Guidelines for Buying Overseas: The Legal Process

[Oliveira Trindade]

Guidelines for Buying Overseas: The Legal Process *

When you've settled on the property you want you'll need to choose a qualified lawyer to represent you.

Power of Attorney

Once you have found a lawyer that you are happy with you have the option of assigning them power of attorney.

This allows your lawyer to apply for the necessary paper work on your behalf and will save you many costs in the long run. Many property deals have been lost on account of the buyer not being able to act quickly enough and this will stop that from happening.

Before contract

Prior to paying over any money or signing any promissory contract, the purchaser should instruct their lawyer to undertake thorough pre-contract enquiries. If money has changed hands it will be very difficult to retrieve it if the title is not subsequently in order.

A vendor should have a complete set of title deeds that show that the vendor is the person legally entitled to sell and that the property sold is the property the purchaser has agreed to buy.

The property should have a valid habitation license that is similar to planning permission and confirms that the local authority has approved the construction of the property.

The purchaser's legal representative will enquire and check the following:

 Land registration

 Ownership

 Title

 Description of property

 Mortgages / Encumbrances

 Related charges

 Third party interests

Caderneta Predial

Every property must have a "Caderneta Predial". This is a taxation identification of the property that sets out, amongst other things, the rateable valuation. This valuation is important for the determination of IMI tax (rates).

Habitation Licence

All residential properties constructed after 1951 need a habitation license confirming that the local authority, the Camara Municipal, has inspected the property and that it complies with planning permission and building regulations. If the property was in existence prior to 1951 a certificate to state this must also be obtained from the Camara.

Fiscal Number (Número de contribuinte)

If you are buying a property of any kind you will need a fiscal number. The process is not complicated and can be handled by your lawyer.

Assuming that all of the above have been checked satisfactorily, a contract to purchase will be drawn up.

Promissory Contract

The purchaser's legal representative will prepare a contract of purchase and sale (contracto promessa de compra e venda) to be signed by the purchaser and the vendor. This should include all relevant details of the property, the price, the payment schedules, the completion date and any special terms and conditions agreed by both parties.

At this stage the agreed deposit, normally 10% of the purchase price is paid to the vendor. The purchaser and vendor are then legally bound by the contract.

There will be penalty clauses contained in this document in the event of either party withdrawing from the sale or purchase after this contract is signed.

The final deeds (Escritura)

The final deeds will be signed at the notary's office. The balance of the purchase price is paid at this time, and the notary subsequently enters the transaction in the official records.

Usually, the buyer can only take official possession after signing the final deeds of the property.

Your lawyer can sign both the promissory contract and the final deeds on your behalf, but only if they have first received your power of attorney, which is advisable to do very early on in the process to avoid you having to visit Portugal every time a signature is needed. Alternatively you can sign both documents personally.

The period of time between the promissory contract and signature of the final deeds can vary according to the wishes of the buyer and seller. This timescale is stated in the promissory contract, but usually it is 30-60 days.

Registration (Registo Predial)

After the transaction has been entered into the notaries' records, the lawyer will take a copy of the deed and register the transaction at the land registry. This formally notes the purchaser's legal ownership of the property.

IMT (Imposto Municipal Sobre as Tranmissões) Formerly SISA Tax

This is a tax applicable to property transactions, payable at Finanças (local tax office). The receipt must be produce for the final deed.

The rate for this tax, which applies to a normal overseas buyer, is on a sliding scale with a maximum of 6%. It used to be tax beneficial to purchase the property through an overseas company but loopholes both in the UK tax system and in Portugal have made this less attractive. If a property is bought through an offshore company, which is on the Portuguese “blacklist”, the IMT levied is 8%. Acquisition by a non- blacklisted company (UK, Delaware, Malta etc) would not be affected. Rustic property will be charged at a flat rate of 5% and commercial property or land for construction will be charged at a flat rate of 6.5%.

Notarial & Registration Fees

These will have to be paid by you on completion. As a general rule these will be approximately 1 to 2% of the purchase price.

Legal Fees

Choosing the correct legal representation to handle your property purchase matters is of obvious significant importance. It is always recommended to use a local lawyer who understands Portuguese and property law. Legal fees represent no more than 1% of the agreed purchase price.

Purchase Costs in Summary:

Notarial and registeration fees = 1-2%

Legal fees = 1%

IMT = 0% to 6%

*by Dr. Oliveira Trindade, Lawyer, Portugal, email oliveiratrindade-206F@adv.oa.pt, provides integrated legal services in all major areas of legal practice, such as Corporate, Commercial, Conveyance, Real Estate, Planning, Construction, Tourism, Foreign Investment, Tax Planning and Litigation (Corporate, Commercial, Civil, Criminal, Labour, Administrative and Tax).