Buying Process

 

Buying a property in the Algarve is relatively a very straight forward matter, provided the ownership of

the property is clear, all necessary licenses have been obtained and the laws are strictly adhered to.

The process, if it does not involve an off/on-shore company, consists of two distinct stages;

The promissory contract (contracto promessa de compra e venda) and the final deed (escritura).
 

The Promissory Contract.

This is a legally binding contract between both parties, provided all signatures are verified by the local public notary. On signing the contract, the buyer pays a deposit which ranges from 10% – 25% of the agreed purchase price. This deposit is in principle non-refundable unless specifically stated in the contract.

If the buyer breaks the contract, he loses the deposit. When the seller breaks the contract, he is legally obliged to return the deposit plus compensation, which is usually equal to the sum of the deposit. It is acceptable for both parties to ask for a copy of the contract, translated into their mother tongue.

The contract covers a number of points including the following:

  • confirmation of the precise identity of the vendor and the purchaser.

  • Exact description of the property.

  • Confirmation of clear title of ownership.

  • Agreement for payment and terms of deposit if contract is broken.

  • Agreement concerning stage payments if applicable.

  • Confirmation of date of completion of sale.

Before the contract is signed, the vendor has to produce all the relevant paperwork relating to the property, to show to the buyer or his/her lawyer, so that necessary searches can be made to ensure there are no outstanding debts like rates, bank loans against the property. The habitation license has to confirm that the property is for residential use.

 

The final deed.

This is the official document of the transfer of the property and has to be signed in the office of the official public notary. He will require documentary evidence issued by the local tax authorities (finanças) that the appropriate property transfer tax (IMT) has been paid. If the property is part of a condominium, an associated condominium agreement will also form part of the final deed. Unless the buyer understands Portuguese, the notary will insist on a verbal translation into the buyer’s mother tongue. When both parties have signed the deed, the balance of the purchase price is then paid to the vendor. The property is then to be transferred to the name of the new owner at the land registry office (conservatorio predial), preferably by the buyer’s lawyer.
 

Costs

The costs, associated with buying a property in the Algarve, are as follows:

  • Property transfer tax (IMT-Imposto Municipal Sobre as Transmissões Onerosas de Imòveis) This is levied on a sliding scale from 2 to 8%, based on the agreed selling price of the property. There is a Euro 92,407 threshold (2011)

Permanent Residence

Purchase Price % of Purchase Price Adjustment (reduce by)
Up to €92,407 0 0
€92,407 – €126,403 2% €1,848.14
€126,403 – €172,348 5% €5,640.23
€172,348 – €287,213 7% €9,087.19
€287,213 – €574,323 8% €11,959.32
over €574,323 flat rate of 6% n.a.

 

Non Residents (second home)

Purchase Price % of Purchase Price Adjustment (reduce by)
Up to €92,407 0 0
€92,407 – €126,403 2% €924.07
€126,403 – €172,348 5% €4,716.16
€172,348 – €287,213 7% €8,163.12
€287,213 – €574,323 8% €11,035.25
over €574,323 flat rate of 6% n.a.

 

  • Notary Fees. This is calculated on the agreed purchase price and levied at 1.5% to 2%.

  • Lawyer’s Fees. It is advised to always employ the services of a reliable lawyer. They normally charge from 1% to 2% of the purchase price, though some lawyers charge a set fee. VAT in Portugal is 20%.

  • Local rates (IMI – Imposto Municipal Sobre Imoveis). This is an annual cost. It is calculated on the rateable value of your property and is levied at 0.8% to 1.3%. First time owners who are residents in Portugal or retires pensioners are eligible to claim exemption for a period of 3 to 6 years, subject to the size and the location of the property.

  • Condominium charges are paid on a monthly or quarterly basis by owners in enclosed condominiums.

Different levies and procedures apply when it concerns “company owned” properties, off-shore or on-shore.

These terms are used when the property is not privately owned but by a company. These companies are usually established in countries with a beneficial tax regime.

On-shore properties are owned by companies located within the Portuguese jurisdiction.

The benefit of corporate ownership are:

  • Transfer of property is very simple and tax-effective: a simple transfer of shares.

  • IMT taxes, notary fees and registration fees are avoided.

  • Company-owned properties are mortgaged quite simply.

  • Transfer on death ensured that the heirs deal with their inheritance in accordance with the law of the residence of the share owner(s).

  • Capital gains tax is not payable on the increased value of the property and capital gain on the sale of the shares is subject to the seller’s jurisdiction .

  • Buyers and or owners enjoy anonymity.

It is obvious that the Portuguese fiscal authorities are not very pleased with these constructions and blacklisted a number of “tax-friendly” countries/locations like Gibraltar, Cayman Isles etc and others. At present only companies located in Delaware and Malta are white listed. Off-shore companies in blacklisted territories are taxed according to special tariffs. On-shore companies are companies registered in Portugal.

Before you decide to purchase a property through an off-shore construction, it is strongly advised to consult your fiscal specialist first.

 

Personal Income Tax, the non-regular tax regime for non-regular residents: click here for full details.

 

The Golden Visa Programme for Non-EU passport holders.

 

The Golden Visa Programme was launched by the Portuguese Authorities as a fast track for foreign investors from non-EU countries (non-Schengen) to obtain a fully valid residency permit in Portugal. It was called the Golden Visa Programme


Under the Golden Visa programme, non-EU citizens simply need to carry out one of the investments set out in the law to qualify to obtain a residency permit in Portugal, Europe. This residency permit will allow the investor to enter and/or live in Portugal and to travel freely within the vast majority of European countries (Schengen Countries).

Aimed at attracting foreign investment to Portugal, the Golden Visa is a very straightforward and flexible programme, with simple and clear legal requirements, for which reason it is called the fast track to European residency. With extremely reduced minimum stay requirements, the Golden Visa is clearly one of the most attractive residency programmes for investors or wealthy individuals in the world.

The Golden Visa Programme offers investors the following advantages:

  • No need to obtain a visa for entering Portugal or other European countries
  • Free travel in Europe (Schengen)
  • Extremely short minimal stay requirements
  • Residency extended to family members
  • Permanent Residency after 5 years
  • Citizenship already after 6 years
  • Living and working in Europe

Of course there are conditions but those are mostly easy to comply with.

The most generally used condition is

  • the investment of a minimum of Euro 500.000 in a property in the Algarve, Portugal. A wide choice of options is available through this web site Algarve Property Finder.
    Other possibilities are:
  • The creation of at least 10 permanent jobs in Portugal.
  • A transfer of funds in excess of Euro 1.000.000, or acquisition of a Portuguese company.

The simplicity of the Golden Visa Programme implies an extremely reduced amount of requirements being asked from the investor. The Golden Visa Programme sets out that the investor must comply with general requirements applicable to all types of qualifying investments and also with the specific requirements of each type of qualifying investment.

In general, all investors have to comply with the following requirements:

  • Keep the investment for a minimum period of 5 years
  • Funds for investment should come from abroad
  • First entry into Portugal with a valid Schengen visa
  • Absence of references in the Portuguese Immigration and the Schengen services
  • Absence of conviction of relevant crime  

Other Conditions:

  • Acquisition completed before the application for residency permit.
  • Properties acquired must be free from any charges or mortgages.
  • Minimum stays in Portugal – 7 days first year & 14 days following periods of 2 years.
  • Residency Application made within a maximum of 90 days after entry in Portugal.
  • Residency Permit granted for an initial period of 1 year & renewed for periods of 2 years.
  • Possibility of permanent residency after year 5 and nationality one year later.
  • Bearers of Investor Residency Permits may travel freely in the Schengen area.
  • Portuguese Golden Residency Permit – Documents & requirements
  • Valid Passport and Schengen Visa.
  • Valid travel document and medical insurance.
  • Updated property documents showing ownership of property.
  • Proof of means of income and proof of address.
  • Accommodation.
  • Absence of criminal conviction and of interdiction to enter the country.
  • Absence of notice from the Portuguese Immigration Authorities or Schengen Services.
  • Declaration from the investor confirming compliance with the investment requirements.

With all the above information in your mind, please look around on this web site, select the property you are willing  to purchase and allow us to help you further along the road to Portuguese (European) Citizenship.

 

 

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