Real Estate Investment in Portugal

Real estate is booming in Portugal, mainly for 4 reasons:

1. Golden visa, allows non EU members to reside in Portugal with a minimum investment of 500,000 euros in real
estate.
2. Good non-resident tax treatment, incentive for people to acquire property here.
3. Nationals regaining access to credit.
4. In 2015, improvement in the tax treatment of real estate investment entities.

1 Owning Real Estate Portugal

1. Full Ownership
Sole ownership or multiple ownership is possible. Multiple ownership is in accordance with the Civil Code
regime, with rules for pre-emption rights in favour of co-owners, in event of disposal of the good. This must be
registered with Land Register.

2. Surface right, usufruct and right of use

are the 3 ways for a person or entity to enjoy a good owned by a third party, if registered with the Land
Register.

3. Condominium
Not relevant here.

4. Restrictions on ownership by foreigners

No restrictions, rather the opposite: strong incentive for foreigners to buy at the moment (Summer 2017) ->
golden visa, better fiscal treatment.

2 Acquisition Of Ownership

1. Formal requirements
Transfer of ownership happens by private contracts, in person or through legal representatives, or by notarial
deed, as long as taxes and pre-emption rights are in order.

2. Registration
Land registry has all the information pertaining to a property on-line (technical and past transactions),
available also in English. The info is usually of value and accurate.

3. Asset deals
See 2.1. In addition to a private contract or notarial deed, as a transaction is about to happen, a promissory
sale and purchase agreement setting forth the terms of the final deal usually secures the transaction.
Prior to completing transaction, the buyer must pay conveyance tax and stamp duty (fixed flat rate of 0,8% of
transaction value).
4. Share Deals
The owner of a real estate good can also be a joint stock company (S.A) or an LLC by quotas (Lda): acquiring
the vehicle secures ownership of the good, provided that due diligence of the company itself meets legal and
admin requirements.
5. Public Auctions
Usually distressed assets. Great deals to be made, but important to check whether liabilities can subsist after
transaction is made. The regime is used by local authorities for disposing of properties in conversation areas.
Purchasers must procure renovation works.
3 Other Rights To Property

1. Mortgages and charges

Mortgages and encumbrances are the most common form of charge: they must be registered with the relevant
land registry for the validity and enforceability of the guarantee.

2. Easements
Neighbouring properties can have rights of way, rights of use, restrictions on use etc All those must be
registered at the Land Registry.

3. Pre-emption rights
Can be legal and enforceable or agreed, and registered. Ex:
Sale by a co-owner: others have a pre-emption right.
Sale by a neighbour of rural land: neighbours will have pre-emption rights on adjoining property.
tenants who have over 3 years lease in the event of sale of property.

4. Options
Owner can give options to third parties, as long as they complete and dont clash with legal pre-emptive rights.

5. Overage
Not relevant here.

4 Zoning And Planning Law Permits

Zoning and Planning determines whether a new building can be constructed, or whether an old can be
refurbished. The parameters also determine possibilities for constructing, altering, extending and destroying, as
well as permitted uses.
Style of construction is also supervised by another body: Regulamento Geral das Edificaoes Urbanas.
The main relevant admin authorities are the local authorities, i.e the Municipalities.
A construction permit is required for new building or significant alterations.

5 Environmental Liabilities

A project which may have effects on the environment is subject to an environmental impact assessment. It is
important to conduct specific due diligence in connection with environmental search of the proposed site and the
surrounding area.

6 Tax

1. Transfer Tax, Stamp Duty and Land Tax

Taxes depend on how the deal is structured: direct asset purchase or shares in company.

ASSET DEAL: liable to IMT (Municipal Property Transfer Tax), on VPT=Max[purchase price, Tax Authority
evaluation] (Stamp duty also on same basis, 0.8%).
IMT is 6.5% in town if commercial activity, 5% for rural properties, progressive rate from 0 up to 6% for pure
residential city assets or main properties, 1 to 6% if not main property or some commercial uses.

SHARE DEAL: IMT is due if buyer horls 75% or more of shares of an LLC holding exclusively real estate. Under
75% nothing is due. For Joint Stock, nothing is due.
 IMT has to be paid prior to deal by buyer. Failing to do so mollifies deal.
Stamp duty is paid by buyer to notary, who then delivers it to Tax authority.

2. VAT
No VAT usually on property in Portugal. There are special cases where there can be some.

3. Other real estate taxes

IMI, municipal property tax, payable based on VPT, 0.8% like stamp duty for rural properties. Exemptions are
available for projects of economic importance.

4. Taxation of capital gains on real estate

Corporate income tax in Portugal is 21% and can go up to 29.5%: the same applies to real estate goods.
However, some breaks exist -> one can deduct from the appreciation of an asset the cost of the works involved
in maintaining it, and if the proceeds of a sale are reinvested in certain products, only 50% of gains are
taxed.
For ownership through a vehicle not incorporated in Portugal, flat rate of 25%.

5. Taxation of capital gains from the disposal of shares in a company owning real estate.
25 or 28% and plenty of provisions. Not really interesting for us here.

7 Real Estate Finance

1. Interest Rates Risks

If money needs to be borrowed, it is important to secure a flat rate deal, and if not available find an institution
that woud structure a plain-vanilla interest rate swap, so the variable part risk is born by the financial
institution.

2. Assets held as security

If real estate is provided as collateral of the loan (acquisition or other), it must be registered at the Land
Registry or is void.

3. Further collateral agreements

Can be shares, bank accounts, rental income, as set in a private contract between parties.