SELLING PROPERTY IN PORTUGAL
1. Using a Lawyer (Advogado)
Foreigners selling property in Portugal, even if they are experienced in property transactions at home, should be aware that the process is different in Portugal and should take adequate legal advice through a qualified lawyer (in Portuguese - "advogado").
Only an advogado or, in a lesser degree, a "solicitador", are entitled to give legal advice and act as legal attorneys. Estate agents are not licensed nor qualified to give legal advice.
The lawyer will:
- Check that property documents are in order and the vendor has proper title to the property;
- Draw up or obtain all the necessary documents, including power of attorney, promissory contract and completion deed.
A lawyer can be held responsible for his actions and advice and subject to strict scrutiny from the Portuguese Bar (Ordem dos Advogados - web site: http://www.oa.pt/).
2. Promissory Contract
Normally a purchase and sale process starts with a promissory contract (in Portuguese - "contrato promessa de compra e venda").
This is a biding agreement through which both parties are bound to complete the purchase and sale within an agreed time frame, for the price and other conditions established in the promissory contract.
Normally a deposit is paid to the vendor on signature of the promissory contract.
The deposit is normally non-refundable if the buyer breaches his/her contractual obligations.
If the vendor fails to fulfil his/her contractual obligations, the buyer can:
a) Ask for the deposit to be returned in double;
b) Deposit the remainder of the price with the competent Portuguese court and ask for a court decision that replaces the declaration of sale from the vendor - this is called specific performance ("execução específica").
3. Completion of Purchase and Sale Deed
The lawyer will organise an appointment with a notary for signature of completion of purchase and sale deed (in Portuguese - "escritura de compra e venda").
This is the formal act of sale that is drawn, signed and kept at a notary.
The price - or the remainder of it - is normally paid prior or on signature of the completion deed, since this is the moment of transfer of ownership.
3. Capital Gains Tax
Property sale attracts Capital Gains Tax. The tax is payable by the vendor after Completion.
Capital Gains Tax is 25% of the profit made with the sale if the seller is an individual not resident in Portugal. If the seller is a resident individual, half (1/2) of the profit made will be added to the global income and subject to taxation on a sliding scale of up to 42%.
Individual sellers, whether resident or non-resident, are required to fill out a tax return between 16 March and 30 April the year following the completion of the sale.
Capital Gains Tax is 25% of the profit made if the seller is a non-resident corporation. If the seller is a resident corporation, the profit made will be added to the global income and subject to taxation at 25%.
Non-resident corporations must fill out a tax return within 30 days from the date of completion of sale. Resident corporations must fill out a tax return until the end of May the following year.
4. Power of Attorney
The lawyer can carry out all of the above in the absence of the seller if a power of attorney with the necessary powers has been granted. This avoids unnecessary expenses with travel and accommodation.
7. Related Issues
An individual or corporation non-resident in Portugal must appoint a tax representative domiciled in Portugal. The tax representative is the liaison point between the non-resident and the Portuguese Tax Administration.
***
©José Pedro Magalhães, Lagos, 31 May 2006.
Please note: this paper is for general information purposes only. It is not to be regarded as formal legal advice and does not exclude the need for proper legal advice. No action should be taken based only on this information.