Buying a Property In Portugal With Peace of Mind - Part 3
Buying a house in Portugal as a foreigner
Foreigners are allowed to buy property in Portugal, and the process is relatively straightforward. However, there are some regulations and requirements that you should be aware of before you begin the process.
Here are some key points to keep in mind when buying a property in Portugal as a foreigner:
Tax Number (NIF) in Portugal
As a foreigner, you’ll need to obtain a Portuguese tax identification number (NIF) in order to buy a property in Portugal. This can be obtained from the Portuguese tax office (Finanças).
Portuguese Bank account
You’ll need to have a Portuguese bank account in order to purchase a property in Portugal. This is where you’ll transfer the funds for the purchase, pay the taxes and fees, and receive any rental income.
Legal representation
It’s highly recommended to work with a Portuguese lawyer who is experienced in real estate transactions. They can help you navigate the legal aspects of the purchase and ensure that everything is in order.
Home Insurance
Known as property insurance, it's mandatory in Portugal and provides coverage for damage to your property and personal belongings, as well as liability coverage if someone is injured on your property.
It can also provide coverage for natural disasters such as earthquakes or floods, which can be common in Portugal.
Applying for a mortgage in Portugal as a foreigner
Foreigners can obtain a mortgage in Portugal to buy a house in Portugal, but the process may be more complex than for Portuguese citizens. Here are some things to keep in mind:
Interest rates
Interest rates for mortgages in Portugal can vary depending on the lender and the borrower’s creditworthiness. In some unique situations non-residents may be subject to higher interest rates than residents.
Maximum loan-to-value (LTV)
The maximum LTV ratio for non-residents is typically 80% of the property’s value. However, some lenders may offer higher or lower LTV ratios depending on the borrower’s financial situation.
Life insurance
Subscribing to a life insurance policy is requested by Portuguese banks and it provides financial protection for your loved ones in the event of your death.
Language
Mortgage documents in Portugal are typically in Portuguese, so it’s important to work with a lender who can provide translation services or who can provide documents in your native language.
Required Documentation
Non-residents will typically need to provide the following documentation to support their mortgage application:
Passport
Portuguese Tax Number (NIF)
Proof of Address
Credit report
Last 3 pay slips
Recent bank statements
Most recent tax returns
A copy of the tenancy agreement
Floorplan of the apartment /house
Costs associated with buying a house in Portugal
Property transfer tax (IMT)
IMT tax is based on the purchase price of the property and can range from 0% to 8% for residential properties. There are 3 main criteria's that influenced the IMT calculation:
Urban property vs. rural property
Property is in Mainland vs. islands (Madeira or Azores).
Primary residency vs secondary home
Stamp duty
Stamp duty is charged for all documents and arrangements in respect of real estate, including deeds, contracts and mortgages. This tax is based on the purchase price of the property and is typically 0.8% for residential properties.
Legal fee
It’s important to hire a lawyer to review the purchase contract and ensure that all legal requirements are met. Legal fees can range from 1% to 2% of the purchase price.
Notary fee
Notary fees are charged for the services of a notary public, who is responsible for verifying the legality of the transaction. Notary fees can range from 0.3% to 0.5% of the purchase price.
Registration fee
These fees are charged for registering the property transfer with the Land Registry. Registration fees can range from 0.05% to 0.25% of the purchase price.
Real estate agent fee
If you use a real estate buyer’s agent to help you find a property, their fees will typically be around 5% of the purchase price.
Taxes related to property ownership in Portugal
After completing the purchase, there are ongoing taxes and fees associated with property ownership in Portugal. Here are some of the most common:
Annual property taxes (IMI)
IMI is an annual tax based on the tax value of the property. The tax rate ranges from 0.3% to 0.8% for urban properties and 0.8% for rustic properties.
Additional Annual wealth property Tax (AIMI)
AIMI stands for “Adicional ao Imposto Municipal de Imóveis” which translates to Additional Municipal Property Tax.
It is an annual property tax in Portugal that is levied on the combined fiscal value of all residential properties owned by a taxpayer as of January 1st of each year worth above €600.000.
There are three levels of AIMI Tax in Portugal:
0,7% on properties valued between €600,000 and €1M
1,0% on properties valued between €1M and €2M
1,5% if the total properties value is over €2 million
Tax on rental income generated by the property
If you rent out the property, you’ll need to pay income tax on the rental income generated. There is a flat tax rate of 28%.
Various expenses related to the rental activity can be deducted from the gross rental income to determine the taxable income.
Common deductible expenses include property management fees, repairs and maintenance costs, insurance premiums, local property taxes (IMI), financing costs such as loan interest, and other relevant expenses like advertising and professional fees.
Taxpayers are required to report their rental income annually to the Portuguese tax authorities through the tax return process.
Non-resident individuals may have the option to be taxed under the Non-Habitual Resident (NHR) regime or applicable tax treaties.
Are you interested in renting out your property? Check out what you should consider when finding a good property manager in Portugal.
Tips for a successful property purchase in Portugal
Learn the language
Knowing some basic Portuguese can be extremely helpful during the buying process, especially when dealing with local professionals.
Check the property's legal status
Make sure the property is free of any legal issues, such as liens or encumbrances, and that all necessary permits and licenses are in place.
Get to know the neighbourhood
Visit the area where you’re considering buying a property to get a sense of the local culture, amenities, and infrastructure.
You might like to read the comprehensive guide about the pros and cons of living in Portugal.
Be aware of the costs
In addition to the purchase price, be aware of the various costs associated with buying a property in Portugal, including taxes, fees, and ongoing expenses.
Setting a budget
Before you begin your property search, it’s important to have a clear idea of your budget. This will help you narrow down your search to properties that fit within your price range and avoid wasting time looking at properties that are out of your budget.
Hiring a lawyer or real estate agent
It’s recommended that you hire a lawyer or real estate buyer’s agent who specializes in Portuguese property law.
They can guide you through the buying process, help you negotiate with the seller, ensure that all legal requirements are met and also help avoid the most common mistakes.
Understand financing options
If you require financing to purchase a property in Portugal, it’s important to research the various options available to you.
This may include obtaining a mortgage from a Portuguese bank or seeking financing from a bank in your home country.
Why invest with Portugal Residency Advisors
Local Expertise
We know Portugal. Due to our extensive local knowledge, we believe that concentrating our services in a single country destination is the best way to give you the most thorough and useful information.
Holistic Approach
One single channel of communication for the entire process. We provide you with a comprehensive service that covers all aspects of your move, from identifying the ideal residency visa to finding your new home or helping you to settle.
Transparent Service
We recommend what’s best for you based on an extensive process experience that saves time and money to clients. Our pricing is clear and competitive, and we don’t sell services that make us more money.
Simple Process
Technology plays a very important role in our company. We minimize our clients’ involvement in paperwork. We are customers ourselves and we know how to serve you.
Frequently asked questions about buying a property in Portugal
What are the steps involved in buying a property in Portugal?
The process of buying a property in Portugal typically involves finding a property, negotiating the price, getting a property survey, signing a promissory contract, transferring funds, completing the transaction at the notary, and registering the property with the local land registry.
What are the legal requirements to purchase a property in Portugal?
To purchase a property in Portugal, you will need to have a Portuguese fiscal number, a Portuguese bank account, and a valid identification document, such as a passport. It’s also advisable to work with a qualified lawyer who can guide you through the legal process.
How can I find a reputable real estate agent in Portugal?
You can find a reputable real estate agent in Portugal by searching online, getting recommendations from friends or family members, or working with a real estate agency that is licensed and regulated by the Portuguese government.
What kind of taxes and fees will I need to pay when buying a property in Portugal?
The taxes and fees associated with buying a property in Portugal include stamp duty, property transfer tax, notary fees, and registration fees.
These costs can vary depending on the value of the property and other factors, so it’s important to work with a qualified lawyer to understand your financial obligations.
How can I ensure that the property I am interested in has a clear title and no outstanding debts?
Before purchasing a property in Portugal, it’s important to conduct a thorough title search to ensure that there are no outstanding debts, liens, or encumbrances on the property. A qualified lawyer can help you with this process and ensure that the transaction is legally sound.
How do I get a mortgage in Portugal, and what are the requirements?
To get a mortgage in Portugal, you will need to have a Portuguese fiscal number, a Portuguese bank account, proof of income and employment, and a good credit score. It’s also important to work with a qualified mortgage broker who can help you find the best loan products and rates.
Are there any restrictions on foreigners buying property in Portugal?
There are no restrictions on foreigners buying property in Portugal.
What are some important factors to consider when choosing a property in Portugal?
Some important factors to consider when choosing a property in Portugal include location, property type, price, condition, and potential rental income.
How can I protect myself from fraud when buying a property in Portugal?
It’s important to work with reputable real estate agents and lawyers, conduct thorough due diligence, and verify the seller’s identity and ownership of the property. It’s also important to avoid making payments in cash or through unsecured channels.
What kind of legal support can I expect when buying a property in Portugal?
From a qualified buyer’s agent or lawyer who can help you with due diligence, contract review, negotiation, and transaction management. A lawyer can also help you navigate any legal issues that may arise during the buying process.