Why choose the Algarve?
- The Algarve is a mature, stable market; the growth in low-cost airlines has reinvigorated property appreciation and rental potential.
- It is recognised that the Algarve offers amongst the best golf in the world. With courses and rates to suit all abilities and budgets.
- Property in Portugal is high quality and good value for money and experiences a long term growth rate of approximately 5% per year.
- It is accessible to the whole of Northern Europe (and indeed the world) through the international airports of Faro ensuring solid communication links for the future.
- Strict planning rules limit development. This control means that new property is sympathetically added to the area and also restricts the supply of property. As a result, there is less competition for holiday lets and resale properties from an investment perspective.
- The Algarve was recently awarded 1st place in "Best place to buy" by Channel 4's A place in the Sun and Portugal was also awarded 3rd place in "Best place to Invest".
Why choose Elite Algarve Properties?
- Rather than cover many areas we have chosen to specialise in just one - the Algarve. Our experience of this coastline spans 30 years. We have built up a detailed knowledge of the region and nobody knows it better. With 2 local offices and a maintenance and rental company, Elite Algarve properties offer a complete service for anyone who wants to deal with the specialists.
- We have a local team speaking English, Portuguese, Spanish, German and French. We all live and own property in the area and know all the reputable developers.
What is the rental market like?
- We are currently achieving between 15-25 weeks rental a year for our clients through our local property services company. This is proving more than enough to cover our client's costs for owning property in the area. The market is growing and is already strong locally and in Northern Europe.
- Our Services business also has a number of clients that are looking for long term rental property - whereas the return per week will be less than short term it can provide a reassuring guaranteed monthly income.
How do I view properties in the area?
- The best way is to visit on a short holiday with everyone involved in the buying decision. We are agents for over 1,000 property owners and developers and will be able to show you a comprehensive selection meeting your exact needs.
- Alternatively we can make the arrangements for you and come up with a bespoke travel package depending on your favourite locations and property requirements.
- During a meeting with us you will be under NO PRESSURE to buy what so ever. We are a family business with property interests in the area and a friendly, impartial, all encompassing service.
Can I reserve a property?
- YES. Many of our clients choose to put down a refundable deposit to fix the price of a property and take it off the market until they can visit the area to view it. These refundable deposits are not offered by every owner or developer, but are usually £2000, giving you 30 days to view and decide whether or not to buy. This put you under NO OBLIGATION.
What are the basic procedures and legal acts involved in acquiring a property in Portugal?
- Having chosen a property, your Lawyer should search the local Land Registry (Conservatora do Registo Predial) to confirm that the vendor has clear title of ownership, charges or mortgages over the property and actual building and plot size being sold.
- A fiscal number (numero de contribuinte), obtained at the local Tax (Finanças) office, is mandatory. This number will come in the form of a card, which you will need for payment of annual property taxes, supply of services to the property or to open a Portuguese Bank Account.
- Your Lawyer will obtain the official tax document (caderneta predial) relating to the property from the vendor and check that the description of the property (number of rooms, area of house, area of land, etc) is the same as in the land registry.
- A copy of the usage licence (licença de utilizaçao) will be obtained from the local town hall (Camera Municipal). For residential property, you will need a Habitation Licence (licence de habitçao). Non-residential licences need to stipulate the appropriate commercial or industrial use.
- A Promissory Contract of purchase and sale will be drawn up (Contracto de Promessa de compra e venda) this should be signed by you and the vendor. It should include: Identification of the parties, Identification of the property, Agreed terms and conditions of the contract. A deposit of 10% of the full purchase price is normally payed at this stage.
- Transfer Tax (IMT - Imposto Municipal sobre Transmissoes) must be paid prior to issue of the Final Deed of Sale. A certificate must be issued by the Local Tax Office (Finanças), which proves payment and must be submitted to the Notary prior to completion of the Final Deed. The value of tax due depends on the sale price the property.
- On completion of the sale, the Notary issues a final deed (escritura) and title pertaining to the property in question. Prior to issuing the document all certificates referred to above must be provided to the Notary.
- Finally, on completion of the sale, it is very important to ensure that the property is immediately registered in your name at the (Conservatória do Registo Predial ) and also in the Local Tax Office (Finanças).
What fees/taxes can be expected during the buying process and beyond?
- Taxes and fees that relate directly to the property purchase:
- IMT rate - a one off tax that is payable when the property is deemed to have changed hands. The tax is related to the transaction value of the property or if this is deemed to be too low the evaluated value given by the local tax office. The tax is around 6%.
- Including a lawyers fee of 1%, Notary, stamp duty and registration fees (payable upon signing of the title deed) of approximately between 1% and 1.5% you should budget for around 8% overall for the purchase of a property.
- Here are some of the costs involved in buying, owning and selling a property valued at €1 million as a non-resident of Portugal:
Privately owned property White listed corporate ownership of property Property purchase costs,
IMT and other taxes
6% Purchase Tax IMT
0.8% Stamp Duty
No Stamp duty
Legal fees at purchase and sale 1 - 2 % 1 - 2% CGT on sale of property 25% of the profit (in Portugal) None in Portugal Annual running costs
None Between €1500 and €3500
What taxes should I expect to pay?
- Portugal is one of the most tax-friendly countries in Europe.
- You are considered to be resident in Portugal if you spend more than a total of 183 days in Portugal per calendar year (cumulative, not consecutive), or if a "habitual residence" is available to you on December 31st of the relevant tax/calendar year and it appears that you intend to keep it and occupy it as your habitual residence.
- A person resident in Portugal is liable to Portuguese tax on worldwide income and gains.
- A person not resident in Portugal is liable to income tax on Portuguese source income, and to capital gains in respect of assets in Portugal.
- Annual Property Tax: Every year property owners are liable to pay IMI - this tax varies from 0.4% to 2% of the fiscal value of the property, and is levied annually by the local authority.
- Income Tax: Levied on a sliding scale from 12% for the first 4,266 euros; with various incremental increases up to 40% for anything over 53,322 euros.
- Inheritance Tax: At present there is no Portuguese Inheritance Tax between immediate relatives (parents, children and spouses). In all other situations a 10% stamp duty applies. In the event of the death of an owner and in order for the inheritance process to run smoothly, we strongly advice you make a Portuguese will after the purchase of the property.
- Capital Gains Tax (CGT): On a transfer of the property ownership in Portugal, all vendors must pay the Portuguese Capital Gains Tax, which is 25% calculated on the difference between base costs (original price + original acquisition taxes + legal fees including Notary expenses + correction with inflation) and selling price. There are a few exceptions but CGT may be rolled over if another principal residence of a greater or equal value is bought between 12 months prior and 24 months after the sale. For newly acquired properties of lesser value the gain is calculated on a pro rata basis.
- Property Owned By A Company: It is common that higher priced properties are owned by a company. In this event you may opt to either buy the property out of the company (with the associated costs explained above) or you may opt to buy the shares of the company that owns the property. In these circumstances where a company already owns the property and you decide to purchase the shares of the company, your lawyer will certify the title of the property in the usual way.
- The lawyer will then prepare an agreement to transfer the shares or the beneficial ownership in the company to the purchaser. A conveyance on the company is carried out in addition to the property conveyance. On completion, the ownership of the property (namely but not limited to the land registry), will not have changed, only the ownership of the company. Depending on the location of the company, some Portuguese taxes, like IMI or Portuguese Inheritance Tax, may or may not apply.
- We advise a purchaser take advice from an advisor in their own country regarding the impact of purchasing through a company and how this structure could affect his / her tax plan. General questions hould also be discussed with your lawyer who will be able to recommend a tax expert in Portugal.
Why are some luxury properties owned by off shore companies?
- Over the past 15 years or so, more and more properties in the Algarve, particularly in the "Golden Triangle" have been purchased using corporate ownership. Back in 2002/3 this became a problem for a lot of people when the Portuguese government decided to attack corporate ownership and produced a list of blacklisted counties, including Gibraltar, where the majority of such companies were all registered. Various penal taxes were introduced to discourage the use of off shore companies. The effect was quite dramatic. There was a mad rush either to dump the company ownership (usually at extremely high cost) and to transfer the property into their name, or to re-domicile the company to a non -blacklisted jurisdiction.
- This affected the Portuguese property market so badly that the government soon changed the law again and reduced the penal tax rates on companies in blacklisted countries to a more reasonable level. This move encouraged investment in the Portuguese property market again.
- Gibraltar, where the majority of the off shore companies were formed, is an English law jurisdiction with similar company law to the UK. In the rush to re-domicile companies away from Gibraltar, the firms of company administrators sought out other similar jurisdictions with company law similar to the UK and Gibraltar, hence the move to places like Malta, Delaware (USA) and even New Zealand, which are all English language countries and not on the blacklist.
- When clients are first informed that the property they are interested in buying is owned by an of shore company they may have little or no idea of what this means, and start asking questions concerning company ownership of property in Portugal. Here are some frequent questions and answers
- Q. Where and what exactly is off shore?
- A. Any place where accompany is registered outside the jurisdiction of Portuguese territory.
- Q. What does "blacklisted country" mean?
- A. Any country whose name appears on a list of jurisdictions where the tax regime is more favourable than in Portugal. EU countries are not on the list. So Malta is a suitable alternative but tends to be more expensive.
- Q. Why is Delaware not blacklisted?
- A. Delaware is a state in the US and therefore it would require the USA to be blacklisted. It is doubtful that a specific state within the US could be specified. There are other states within the US similar to Delaware as far as corporate structure and tax are concerned.
- Q. Is Delaware likely to become blacklisted in the future? And, if so, is it possible to move the company elsewhere?
- A. It is highly unlikely, as a great many US corporations have registered their head offices in Delaware. However, I the unlikely event that it should ever become necessary; it is possible to re-domicile the company
- Q. If this becomes necessary what do I have to pay?
- A. Unless the company, or the owner of the company, actually receives income in Delaware, there are no Delaware or US taxes to pay. You would have to pay the costs of transferring the company to another jurisdiction.
- Q. Is there a downside to owning a property in a company?
- A. Yes, possibly, if it ever became necessary to sell the company asset, namely the property. This would involve paying Capital Gains Tax on the profit made by the company ie the difference between the buying price of the property by the company and the selling price by the company subject to the usual allowances. Except in exceptional circumstances, it is better to sell the company and keep the asset in the company so that there is no taxable event in Portugal.
- Q. Why should I use an off shore company to buy my property and if I want to sell my property how do I do this?
- A. If the property value is high enough to justify the annual costs of management in whichever is the chosen jurisdiction, there are benefits to corporate ownership. Firstly, if an owner wants to sell this property, a prospective purchaser does not have to go through the Portuguese conveyance procedure of Promissory Contracts and Notarial Deeds, with the transaction carried out by selling the vendors interest in the company. Secondly, from a purchaser's point of view, this can be a huge cost saving as there is no Property Transfer Tax (IMT) to pay, usually 6% of the price if it is an expensive property, and no stamp duty or land registry fees to pay, as there is no change of, only the rights to the shares of the company. As the buyer has saved 7% on the cost of the property, the owner can expect to receive the full value for the property.
- Q. If I sell my interest in the property-owning company, what tax do I have to pay?
- A. This will be determined by the tax laws of the country in which you are considered to be tax resident. You would usually be liable to pay tax on the profit on the sale of your interest in the company, which is not the same as selling the property.
- Q. So, is there any good reason not to purchase a property, which is in a company?
- A. On balance, no, but you should keep in mind that corporate ownership of a property would always imply that there is usually a built-in Capital Gains Tax liability should you be forced to sell the asset, and this amount can usually be calculated before you buy. You should also consider whether the value of the property is enough to justify the long term costs of running the company and whether you intend to keep it or sell it in the short term. Purchasing property owned by a company does require a certain knowledge of the company law applicable to the particular jurisdiction in which the company happens to be registered. It also requires a full knowledge of the Portuguese conveyance system and property laws to ensure that the house or villa you are buying is fully legal.
What is the cost of living in the Algarve?
- The cost of living is around 30 - 40% cheaper than in the UK, particularly for food, drink and travel. The pace of life is much more conducive to relaxation and the majority of activities are based outdoors. Even if you choose to live in or near the main cities or tourist areas, you can enjoy a slower approach to everyday life, and if you visit some rural locations, you might think time has completely stood still. The more touristy a destination the more the price tag will reflect this - prices for living still comparable with the UK. Outside of this though as you go to quieter and more rural areas the prices become extremely reasonable and the produce sourced from local suppliers is of outstanding quality.
How much will my property cost to run?
- Maintenance costs if within an urbanisation vary by development and charges are driven by many factors - the size of the urbanisation and the ratio of properties to it, what facilities there are on the site, landscaping, heated pool and size of the pool.
Can Spanish Algarve Properties Ltd advise on Mortgage Brokers familiar with Portuguese Properties?
- Mortgage financing is available in Portugal from various reputable sources, and as elsewhere, can be tailored to suit individual requirements and compared for their competitiveness. A range of financing options is available for buyers with sufficient income to service a loan. For Portuguese residents, Euro mortgages can be obtained for up to 90% of the property value. For non-residents, mortgages are available in any major currency for up to 80% of the property value or purchase price.
Do I need to make a Portuguese will?
- Yes definitely, it is essential to complete a Portuguese will and lodge it with a Portuguese lawyer. Without this if the foreign resident dies without having left his or hers Portuguese property to legally specified heirs, the estate automatically passes to the Portuguese state. Your Portuguese will should reflect ONLY what property is owned in Portugal; including UK property will lead to serious complications. The names of English speaking lawyers can be obtained through the British embassy or consulates in Portugal. We are also able to recommend professional lawyers fully conversant in the purchase of a Portuguese property for the foreign buyer.
Which permits will I need to live in Portugal?
- There is no need to apply for this before you enter Portugal, and if your stay is for less than three months (even if you will be working), or if you will be undertaking seasonal work that doesn't exceed eight months, you do not need a resident's permit. However, you will need either a temporary or permanent residency permit if your stay is for longer. Permits may vary in category but all can be renewed and extended. Spouses of people coming to Portugal to work also require a permit, and children under 14 years may have their names endorsed on their parent's permit. In all cases you need to pay a visit to the nearest Foreigners Service (Serviço de Estrangeiros e Fronteiras/SEF).
- After getting a residence card, you must obtain a Portuguese (blue) identity card (bilhete de indentidade). Always carry your Portuguese identity card or passport. You can be asked to produce your identification papers at any time by the police or other officials.