Buying Property - Taxes, Contracts, Legal Tips

If you are one of those persons that likes to know exactly what you are getting into and what to expect this is the article to read about information and advice on the beurocratic side of buying property in Portugal.

Common Contracts

There are 3 diffrent contract types that most often come up in Realty Let's start with the most important one, and this is something that can be misleading because the final binding contract you make with the property owner is called a "Promise Contract" (Contrato de Promessa), I know of cases when this contract was made by a foreign investor thinking it was a hold contract. The usual structure is that you pay a % of the agreed amount, and set a time frame for the transaction registry. If either of the parties do not keep their end they have to pay double the signaled amount to the other party. Another relevant contract type is the Hold Contract (contracto de reserva) which is just a safety where the property gets taken off the market by a set period of time (usually 1-2 months). The potential buyer pays a lower hold amount - 1k to 5k - and most importantly, this contracts can be annulled, with no penalty, if anything ends up not being up to the desired standards, and the hold money can be returned. Other contracts you should be aware of are the Real Estate Agency Contracts, there are usually made with the buyer and they can have exclusivity. They basically entitle the agency to a % of the sale value, the most common comission is 5%, although it can vary from 3% (only saw it once) to 7% . This value is always plus tax - 23% (of the commission amount).

If you signed with exclusivity, within the set time frame (usually 6 months, sometimes 1 year) the agency gets the commission even if you end up not selling through them.

The agency fee can be deducted as a house expense on IRS (annual income tribulation), and depending on your declared income, you get the tax returned. The agency commission is almost always included in the advertised price of the house. Important note: For agencies or agents to be legal they have to have a AMI Licence, that number is usually stated on the contracts and listings.

Taxes & Fees

There are 3 different taxes the transaction and ownership of property, and as a buyer you will be liable for all, 2 of them you pay upon transaction/purchase, the other yearly.

Imposto de Selo

This is pretty much an outdated tax with no particular purpose that appears in almost any official transaction. For real estate it has a flat rate of 0,8% of the total amount of the transitioned amount (sale price). Has to be paid on registry, along with the IMT. These two are immediate buying costs, IMI is only charged later (starts the year after purchase usually)

IMT Imposto Municipal sobre Transmissões Onerosas de Imóveis)

IMT is the transaction tax, it's always triggered when changes on ownership take place, it is calculated based on the value of the property. There are two different values for the property, the transaction value (the value you pay the seller for it) and the "estate" value (valor patrimonial).

In secondhand properties the estate value is usually significantly lower than the transaction value. This happens because the estate value is calculated by "Finanças" (governmental financial regulation entity) based on the appreciation made when the construction took place and then automatically devalues over time but does not take into consideration the location demand value. Proprety owners can request a reevaluation of the property, but this rarely happens because it is not advantageous (as taxes are calculated based on that value).

This distinction is relevant for buyer too because IMT is calculated based on the higher amount (so, usually the transaction value). And IMI is always calculated based on the estate value.

IMT has to by paid when the transaction contract is made (on an official government authorized organ), its amount depends not only on the value of the property but also on the use the property is destined for.

IMT Tax tiers are the following:

Portuguese Property Transaction Tax Table

Tier 1 is for personal use - for this your official address must be in that property.

Tier 2 is for housing purposes (can be second home or renting)

Tier 3 is non-housing (ex. office, bar, etc)

There is also a flat rate of 10% if the buyer lives in a country with clearly favorable taxing systems (like Tax Havens)

Rural property has a flat rate of 5% (and is much, much cheaper)

There are exemptions for paying IMT!

A handy one is when property is located in a municipality set recovery area, these are called RU (Zona de Reabilitação Urbana) and with the exemption of IMT they usually also have a few other incentives like tax reduction on renting and no IMI for up to 10 years. You can usually check the RU areas in the municipality website.

There is also a program for incentive to long term renting (FIIAH / SIIAH) for the purchase of buildings that are within the parameters and can only be rented long term (2+ years contracts), with capped rents (the caps are pretty fair), with these programs the owner gets a series of tax exemptions, including IMT.

Other exemptions are:

• When you are buying from a bankrupted firm or individual (foreclosure)

• When you are already a partial owner are are buying other shares (heir divisions)

• Can be solicited for restructuring of companies by shareholders

• Property classified as with valued cultural heritage

IMI - Imposto Municipal sobre Imóveis

IMI is an annual tax any property owner pays to the corresponding town hall. You can be exempt from it but usually only for a few years. It is calculated based on the estate value of the property. The estate value is calculated by "Finanças" (governmental financial regulation entity) based on the appreciation made when the construction took place and then automatically devalues over time, so it is usually lower that the actual purchase value, and that is good.

If you have any questions or wish to consult with anything don't hesitate to ask, we have a legal advisor and will investigate further if necessary. Feel free to contact us anytime, links on footer.