Advogada

In Portugal, buying a house is an ingrained ideal. 

It is, therefore, a business that is very familiar and habitual to us. However, this doesn't mean it's a simple business. 

When buying a property, certain rules and precautions must be observed, which is why this article will outline the main factors that should be considered before, during and after closing this type of deal. 

In this article we'll only focus on the purchase of property for permanent residence. What does this mean? It means that the property that is the object of the deal will be the buyers' habitual residence and tax address. 

The tax obligations associated with this type of business will also be discussed. 

Everything mentioned here takes into account the portuguese legislation in force at the time of publication. As legislation can change, it is always recommended that you consult it. 

I. To be considered when searching: 

1. Location. 

The location of the property has a fiscal impact.

In Portugal, property owners are liable to pay municipal property tax (IMI). 

This is a tax levied on the taxable value of all properties located in Portuguese territory, which is revenue for the municipalities where they are located (art. 1 no. 1 of the Municipal Property Tax Code - CIMI). 

As this is municipal revenue, it is up to the municipalities, in municipal assembly, to set the rates they will apply to their residents each year. Their autonomy even allows them to set rates by parish (art. 112 no. 5 of the CIMI). 

The law currently states that, for urban buildings, this rate will be determined within the following range: from 0.3% to 0.45% (art. 112 no. 1 c) and no. 5 of the CIMI - Drafted by Law no. 7-A/2016, of 30 March). 

So, when making your choice, check the website of your local council, for example, or contact your local tax office to find out what the rate is. 

Without prejudice, it is possible to apply for temporary exemption from this tax up to six (6) months after purchase. This exemption is granted for three years in the following cumulative situations: 

• if the property acquired has a tax value that does not exceed 125,000.00 Euros (art. 46 no. 5 of the Statute of Tax Benefits - EBF), e; 
• the income of the purchaser and their household, for IRS purposes in the previous year, did not exceed 153,300.00 Euros (art. 46 no. 1 of the EBF). 

You can apply for exemption from IMI at a tax office or via the tax portal. 

2. Regime for the protection and enhancement of cultural heritage. 

According to the Cultural Heritage Framework Law (LBPC) - Law no. 107/2001, of 8 September - properties can be classified according to their interest (art. 15, no. 2 of the LBPC) as follows: 

• Of national interest: when its protection and valorization, in whole or in part, represents a cultural value of significance for the country (art. 15, no. 4 of the LBPC).
• Of public interest: when its protection and enhancement, in whole or in part, represents a cultural value of national importance, but for which the classification as of national interest is disproportionate (art. 15, no. 5 of the LBPC).
• Of municipal interest: when its protection and enhancement, in whole or in part, represents a cultural value of predominant significance for a given municipality (art. 15, no. 6 of the LBPC). 

The protection of these properties is based on their classification and inventory, and each form of protection gives rise to the corresponding registration (art. 16, paragraphs 1 and 2 of the LBPC). 

When deciding on the location of your future home, check that it is not covered by cultural heritage protection. One way to do this is to go to http://www.patrimoniocultural.gov.pt/pt/. 

Why should you do this? Because the sale of listed properties, or properties in the process of being listed, requires prior notification to the competent department (art. 36 no. 1 of the LBPC). 

In addition, co-owners, the State, the Autonomous Regions and the Municipalities enjoy the right of pre-emption in the event of the sale of classified property or property in the process of being classified or property located in a protection zone (art. 37 of the LBPC). 

II. To consider when choosing:

3. Condominium fees (in the case of autonomous fractions or gated communities). 

Why is this important? Because failure to pay these expenses will result in the condominium manager taking legal action to collect the amounts owed (art. 6 of the Regime da Propriedade Horizontal (RPH), approved by Decree-Law no. 268/94, of 25 October). To avoid embarrassment, consider these costs. 

It should also be borne in mind that the expenses necessary for the conservation and enjoyment of the common parts of the building and relating to the payment of services of common interest are the responsibility of the owners of the units at the time of the respective resolutions, and are paid by them in proportion to the value of their units (art. 1424 no. 1 of the Civil Code (CC)). 

In addition, it is compulsory for each condominium to set up a common reserve fund to cover maintenance costs of the building or group of buildings, with each condominium owner contributing to this fund an amount corresponding to at least 10% of their share of the remaining condominium costs (Article 4(1) and (2) of the Horizontal Property Regime). 

4. Occupation of the property.

If the property you are buying has been rented for more than two years, the tenant has the right of first refusal to buy the property (Article 1091(1)(a) of the Civil Code). 

III. To consider before formalizing the deal: 

5. Legal status of the property. 

It is important to confirm, cumulatively:

a) whether the property is in fact owned by the person offering to sell it; 

b) if there are any encumbrances on the property; 

c) whether the areas listed in the land registry and the urban land registry coincide or, if they don't, whether they are within the legally admissible margin of error; 

d) whether or not the property is occupied, and; 

e) whether the communications for exercising the right of first refusal have been made. 

Regarding ownership and encumbrances (a) and (b): 

This information is obtained through a permanent land certificate for the property, which can be obtained from a land registry office or via the website: http://www.predialonline.pt/PredialOnline/. 

When analyzing this document, you should identify who owns the property, as well as check whether any mortgage, pledge, usufruct, reservation of ownership, inalienability clause or any other encumbrance is registered. 

If any encumbrances are registered, you should ask the owner to arrange for them to be cancelled by the time the deal is formalized. Make sure that when you buy the property it is free of any registered encumbrances. 

Registered encumbrances are nothing more or less than real guarantees of obligations, which means that in the event of default the property will be liable for the debt (art. 601 of the Civil Code) if it is not cancelled before or at the time of sale. 

It should be remembered that our legal system applies the principle of priority of registration, i.e. the right registered first takes precedence over those that follow it, in order of the date of registration and, within the same date, in the order of time in which they were submitted (art. 6, no. 1 of the Land Registry Code). 

As for the areas (c):

There must be a harmonization of areas between those registered with the land registry office, which you can consult on the permanent land certificate, and the urban land registry, which you can consult by obtaining the property's urban land 

registry from any tax office or by asking the owner, who will be able to obtain it through their personal area on the tax portal (art. 28 of the Land Registry Code). 

The harmonization of areas is, however, waived if the difference does not exceed 10% in relation to the larger area (art. 28-A of the Land Registry Code). 

As for the occupation of the property (d):

If the property is occupied by the person who will be selling it or by a tenant, make sure that the property is free of people and goods before formalizing the deal. 

If the property is rented, it should be noted that eviction is required after one month has elapsed from the termination of the lease, if no other deadline has been agreed by the parties (Article 1087 of the Civil Code). You should make sure that the landlord has terminated the lease and that eviction is guaranteed. 

Regarding pre-emption rights (e): 

If the property you have chosen falls into one of the situations described above in point 2. Regime for the protection and enhancement of cultural heritage, you must make sure that the owner of the property has notified the holder of the right of pre-emption of the sale (art. 37, no. 2 of the LBPC and art. 416 no. 1 of the Civil Code). 

The notice for the exercise of the legal right of pre-emption by public entities can be made here: https://www.predialonline.pt/PredialOnline/.

Failure to comply with the duty to communicate constitutes an impediment to the signing of the deed and is grounds for the cancellation of the deal by the holder of the right of first refusal (art. 38 of the LBPC). 

If the property is leased, you should make sure that the sale has been communicated to the tenant, as they also have the right of first refusal when the lease is for more than two years (art. 416 no. 1 of the Civil Code, applicable by virtue of art. 1091 of the Civil Code). 

Tenants who are not notified of the sale and are not allowed to exercise their right of first refusal may take legal action to obtain the property for themselves (art. 1410 of the Civil Code, applicable by virtue of art. 1091 no. 5 of the Civil Code). 

After these communications, if the holders of pre-emption rights remain silent during the period that the law gives them to exercise their right (eight days), this means that their right will lapse (Article 416(2) of the Civil Code), i.e. it will no longer be exercisable. 

IV. To be considered when formalizing the deal: 

6. License to Use.

This is the document that certifies compliance with the legal conditions for using the property for its intended purpose and, as a rule, it is issued by the town halls where the property is located (art. 8 of the General Regulation on Urban Buildings and art. 5 of the Legal Regime on Urbanization and Building). 

This is a mandatory document that must be transmitted together with the property to which it relates (art. 1 of DL 281/99, of 26 July, amended by DL 99/2010, of 2 September). 

Exception: the use permit is not required for a property built before the entry into force of the General Regulation on Urban Buildings - 7 August 1951. And provided that it has not been subject to alterations, reconstructions or extensions after that date. 

Exemption from display and delivery: when it is noted in the description of the property at the land registry office (according to art. 90oA, no. 1, point a), and no. 2 of the Land Registry Code and art. 1, no. 4 of DL 281/99, of 26 July, amended by DL no. 99/2010, of 2 September). This can be verified by the aforementioned permanent land certificate. The registration of the existence of this license constitutes a presumption that it exists (art. 7 of the Land Registry Code). 

7. Energy Certificate. 

All properties are covered by the energy certification system from the moment they are sold (art. 3 no. 4 of Decree-Law no. 118/2013 of 20 August). 

Therefore, before the deal is formalized, the property must be valued and, when the deal is formalized, the buyer must be given the original energy certificate (art. 14, no. 1, point f), subpoint ii) of Decree-Law no. 118/2013, of 20 August). 

When is it not compulsory? When buildings are in ruins (Article 4(f) of Decree- Law 118/2013 of 20 August). 

Who is obliged to obtain it? Property owners (art. 14, no. 1, point b) of Decree- Law no. 118/2013, of 20 August). 

How long is this document valid for?  10 years (art. 15, no. 3, point b) of Decree- Law no. 118/2013, of 20 August). 

What happens if the document is not obtained and delivered? Failure to comply with the above constitutes an administrative offence punishable by a fine of €250.00 to €3,740.00 for natural persons and €2,500.00 to €44,890.00 for legal persons (art. 20, no. 1, of Decree-Law no. 118/2013, of 20 August). 

8. Housing Fact Sheet. 

Document that gathers all the information provided by the professionals involved in the construction of the residential property (art. 2, no. 1, of Decree-Law no. 68/2004, of 25 March). 

This document contains a description of the technical and functional characteristics of the property (art. 4, no. 1, of Decree-Law no. 68/2004, of 25 March), the identification of those involved in the project, construction, reconstruction, extension or alteration of the property (art. 7 of Decree-Law no. 68/2004, of 25 March). 

This document is not required in the following cases: 

a)  When we are dealing with buildings constructed before the entry into force of the General Regulation on Urban Buildings - 7 August 1951, e; 

b)  When we are dealing with buildings that have already been built and for which there is already a license to use or an application has been submitted for the license to be issued before the date on which Decree-Law 68/2004 came into force, i.e. 25 March 2004. 

As a result, all properties - intended for residential use - whose use licenses were issued after 25 March 2004 must have a housing technical file. 

How long is this document valid for? It is valid for life. The owner of the property is obliged to keep this document and, if it is lost or destroyed, must request a duplicate from the property developer or the town hall. The town hall issues a duplicate upon payment of a fee, the amount of which is set by the town council (art. 10 of Decree-Law no. 68/2004, of 25 March). 

The importance of this document: the purchase deal cannot be formalized without the entity responsible for the formalization (notary, registrar or lawyer) making sure that this document exists and that it is handed over to the buyer (art. 9 of Decree-Law no. 68/2004, of 25 March). 

9. Declaration of Debt to the Condominium (in the case of horizontal property).

For the purposes of selling the fraction of which he is the owner, the property owner must request the condominium administrator to issue a written declaration stating the amount of all condominium charges in force in relation to his fraction, specifying their nature, respective amounts and payment deadlines, as well as, if applicable, existing debts, their nature, amounts, dates of creation and maturity (art. 1424-A, no. 1, of the Civil Code). 

This declaration is a mandatory document for formalizing the sale (art. 1424-A, no. 2 of the Civil Code). This is only not the case if the buyer expressly declares that he does not need the administrator's declaration and therefore accepts responsibility for any debts owed by the seller to the condominium (art. 1424-A, no. 3 of the Civil Code). 

10. Tax obligations. 

Tax obligations are synonymous with costs that will add to the price of the property.

Therefore, the need to pay the following taxes must be taken into account: 

• Municipal Property Transfer Tax (IMT):

All transfers, for consideration, of real estate located in national territory are subject to payment of this tax (Article 2(1) of the Municipal Property Transfer Tax Code). 

The tax is payable by the person to whom the property is transferred - the buyer (art. 4 of the Municipal Property Transfer Tax Code). 

Exemptions: acquisitions of properties intended for permanent dwelling purposes, the value of which does not exceed 97,064.00 euros (art. 9 of the Municipal Property Transfer Tax Code). 

What is the value on which the assessment is based? This tax is levied either on the value stated in the contract or on the taxable value of the property, whichever is greater (art. 12 of the Municipal Property Transfer Tax Code). This means that if you buy the property for 100,000.00 euros, but its taxable value is 105,000.00 euros, the tax will be levied on the latter (105,000.00 euros), and vice versa. 

How is liquidation carried out? The assessment must be made on the initiative of the interested parties before the transfer is formalized. The respective declaration, duly completed, must be submitted to any tax office or by electronic means (art. 19, no. 1, of the Municipal Property Transfer Tax Code). Even in the case of exemption, this declaration must be submitted (art. 19, no. 3 of the Municipal Property Transfer Tax Code).  

• Stamp duty:

The onerous acquisition of real estate located in national territory is also subject to stamp duty (art. 1, no. 1 of the Stamp Duty Code and item 1.1 of the General Stamp Duty Table). 

The taxable persons for this tax are also the persons to whom the goods are transferred, i.e. the purchaser (Article 2(3) of the Stamp Duty Code). 

Incidence: on the purchase price.

This tax is assessed at the same time as the municipal property transfer tax and by the same means. 

V. On formalization: 

The contract for the purchase and sale of real estate is only valid if it is concluded by public deed or authenticated private document (art. 875 of the Civil Code). 

The public deed is an instrument drawn up exclusively by notaries (art. 363 no. 2 of the Civil Code). 

The authentication of private documents can be carried out by lawyers and solicitors (art. 38, no. 1, of Decree-Law no. 76-A/2006, of 29 March). 

Authentications made by lawyers and solicitors give the contract the same probative force as if it had been made with the intervention of a notary (art. 38, no. 2, of Decree-Law no. 76-A/2006, of 29 March). 

In Portugal, Decree-Law no. 263-A/2007 of 23 July also created a special procedure for, among other things, the transfer of real estate. The entities responsible for carrying out this procedure are the Land Registry Offices (art. 4 of Decree-Law no. 263-A/2007, of 23 July), more specifically the Casa Pronta Counters set up for this purpose. 

VI. To be considered after formalization: 

Once the sales contract has been signed, you should take care: 

11. Registration of the acquisition.

The acquisition of a property is a fact subject to registration (Article 2(1)(a) of the Land Registry Code). 

The importance of registration lies in the presumption that arises from it, i.e. that the right exists and belongs to the registered holder (art. 7 of the Land Registry Code). 

Furthermore, the law states that facts subject to registration only produce effects against third parties after the date of actual registration (art. 5, no. 1 of the Land Registry Code). 

Registration can be promoted by the entity responsible for formalizing the contract (lawyer, solicitor, notary or land registry office) or by the buyer (art. 36 of the Land Registry Code). 

12. Registration of the cancellation of liens and charges.

As mentioned above, you should confirm that the liens and encumbrances on the property have indeed been cancelled. 

Both the acquisition registration and the cancellation of liens and encumbrances can be verified by consulting the property's permanent land certificate. 

13. Change of tax address. 

Once the contract has been signed, in which it is stated that the property is to be used as a permanent home and the taxes have been paid for this purpose, you must change your tax address to the new property within six months. 

In what way?

a) If you don't have a portuguese citizen's card: through the tax office portal. 

b) If you have a portuguese citizen's card: via the internet, if you have a citizen's card reader, or at the designated locations. 

Failure to comply with this amendment will result in: 

c) the loss of the exemption or reduction of the rates of the municipal tax on the onerous transfers of real estate (art. 11, no. 7, point b) of the Municipal Tax Code on the Onerous Transmissions of Real Estate), and; 

d) the loss of any exemption from IMI. 

In conclusion, 

Signing a contract to buy and sell a property is a deal that requires extra attention. 

Although the purpose of this article is to clarify this matters, does not replace the need to hire a competent professional to provide the necessary legal advice.