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Buyers guide

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BUYING A PROPERTY IN PORTUGAL

Finding your Property

Your first step should be to find a Government licensed real estate agent ('mediador imobíliaria') whose conduct is controlled by a legal framework of rules. Take care to consider and then specify to your agent exactly the kind of property you require. The better you can define your property, the better are your chances of early success. Larger agencies are usually best simply because they invariably have a larger portfolio from which to choose. Bear in mind that smaller agencies often obtain their properties via the larger agents and this can sometimes complicate your negotiations (and thereby lessen your chances of buying at the best possible price)

Once you've found the right one...

The best advice is get yourself a good lawyer and surveyor to make sure that the property is correct - both legally and structurally. It is not a good idea to try and make savings in these areas - problems here can come back to 'bite' you. For those using a bank or mortgage lender, they will be able to provide their own recommendations.

Properties in the Algarve are invariably very solidly built. This is due to government legislation which insists upon a steel reinforced concrete frame, even for single storey properties. Modern Portuguese building specifications are therefore usually more substantial than in most other countries including, for example, neighboring Spain. Finding a competent surveyor is straightforward as there are several Chartered Surveyors in the Algarve and all are very capable. When investing in property in Portugal, you may wish to consider employing the services of a fiscal representative to assure you meet any tax obligations that may arise. A Fiscal Representative is strongly recommended if you intend to rent your property.

Your real estate agent will help you in choosing a Lawyer and will of course give you lots of advice in these areas. Most agents will have their own recommended list of experts chosen from those who have provided a good and reliable service in the past.

Ownership of your new property

There have been sweeping changes affecting the taxation of Portuguese properties. This is due to EC legislation regarding offshore tax havens and the necessity for Portugal to standardise the rating system in the country as a whole. It is therefore more important than ever to decide how you wish to own your property to avoid unnecessary taxation and there are basically two separate routes: </p>

  • Ownership in private name.</b> Property purchase tax known as IMT (formerly Sisa Tax) is payable upon purchase, this tax is applied at banded ratesbut averages out to be around 6%. Annual Rates (IMI) are at the

lowest levels, approx. 0.5% p.a. There are significant tax breaks for Portuguese residents: on sale Capital Gains can be rolled over to a new property purchase in Portugal; also there are exemptions of inheritance tax to direct family members. No Corporation Tax is payable but of course standard income taxes (15%) etc are due in respect of rental income. Non-residents must now have a fiscal representative (Portuguese Accountant) which has an annual cost.

Corporate ownership.

The recent changes to the law with regards to corporate ownership have once again made the concept and thought of enjoying the benefits of an offshore haven very feasable and often beneficial to the purchaser. The annual municipal tax (IMI) levied on property owned by companies based in tax havens (blacklisted has now been reduced from 5% to 1% which is a massive reduction, but still, worth noting - double the rate applied to non-offshore held property. When purchasing a property using a corporate entity, there is no IMT to pay on the purchase.

These recent changes in the law regarding corporate ownership have cleared up the grey areas. Buyers and sellers have the confidence that their properties have generally complied with Portugal's requirement that property be owned in an acceptable jurisdiction. It is now quite normal to see Algarvean properties in Estate Agents' windows described as owned in Malta or Delaware and it is completely acceptable for properties to continue to be owned by such companies. The majority of properties in and around Quinta do Lago continue to be sold by the sale of the shares in the companies now based in Malta or Delaware. There continues to be very real advantages in purchasing property in this manner, and you should consider this carefully when you find that the property you want to buy is owned by a company based in Malta or Delaware.

General Advantages of Company Ownership: on a sale (of shares), the buyer does not need to pay IMT tax, inheritance taxes and capital gain taxes can be avoided or indefinitely deferred and company ownership can give anonymity. With regard to avoiding capital gains taxes, it is worth mentioning that this is effectively just a way of deferring the payment of tax as the company still retains a contingent liability of tax which applies if and when the company ever sells the property. Buyers therefore often will wish to negotiate some allowance in the price to allow for their taking over this contigent liablility.

General Disadvantages of Company Ownership:

applying to all company ownership regimes are that you have to pay company set up costs (say £700) and annual management fees and fiscal representative costs apply (say £800 p.a.).

The purchasing costs. These can be broken down as follows:

  • Surveyor costs approx. ¼ - ½%.
  • Lawyer costs approx. 1½ - 2%
  • Notorial/Registration Fees amount to approx. 2% of the declared purchase value.
  • IMT (previously SISA Tax and similar to the UK stamp duty). Increases in bands. Below ?85.500 there is none payable, upto a maximum of 6% which is competitive with the rest of Europe.

Purchasing Procedure

Once you wish to proceed with the purchase, it is normal practice to lodge a 10% deposit with your lawyer as soon as possible. This is primarily as an act of good faith at the outset and the vendor should then withdraw the property from the market. Your lawyer will make the relevant 'searches' and establish the rightful ownership of the property. This can usually be done within one month. A promissory contract is then entered into at which point your deposit will be passed over to the vendor's lawyer. At this point there is a legal commitment and if the purchaser withdraws then he loses his deposit. It is also commonplace for the contract to state that if the vendor withdraws he must pay to you double the deposit. A date can then be set for the signing of the 'escritura' or deed. This is typically done within a further month and, at that point, your property can be registered into your name. <br> The purchase of a company is different to the above procedure in that although the searches must still be made, the purchase is done via a share purchase agreement and warranties must be made by the vendor as to the status of the offshore company. No property registration is necessary because the property continues to be owned by the same offshore company. No IMT is payable and company management fees of approx £800 p.a. are payable.

all the above matters have been taken care of and all documents exchanged you will then become the proud owner of a property in the Algarve!

Property Management and Rentals

You should consider how much of the year you will spend in occupation. If the property is to be used as a second home, it is likely that you will be absent for long periods. In this case it is recommended that you find a reliable Property Manager to look after your investment. There are several good Property Management companies around who will pay your bills, organise the cleaning and maintenance of the property and the ongoing maintenance of your garden and pool. If possible choose a

Management company who also have a good lettings service. If in the future you decide to offer holiday rentals, if will be easier if you can organise this through one point of contact. Renting your property can be an excellent way of paying all your property upkeep expenses.