until completion. This deposit is non-refundable if the purchase is not completed.

Non-resident individuals are obliged to appoint a Portuguese tax resident accountant company to carry out their fiscal representation before purchasing a property. The appointment of a fiscal representative is relatively straightforward, requiring only a letter of appointment, nominating the fiscal representative, and the payment of the required fee. The fiscal representative will apply for and obtain a fiscal number, which is required for buying a property, opening a bank account, contracting electricity, water and so forth. Several taxes such as the IMT (the property transfer tax) cannot be paid by the purchaser of a property, without the previous registration of a fiscal representative at the local tax office. Also the IMI (the municipal property tax) bills will only he handed over to the fiscal representative. Portugal operates a system of self-assessment for the collection of the income tax. As a consequence, non-residents with a rental income or a capital gain in Portugal are under an obligation to file tax returns. The fiscal representative will acquire the necessary forms, complete them and pay the taxes due, all within a required period of time. All communications from the tax office will be sent to the fiscal representative. We are pleased to offer this service for you through Alconta, visit their website to see their services or email them for more details and reasonable pricing.

The property transfer tax (stamp duty), called IMT, has to be paid before completion.

If you have requested a mortgage loan, a first legal charge must be provisionally registered in favor of the lender at the local Land Registry office.

The sale is formally completed when the public title deeds (Escritura, the title document which specifies the name of the owner and includes a detailed description of the property and its price) of purchase are signed in front of a Notary, the final payment has been made, and possession is given to the buyer.

The purchaser may attend the signing of the deed in the presence of the Notary or give a power of attorney to the lawyer to attend on his behalf.

Any contract of finance is usually signed concurrently. Finally, your lawyer is obliged to obtain all necessary registrations at the Tax office and Land Registry office. You become the proud owner of your second home in the Algarve!

ASSOCIATED COSTS

Fees

Lawyer’s fees: Please ask for a quotation directly from your lawyer.

Notary and Land Registry fees: around 1.5%. Your Lawyer will look after this on your behalf and will outline the costs involved.

Taxes

IMT (property transfer tax, equivalent to stamp duty) is due before you purchase any property (land, house, apartment or building plot from a private owner).

IMI (municipal property tax, equivalent to “rates”) is an annual tax levied on the property ratable value. It is charged on all properties registered in Portuguese territory.

Selling a Property

By choosing LaElite Properties, you will enjoy an exclusive standard of service by property professionals, where you can rest assured that your interests will be put first. We have a long standing understanding of the local market and will endeavour that your property achieves the best possible price.

First we will appoint a viewing of your property in order to give you a realistic valuation that reflects current market trends and the pricing of similar properties. If you agree with the assessed asking price and decide to proceed we shall ask you to sign a Sales Agreement and make copies of all relevant registration documents and licences (a list will be provided). That is when your property will start being marketed through LaElite Properties.

You will be informed with sufficient notice, when interested prospects wish to view your property. Any offers received are forwarded to you for consideration. If you accept an offer, we will commence the completion of the sale. Throughout the selling process you can count on the continuous support, guidance and advice of our expert property sales team.

To ensure they perform a tranquil and optimal transaction when selling your property in Portugal, you should speak to accountants. The assistance of qualified and competent professionals who understand the local mechanisms and customs can make the whole process much easier and quicker.

ASSOCIATED COSTS

Fees

Lawyer’s fees: Please ask for a quotation directly from your lawyer.

Taxes

Any individual who is resident in Portugal is liable to Capital Gains Tax on all disposals of real estate assets, including assets situated outside Portugal. Individuals are considered to be Portuguese tax residents with respect to the year in which the taxable income is obtained if they spend more than 183 days, consecutively or non consecutively, in Portugal, or remain there for a lesser period but keep a residence on 31st December that demonstrates the intention of maintaining a regular domicile there.

Any company, with its headquarter or tax residence located in Portuguese territory, is subject to CGT in Portugal on the disposal of any asset.

A person who is not resident in Portugal is liable to CGT only in respect of gains on disposals of land and building located in Portuguese territory.

Non-Resident companies without a permanent establishment (i.e. offshore companies)

Any non-resident company with no permanent establishment in Portugal, (i.e. registered in Gibraltar, Isle of Man or in Delaware, Malta, UK, Ireland etc.), which sells a property located in Portuguese territor before a Portuguese notary, is subject to CGT in Portugal.

Any income arising from property located in Portuguese territory, including capital gains arising from its transfer, is considered to have been received in Portugal and therefore is taxable in Portugal.

In order to determine the capital gain obtained with the sale of a property, specific information must be taken into account, such as the sales price, purchase price, deductible expenditures and inflation, which must be carefully calculated.

When a property is sold, the Portuguese revenue will carry out an evaluation in order to establish the VPT – Property Ratable Value. The VPT is used to levy the annual rates (IMI – Municipal Property Tax) but also as an indicator of the value of the property for IMT purposes and for Income Tax purposes, so the vendor will be liable to an additional amount of Capital Gains Tax if the VPT is superior to the actual sales price.

Consequently, it is possible the taxes levied in a property transaction may be subject to a correction if the valuation carried out by the Portuguese revenue establishes a VPT higher than the sales price mentioned in the final deeds. In such a situation, the VPT will be used as the new basis for computation of subsequent taxes.

Different values are being considered if the property was donated or inherited, if the property was purchased or if the property owner built the villa himself. Indexation relief will only apply when the period of time between the acquisition and the sale of the property is superior to 24 months. An adjustment is made, by reflecting inflation during the period since the property was acquired.

In order to determine a capital gain obtained with the sale of a property, specific expenditure may be deducted to the selling price. The expenses allowed for deduction are the following:

Purchase costs:

Transfer tax (IMT)

Legal fees, notary and registration charges

Additions and capital improvements made within the last 5 years, such as:

Building additions (i.e. bedroom, bathroom, deck, garage, porch, etc.).

Landscaping, (i.e. lawns, driveway, walkway, fence, retaining wall, sprinkler system, swimming-pool, etc.). Technical amendments (i.e. heating and air-conditioning, plumbing, septic system, water heater, filtration system, etc.). Interior improvements (built-in appliances, kitchen modernization, flooring, doors, new roof, wiring upgrades, satellite dish, security system, etc.).

Selling costs:

Real estate commission

Legal fees

After the capital gain has been determined, the percentage subject to taxation and the rate may vary, depending on certain conditions. Capital gains are taxed at a flat rate of 25% in Portugal. The definitive CGT will be computed and due in the country where the individual is considered to be tax resident. The amount of tax already paid in Portugal is usually deductible.

Please contact your accountant to find out the tax repercussions in the country where you are residing.

Non-resident companies (white listed offshore companies) are taxed at a flat rate of 25%. Please contact the offshore management company to verify whether any additional taxes are due in the offshore jurisdiction where the company is incorporated or the country where you are residing.