Guide to Buying in Portugal

We aim to provide you with important up to date information on procedures, legislation, tax, the Non Habitual residence and Golden Visa regimes as well as many other topics. An overview of the buying process in Portugal, as well as an overview of the taxes associated to property purchase and ownership, are outlined below.

There are so many reasons to love the Algarve. 3000 hours of sunshine each year, over 80 exceptional Blue Flag beaches, around 40 first-class golf courses, great tennis and padel facilities, an internationally acclaimed motor race track, one of the most beautiful coastlines in the world, excellent marina facilities, safety, food and wine from the gods and a lifestyle most can only dream of. You may have fond memories of family holidays spent here or, you may have just recently discovered this amazing corner of the world.

… So what if you could have that all year round?

This last year has shown that not only has technology changed the world we live in, it can also change where in the world you live. With a home office and world-class internet providers allowing more of us to enjoy the lifestyle and raise our families right here in the Algarve whilst working remotely for a company based anywhere in the world.

Whatever your budget, there are some great properties available throughout the Algarve, whether you are looking for something in the countryside, a spectacular golf-side villa, or a city flat. Bear in mind that the market does vary greatly from area to area of the Algarve in terms of price, property type and potential investment return.

Before buying, it would be beneficial to visit different areas to see what appeals most. Each municipality (of which there are 16) has its own character and charm. And as we do still have a change of seasons, albeit not a drastic one, find somewhere you want to live even when it’s not a beach day. Distance to schools, supermarkets, amenities and the airport may also affect your decision.

We won’t delve into all 16 municipalities in this article, but here is a snapshot of some of our favourites.

Albufeira, with more than 40,000 residents, including around 5,000 foreigners, is known for its beaches, water sports, marina and nightlife. The architecture is an eclectic mix of typical Algarvean white and tiled homes, along ancient narrow streets, intermixed with modern developments. The beauty of this municipality is that it provides something for everyone… busier places such as Oura, the neighbouring coastal resorts such as Olhos de Agua and Gale and the contrasting traditional village of Paderne, (with its great community dances, vintage car exhibitions, art galleries, a castle and some excellent rural restaurants with great wine lists and excellent food.) Then there is Guia - the famed home of Piri Piri Chicken and of Sir Cliff Richard’s winery.

The municipality of Lagoa, with a population of around 23,000, includes several communities of interest, such as Ferragudo, Carvoeiro and Porches. Lagoa is one of the most important tourist areas of the Algarve, in part due to the beauty of its beaches, modern tourist accommodation, golf courses and cultural heritage. Not to be missed are Marinha beach, considered by the Michelin Guide as one of the 10 most beautiful beaches in Europe, the famous Benagil caves and Albandeira Beach. Porches is well known for its pottery workshops where the art is kept alive.

Loulé is the largest municipality in the Algarve, with nearly 70,000 inhabitants and includes the exclusive resorts of Quinta do Lago, Vale do Lobo and Vilamoura as well as traditional villages steeped in history such as Alte, Salir and Boliqueime.

The town of Loule has a beautiful centre and a picturesque Moorish style market surrounded by street cafes and boutique shops, best visited on Saturdays when it's busiest, giving you a glimpse of how diverse the community is. One of our branches is also located right on the main avenue just down from the Market hall. Loulé is characterised by the simple charm of the architecture and 13th-century castle, ancient traditions, and the lovely people. A variety of restaurants offer everything from excellent pizzas to fine dining and local "tascas" where you can snack on Portuguese tapas and enjoy the excellent local ice-cold beer.

There are many cultural events year-round throughout all 9 parishes of the municipality. In Loule, there's MED, a bohemian festival with over 40 concerts over several days and "Noite Branca", a white party every 2nd year. There is also the cineteatro with its contemporary modern dance and classical concerts, experimental music and theatre and Film Festivals organised several times a year. We could go on and on...

São Brás de Alportel, a small municipality with a population of around 11,000, is in a privileged in-land area, surrounded by woods and mountains. In the 19th century, the village became an important economic centre due to its cork oak plantations which encouraged commercial development and made the village the largest producer of cork in Portugal and the world. In the historical centre of São Brás, there are whitewashed houses built in the popular local architectural style, and the grand houses of the former industrialists and businessmen of the cork trade, with tiled facades, carved stonework and wrought iron.

The picturesque town of Tavira, with a population of around 26,000, is located in the east of the Algarve, where the Gilão River meets the Atlantic, and features traditional Portuguese heritage alongside deep-rooted Moorish influences. Sometimes referred to as the Venice of the Algarve as the river winds its way through the center of the town, it boasts a seven-arched Moorish bridge, some fine Renaissance architecture, several churches, tree-lined squares, roadside cafes and a certain romantic air. Along the Travessa de Dona Brites, you will find fine examples of medieval houses complete with Gothic windows and doorways.

Living outside of the more touristy areas certainly has its charm. The locals are renowned for their kindness and make wonderful neighbours. The Algarvean countryside is unspoilt and quite beautiful. The local towns and markets are a plethora of colour and as if one needed more benefits, buying and running a property outside of the coastal resorts is quite a bit less expensive.

For more information on these or any other area in the Algarve, consult our Special Agents who can give you the inside scoop on what to do, where to eat and sites to see and, which area might better suit your lifestyle!

After finding a property and negotiating a deal, any good agent will prepare the ‘Letters of Intent’ for both buyer and seller. The LOI outlines all of the terms and conditions of the sale agreed upon during the negotiations. Both parties should appoint a local lawyer and the signed Letters of Intent are then sent to the lawyers representing them or the parties. The vendor's lawyer will then forward all of the property documentation to the buyer’s lawyer, who will then perform due diligence and prepare the contract. The agent will also prepare an inventory list, which is sent to the lawyers and attached to the contract.

• Once the due diligence on the property has been completed by the buyer’s lawyer, the Promissory Contract (Contrato Promessa de Compra e Venda) will be prepared, which needs to be signed by both the vendor and the buyer.
• With the signing of the Promissory Contract, the buyer pays a deposit to the vendor, normally 10%, and generally via the lawyer client’s account.
• The Final Deed (Escritura) is the transfer of ownership to the buyer, which is signed on an agreed upon date at the notary’s office. If buyer or seller cannot be present, then they can give power of attorney to their legal representative.
• The purchase balance and associated taxes are paid, and the transaction is completed.
• The buyer’s lawyer will register the new owner in the Land Registry (Registo Predial), and usually also changes all utility bills into the new owner's name.

• The buyer's lawyer will carry out the normal legal searches on the property and also carry out due diligence on the corporate structure. This will include checking the fees, liabilities, warranties, representation, history and legal procedures of the company.
• A Share Purchase Agreement will then be prepared by the buyer's lawyer and, upon signature by both parties, all the conditions of the transaction are secured, and a usual 10% deposit will be paid to the vendor, via the lawyer’s client accounts.
• This transaction takes place under the jurisdiction of the company’s domicile but can also take place under Portuguese or another jurisdiction connected with the parties, safeguarding the formalities applicable to the transfer of the shares/rights in the jurisdiction of the company’s domicile.
• The process is simply completed by both parties fulfilling the terms described in the Share Purchase Agreement and the buyers transferring the balance of the purchase price to the vendors, again usually via the lawyers.
• The respective management company will transfer the share ownership from vendor to purchaser. This process is usually quick, simple and in English.

As shown in our Market Report on page … our average price per sale has jumped from EUR 1.8m to 2.3m in one year. This is only in part due to rising property values and has much more to do with the fact that buyers are no longer just buying holiday homes, but they are investing in bigger and better properties in which they plan to spend more time. Many of our buyers are relocating to Portugal and making it their home and often, only the best property will do.

In years gone by, we would possibly have a buyer a year who purchased with a mortgage. Today we estimate that up to 25% of our buyers are borrowing. And money has never been so cheap. Helping more buyers to buy, and buy bigger, local banks are offering incredibly good rates. Millennium BCP are offering the following conditions:

• Second Residence or a Non-Resident mortgage application can go up to 75% from the acquisition or evaluation amount;
• Maximum maturity is 30 years or until 75 years of age;
• Spread between 1.00% and 1.25%. Nominal Annual Rate around 0.600% (Variable Interest Rate linked to 12 Months Euribor);
• Available fixed interest rates until 20 years or variable interest rate.
• For Residents in Portugal the maximum maturity is 40 years or until 75 years of age (which makes a difference to people under 45);
• Maximum mortgage amount can go up to 85% from the acquisition or evaluation amount.

IMT - Property Transfer Tax

Paid on the acquisition of a property by the purchaser prior to completion. On properties for habitational purposes, the rate varies according to the purchase price. Specifically, for properties valued at over EUR 1m, a 7.5% rate applies. On rustic land, the rate is 5%, while on plots for building or other property types, the rate is set at 6.5%. This rate includes the acquisition of shares in companies that own real estate (where certain criteria are met), which now, in a change enacted for 2021, is also applicable to the acquisition of shares in corporations (i.e., entities formed as a “sociedade anónima – S.A.”). A 10% rate is also applied to properties acquired (directly or indirectly) by offshore entities which are included on the Portuguese blacklist.

Stamp Duty, Notary and Registration Fees

To be paid by the purchaser prior to signing the notarial deed and the registration of the property into the buyer’s name. Stamp duty is levied at a 0.8% rate of the sales price. Registration of the acquisition costs €250.00. Notary and lawyer fees vary depending on the value of the purchase and the complexity of the deal.

IMI - Annual Property Tax

Payable in two or three instalments per year (depending upon the total value). This tax is fixed annually but can vary between 0.3% to 0.45% depending upon the council where the property is located. Loule is currently taxed at 0.3%. The IMI for rustic properties is 0.8%. A 7.5% rate also applies where the property is held (directly or indirectly) by offshore entities which are included on the Portuguese blacklist.

AIMI - Additional Municipal Property Tax

Introduced in 2017, AIMI applies to the combined total value of the rateable value of properties (VPT) of all properties owned by each individual. Up to the value of EUR 600,000 there is no AIMI to pay. For values between EUR 600,000 and EUR 1 million, it is 0.7%. On values from EUR 1 million, up to 2 million the tax is EUR 2,800 (0.7% of EUR 400,000) plus 1% on the value in excess of EUR 1 million. On values above EUR 2 million, the tax is EUR 2,800 (0.7% of EUR 400,000) plus 1% on the value in excess of EUR 1 million up to 2 million-plus 1.5% on the value in excess the 2 million.

AIMI for corporate-owned properties is 0.4% of the rateable value. Similarly to IMI, a 7.5% rate also applies to real estate owned by offshore entities which are included on the Portuguese blacklist.

AIMI does not apply to non-urban properties and properties registered as commercial, industrial or service providing.

Capital Gains Tax

For non-resident individuals, CGT is levied at a 28% rate. Residents are not taxed on 50% of their capital gain and the other 50% is added to their usual annual income tax return. This tax is calculated on the difference between the sales price and either the purchase and/or construction costs of the property, (index linked) or its first ratable value (index linked), whichever is the highest. Costs can be offset against this tax including invoices of certain refurbishments, taxes, notary and registration fees as well as real estate agency fees. If the property you are selling is your main residence and you reinvest the proceeds of the sale within 36 months in an EU/EEA territory, you can avoid this tax.

For non-resident companies, CGT upon direct disposal of real estate properties is levied at a 25% rate. The taxable basis is computed in a similar way as established for resident individuals. CGT also applies to resident companies, at rates ranging between 21% and 31.5% (depending on the applicable State and municipal surcharges). In any case, a reinvestment relief regime may potentially be applicable, which can limit the gains subject to tax (depending on meeting certain criteria).

Depending on the specific holding of companies that own Portuguese real estate, Portuguese taxation on capital gains may or may not apply. Specific assistance should be sought from a legal and tax advisor.

Inheritance Tax

Between close direct relatives (i.e., spouses and direct descendants/ascendants), there is no inheritance tax in Portugal. On gifts, a 0.8% stamp duty based on the VPT must be calculated. Other inheritance or gift situations are subject to stamp duty at the rate of 10% of the VPT.

After selecting what property to buy in Portugal from a myriad of options, a decision must be taken on how to actually do it. There are several topics to understand and address and, therefore, it is highly recommended that you seek advice from trusted and reputed legal and tax advisor(s).

In any case, there are natural guidance tips that may be generally followed to get this transaction successfully through so that you may fully enjoy your new property.

The first relevant topic is if the property is to be acquired personally or through a corporate structure. There are naturally pros and cons for each option that should be taken into consideration and, therefore, professional assistance in selecting the best option for your particular case is of utmost importance.

The benefits of private ownership are mostly related to the fact that it is a fairly straightforward process in Portugal. Your local legal counsel will ensure the property and its paperwork are in order and walk you through all the required steps to get the acquisition done.

But there are also other benefits associated to buying a property directly. While taxes upon acquisition of the property are virtually always applicable irrespective of the implemented acquisition model (but may be offset against CGT in a future sale), there may be possibilities to optimize the tax impact upon divestment, if you are a resident in Portugal (or even for non-residents, in line with certain favorable decisions by Portuguese Courts, which are building some jurisprudence). In addition, no exit tax applies in Portugal to individuals, so there is maximum flexibility regarding the assets you hold while residing in Portugal.

Finally, succession planning is also a benefit of taking Portuguese residency and owning properties directly, since there is no inheritance tax in Portugal between close relatives.

The use of corporate structures is popular for acquiring properties in Portugal, whether this stems from reasons related to asset protection or to securing additional tax efficiency for acquiring, holding and potentially disposing of your property.

And, even considering some tax changes that have occurred recently, this remains true.

If a corporate structure is to buy a property directly, all taxes discussed above remain applicable. In addition, there are additional costs involved in running companies under corporate ownership and the value of the property needs to justify these costs. Obtaining professional assistance is advisable on this specific topic.

However, there may be certain tax advantages in using a corporate structure to buy and/or hold a Portuguese property.