The real estate market in Portugal is a mature one, offering quality at the same level as the main European markets and with an increasing presence of international investors.
It is a market with a high level of transparency and in which several international consultants operate ruled by the most demanding professional orders of commercial real estate. Regarding the promoters and investors, some of the largest international companies also operate in Portugal, with many of the leading European investment companies holding assets in Portugal.
1. Ways of Investment in Real Estate
A) Direct acquisition of Real Estate:
The transfer of ownership of real estate in Portugal by purchase and sale is formalized:
- by public deed, executed at notary, or
- by a notarized private document, signed by a lawyer, solicitor, chamber of commerce and industry, registration officers or conservator, under certain formalities.
After the deed, the land registry must be promoted. This intends to publicize the legal situation of the property and their ownership.
Failure to register may entail:
- the lack of protection of the acquirer before third parties, and
- the impossibility of subsequent transmission of the property by the purchaser.
Before the conclusion of the contract of sale, the buyer should:
- check the commercial, legal, urban, environmental and fiscal situation of the property
- conduct a due diligence in order to confirm that the property in question does not incur any burdens or limitations or, if existing, their extinction is ensured before or after the purchase and sale deed.
- celebrate preliminary contracts or agreements with the seller in the form of letters of intent, memorandum of understanding or agreements of principles, bidding accordingly as desired. For an immediate binding of the parties, a promise contract is usually celebrated.
- Intending to strengthen the will of the parties, the promising buyer pays a percentage of the value of the purchase and sale as a signal and a provisional registration of acquisition can be made.
B) Indirect acquisition of real estate:
The creation of vehicles for investment in real estate assets is most common in Portugal: commercial companies, real estate investment funds and real estate investment companies.
I. Commercial companies can be anonymous ("S.A.") or by shares ("Lda." Or "Limitada"), both with limited liability, i.e. up to the limit of their respective share capital.
Ii. Real estate investment funds are one of the most profitable real estate investment vehicles in the Portuguese market in recent years, due to their favorable tax regimen.
These funds constitute autonomous assets, belonging in a special regime of communion, to a plurality of individual or legal persons, designated by participants. Funds are never liable for the debts of the participants or its legal managers.
Funds can be open, closed (public or private subscription) or mixed. Private investment funds (by private subscription) have been the most used by investors to promote their real estate investments in Portugal.
Iii. The Real Estate Investment Companies are collective investment institutions with legal personality, which may take the form of a public limited company with variable capital or fixed capital, and whose real estate assets are owned by them and managed, on a fiduciary basis, by its own or by a contracted third party, in an independent wayr and in the exclusive interest of the shareholders.
2. Tax environment:
A) Acquisition of real estate
As a rule, the acquisition of real estate is subject to the payment of two taxes:
- The Municipal Property Tax (IMT) is a tax that is applied to onerous transmissions of real estate or similar figures and is charged on the price of the property or on the tax asset value (VPT) whichever is higher. As a rule, this tax must be paid before the conclusion of the purchase of the property.
The applicable rate may vary:
- 6,5% for real estate intended for commerce and services or land for construction,
- 5% if it is a question of non-urban (rustic) buildings,
- progressive between 0% and 6% in the case of real estate intended exclusively for housing, or exclusively own and permanent housing,
- 10% - acquisitions or similar figures by entities domiciled in a country, territory or region subject to a more favorable tax regime ("off shore").
Cases of exemption - which may be automatic or dependent on authorization:
(I) Acquisitions of buildings individually classified as being of national interest, public interest or municipal interest;
(Ii) Acquisitions of properties located in economically disadvantaged regions, when carried out by commercial or civil companies, to be used in those regions for the pursuit of agricultural or industrial activities considered to be of economic and social interest;
(Iii) Acquisitions of urban buildings for urban rehabilitation, provided that, within three years from the date of acquisition, the purchaser initiates the works;
(Iv) Acquisitions of urban buildings or properties intended exclusively for own and permanent housing, in the first onerous transmission of the rehabilitated building, when located in Urban Rehabilitation Area;
(V) Acquisitions of buildings or autonomous properties destined to the installation of qualified enterprises of tourist utility, in accordance with the respective legislation;
(Vi) Acquisitions of urban building or autonomous property of urban building exclusively for own and permanent housing whose value for a basis settlement does not exceed € 92,407.00;
(Vii) Acquisitions of properties by companies collected for resale, as mentioned above.
- The Stamp Duty (IS) is a tax applicable to the acquisition of real estate. The main rule is a flat rate of 0.8%, applied, regardless of the type, nature or nationality of the vehicle or business concerned. This tax must be paid prior to the conclusion of the property purchase agreement, and it is levied on the price of the business, or on the VPT, whichever is the higher
B) Property Detention
By rule, the ownership of property is subject to the payment of certain taxes, fees or charges:
• Municipal Property Tax (IMI) - In Portugal, the detention of immovable property generates the payment of IMI as the basic tax burden. The IMI is an annual tax levied on the property tax value of real estate (VPT), ??which is calculated by the fiscal services taking into account certain criteria provided by law (in particular, the area, location and comfort elements). Is charged to the owners on 31 December of each year. IMI is generally paid in three installments in the months of April, July and November of the following year.
Currently IMI Rates - IMI rates are:
- between 0,3% and 0,5% of the VPT of the building, for urban buildings, which includes building land. The municipalities set the rate to be applied in each year, among the limits.
- a flat rate of 0.8% of the VPT for rustic buildings
- rate of 7,5% of the VPT for properties held by black list offshore companies, irrespective of their nature, rustic or urban.
The rates mentioned for urban buildings are raised annually to three times in cases of urban buildings that have been vacant for more than a year o in ruins.
Exemptions: Temporary or permanent, some with an automatic nature, others depending on authorization or recognition by the Tax Administration.
(I) Exemption for 3 years or 5 years (term of 5 years may be renewable) in the real estate subject to urban rehabilitation;
(Ii) exemption for seven years under the regime applicable to tourist use, or residential tourism;
(Iii) Exemptions applicable to own and permanent dwellings of households with certain characteristics;
(Iv) Exemption for buildings that are classified as national monuments and buildings individually classified as of public interest, of municipal value or cultural heritage;
(V) Exemption for real estate acquired for resale by commercial companies collected for resale, for a maximum term of 3 years;
(Vi) Exemption for construction land included in the inventory of commercial companies whose purpose is the construction of buildings for sale, for a maximum period of 4 years.
• Stamp Tax (IS) - The detention of real estate may also generate Stamp Duty. Owners, users or owners of residential real estate or land for construction whose authorized or foreseen building is for housing and whose tax net worth is equal to or greater than € 1,000,000.00 are taxed annually in stamp duty. This annual tax will be taxed at the rate of 1% on the property value. For real estate, including land owned by offshore companies included in the black list, the rate is increased to 7,5% and the building change does not apply, i.e., the tax applies regardless of the purpose of the building. (Housing, commerce, industry, other). However, the tax rate is applied over the property value.
• Condominium Charges: A significant part of the property in Portugal is subject to the horizontal property regimen.
The owner has a duty to participate in the expenses with the common parts of the building - with the exception of those whose use is attributed only to some condominium owners. Among these expenses, we highlight the expenses of use or fruition, payment of services of common interest, conservation expenses, expenses with innovations.
• Municipal Tax of Civil Protection (TMPC): It is a fee that aims to remunerate the services provided by the Municipal Civil Protection Services, in the fields of civil protection, firefighting and people and property security. This tax is levied on the taxable capital value of urban buildings or fractions of these (buildings or land), and will correspond to a variable percentage depending on the municipality, conservation conditions, occupied or vacant state, etc. The rates to be applied will vary according to the Municipality.
In the Municipality of Lisbon, the current rates are as follows: - 0.0375% of the tax value of the urban building or fraction thereof. - 0.3% of the tax value of the urban building or fraction thereof, when classified as degraded; - 0.6% at the taxable value of the urban building or fraction thereof, when classified as being vacant or in a state of ruin.
Real Estate Rehabilitation
As an incentive to a more active intervention by private owners in the urban requalification process, the Portuguese Government created a set of tax benefits for real estate rehabilitation operation, of which the following stand out:
I - Application of a reduced rate of 6% VAT (Value Added Tax), in the case of:
• Urban rehabilitation works carried out in real estate or in public spaces located in urban rehabilitation areas delimited under the legal terms, or in the scope of requalification and rehabilitation of recognized national public interest
• Real estate rehabilitation contracts which, regardless of location, are directly contracted by the Institute of Housing and Urban Rehabilitation (IHRU), as well as those that are carried out under special schemes of financial or fiscal support for the rehabilitation of buildings or under Of financially supported programs by the IHRU
II - Exemption from MUNICIPAL TAX ON BUILDINGS (IMI) for:
- Urban buildings classified as National Monuments and buildings individually classified as of public interest, or of municipal interest
- Urban buildings subject to urban rehabilitation, for a period of three years from the year, inclusive, of the issuance of its city license;
- urban dwelling buildings constructed, expanded, improved or acquired for the permanent and private dwelling of the taxable person or his household, the taxable income of which for the purposes of IRS in the previous year does not exceed € 153 300 , And which are effectively affected for that purpose, within six months after the acquisition or completion of the construction, extension or improvement, except for reasons not attributed to the beneficiary, and the request for exemption must be submitted by the taxable persons until 60 days after that deadline.
- Buildings or parts of buildings constructed, enlarged, improved or acquired, in case of the first transmission, when intended to rent for housing, as long the legal conditions are fulfilled
Urban buildings subject to rehabilitation actions may be exempted from IMI for a period of 5 years, counting from the year from the completion of the rehabilitation, and may be renewed for an additional period of 5 years. The incentives shall only apply to immovable property that began after January 1st , 2008 and is concluded through December 31st, 2020.
III - Exemption of MUNICIPAL TAX ON ONERIVE REAL ESTATE TRANSMISSION (IMT) in the case of:
- Acquisitions of buildings classified as of National Interest, Public Interest or Municipal Interest;
- Acquisitions of urban buildings for urban rehabilitation, providing that, within three years from the date of acquisition, the acquirer begins their works;
- Acquisitions of an urban building or an autonomous fraction of an urban building destined exclusively for own and permanent housing, in the first onerous transmission of the rehabilitated building, when located in Urban Rehabilitation Area. Rehabilitation actions must begin after January 1st , 2008 and be completed by December 31st , 2020.
The law also provides for exemption from COLLECTIVE INCOME TAX (IRC) and a special regime applicable to Real Estate Investment Funds for Housing Leasing and Real Estate Investment Companies, which may lead to exemptions from IRC, IRS, IMI And IMT.
AGPC can help you in a preliminary analysis of the fiscal framework and arrangement of solutions for real estate investment, or even after investments, looking for fiscal optimization and supporting the assets management.