Complete Guide to Buying Property in Portugal: Process and Taxes You Need to Know

Portugal, with its beautiful landscapes, rich culture and favorable climate, has become an increasingly popular destination for international property buyers. Whether it’s a holiday home, an investment property or a permanent residence, understanding the property buying process in Portugal is essential. In this post, we will guide you through the steps involved in buying a property in Portugal and the taxes you will have to face throughout the process.

The Step-by-Step Process for Buying Property in Portugal

1. Preliminary Research and Property Search

The first step is to find the right property. There are many online platforms and real estate agents in Portugal who can help you search for houses, villas, apartments or investment properties. It’s important to consider factors such as location, property type, and your budget before beginning the process.

2. Obtain a Tax Identification Number (NIF)

To purchase a property in Portugal, both residents and non-residents need to obtain a Tax Identification Number (NIF). You can obtain this number from a local tax office, and you will need to present your passport or ID card and proof of address. If you are not in Portugal, a legal representative can help you with this process.

3. Open a Bank Account

A Portuguese bank account is required for financial transactions involved in purchasing a property. This includes transferring funds to pay the purchase price, paying taxes and managing payments for services. It is recommended to open a bank account early in the process.

4. Purchase and Sale Agreement

After finding the ideal property, a "Purchase and Sale Agreement" is usually signed. This contract describes the terms of the sale, including the purchase price, payment schedule, and expected completion date of the transaction. Typically, you will need to pay a 10-30% deposit when signing this contract, making it a legally binding agreement between buyer and seller.

5. Public Deed of Purchase and Sale

After fulfilling all the conditions described in the Promise of Purchase and Sale Agreement, the next step is to sign the public deed of purchase and sale before a notary's office. At this point, the remainder of the amount is paid and ownership is transferred to the buyer. This deed must be registered at the Property Registry Office to confirm legal ownership of the property.

6. Property Registration

Finally, the property needs to be officially registered in the buyer’s name at the local Property Registry Office. This step ensures that the property is legally recognized as belonging to the new owner.

Taxes related to the purchase of property in Portugal

1. Municipal Tax on Onerous Transfers of Real Estate (IMT)

When purchasing a property, buyers are required to pay the Municipal Tax on Onerous Transfers of Real Estate (IMT). The rate depends on the value of the property and whether it is intended to be a primary residence or not. For residential properties, ITBI varies between 1% and 8%, being higher for higher value properties.

• Main residence or permanent home: Lower rates, especially for properties below €92,407, with higher rates for properties above €1,000,000.

• Secondary or investment properties: These are typically subject to higher rates, starting at 1% and increasing as the value of the property increases.

2. Stamp Duty

Stamp Duty is another tax paid by the buyer during the purchase process. This tax is generally 0.8% of the purchase price or the taxable value of the property, whichever is greater. It applies at the time of signing the public deed.

3. Annual Property Taxes (IMI)

After purchasing the property, the new owner will be required to pay annual property taxes, known as IMI (Municipal Property Tax). The tax is calculated based on the taxable value of the property (which may differ from the purchase price) and varies between 0.3% and 0.8%, depending on the location and type of property.

4. Capital Gains Tax (CGT)

If the property is later sold at a profit, the seller will be subject to Capital Gains Tax (CGT). For residents of Portugal, the rate is 28%, while non-residents are typically subject to a rate of 25%. There are exemptions and reductions for primary residences, and these rules may vary depending on the buyer's tax status.

5. Notary and Registration Fees

Notary and registration fees are also part of the transaction process. These fees are usually around 1% of the property value and are required to finalize the transfer of ownership.

And now ?

Buying a property in Portugal is a straightforward process that opens up a world of opportunities. From finding the right property to understanding the necessary fees and taxes, being informed will help ensure your purchase is smooth and successful. With the steps outlined above, you are now prepared to make your property purchase in Portugal a reality.

Are you considering buying property in Portugal? Contact us for expert assistance!

Disclaimer: The information provided in this article is for informational purposes only and may be subject to change over time. It is recommended to consult professionals before carrying out any real estate transaction in Portugal.