In general, property and property-like interests (the so-called rights in rem) which are set out in the Portuguese Civil Code and other legislation are subject to registration with the land register and may only be constituted, mortgaged or transferred through a public deed executed before a notary.

The public records of properties are available online. The registration of the acquisition, mortgages and other liens and encumbrances over immovable assets may be made online.

The Portuguese housing market continues to attract many local and international investors, as well as foreign nationals who wish to move to Portugal.

According to the national statistics office (Instituto Português de Estatística, INE), house prices increased 7.8% in 2020 despite the effects of the Covid19 pandemic. The average price of housing in Portugal in 2020 was EUR. 1,188 per square metre.

The effects of the pandemic were felt more acutely in the Lisbon metropolitan area, where house prices decreased to EUR. 3,375 per square metre in the third quarter of 2020. Prices for apartments in the centre of Lisbon remain above EUR. 4,000 per square metre. In the prime areas of Lisbon, Chiado, Principe Real and Avenida da Liberdade and in Cascais prices may reach as much as EUR. 10,000 per square metre.

Despite the steep increase of real estate prices in the last years, Lisbon housing prices remain among the lowest of European capitals.

The most important forms of property interests in Portugal are:

• Freehold (direito de propriedade). Freehold gives the owner the rights to use, exploit and dispose of a certain immovable asset. These rights include the right to build on a property subject to the applicable licensing requirements and planning restrictions;
• Joint ownership (compropriedade). It is possible for more than one person to own a property, where each owns a proportional and intangible share of the property. Each co-owner can dispose of his share of the property without the consent of the other co-owner(s), who will have a right of first refusal.
• Condominium ownership (propriedade horizontal). Portuguese law allows buildings or building developments to be divided into fractions (frações) or units where each unit, which may be an apartment, a store, or an office, is owned by a single owner and the common areas of the building, including the staircases, outside area, roof, etc, are co-owned by the owners of the building’s units. The owners together constitute the community of owners of the commonly owned property (condominium). Each owner may freely dispose of or encumber his fraction of the property including his share in the condominium.
• Building rights (direito de superfície). Building rights give their holders the right to construct and maintain a building or plantation on the property or beneath it. The building right may be temporary or permanent, transferable, or not; and
• Usufruct (direito de usufruto). Usufruct rights give their holder the right to use and collect the fruits (frutos) of the property, which include the rents, crops and other periodic revenues that may be generated by the property.

No property rights or similar rights can be created by contract other than in the manner specified in the law.

Commercial leases are the most common arrangement for the use of offices and retail stores in Portugal. Under a commercial lease agreement, the lessor grants the lessee the right to temporarily use the leased property with the obligation to return it at the term of the contract.

Portuguese law allows the parties to stipulate the main terms and conditions of the lease, such as the rent, rent review conditions, cost allocation, duration, renewal conditions, termination, etc.

The maximum term of commercial leases is thirty years. There is no statutory term and the parties can specify the applicable term. In the absence of a contractual term, the implied statutory term is five years. Typically, commercial leases for office space and stores have a duration of five to ten years.

The rent is usually payable monthly, but different payment terms may be agreed. Rent-free periods and rents including a variable component are common in Portuguese office and factory leases. In most contracts, rents are updated annually in accordance with the consumer price index (excluding housing) published by the National Statistics Institute (Instituto Nacional de Estatística) but the parties are free to use other criteria for reviewing rents.

Only premises licensed by the relevant municipality may be leased. The purpose of the lease must be in accordance with the usage license.

The transfer of the position of the lessee included in the transfer of a business establishment (trespasse) does not require the consent of the property owner. The statutory rules on the termination of lease agreements by default of the tenant are mandatory.

In the case of non-commercial leases, tenants for more than three years have a legal right of preferred acquisition in case of sale to a third party. Eviction of defaulting tenants is enforced through a special eviction procedure (procedimento especial de despejo) which is an exclusive procedure of National Lease Offices (Balcão Nacional do Arrendamento).

Leases of stores in shopping centres, retail parks and other similar developments where the owner or manager also provides certain management and operation services to the lessee are not subject to the statutory rules on leases, allowing the parties to freely determine the terms and conditions of the lease, subject only to general contract law rules and principles.

Typically, the main rules on the operation of the development are set out in a regulation approved by the development owner or manager. Rent-free periods, stepped-up rents and rents with variable components are common in shopping centre leases.

The costs of utilities, services, maintenance and improvement works are normally borne by the lessee in the form of common service charges, which include management fees, other common areas related services and, sometimes, marketing costs.

Service charges are based on the area of the shops leased to each of the tenants in proportion to the overall area of the development.

Although parties are free to agree the terms and conditions of the lease, it is common for agreements to be set out in standard contracts not subject to negotiation.

Promissory agreement of sale and purchase

The process for buying a property usually starts with the execution of a promissory sale and purchase agreement.

It is not mandatory for the parties to enter into a promissory agreement. Promissory agreements aim to ensure that the sale will be completed when the seller cannot deliver the property immediately, i.e., the building has not been completed or the property is being used by the seller or a tenant, or the buyer has not yet obtained financing for the building or lacks a document needed to complete the purchase.

Typically, with the execution of the promissory agreement, the buyer makes a down payment to the seller of a percentage of the sale price, normally somewhere between 10% and 20% of the price.

Promissory Agreements can be given priority against third parties’ rights that must be registered in the Land Registry Office, ensuring that the property cannot be sold to another person. The registration is valid for six months and may be renewed for an equal period and until one year after the date set by the parties for the execution of the Deed of Sale and Purchase.

Public deed os sale and purchase

The purchase of property must be made through a deed of purchase and sale, which must be executed before a notary.

The acquisition of property is subject to property transfer tax, at a variable rate, stamp duty and notary’s costs which must be paid in advance of the execution of the public deed of purchase.

When the parties have registered a sale and purchase promissory agreement, the provisional registration in the land registrar will become definitive after the registration of the deed of sale and purchase.

If the promissory sale and purchase agreement has not been registered, the purchaser must register the deed of purchase as soon as possible after the execution of the deed.

It is possible to carry out these formalities online through the website www.casapronta.pt.

Vehicles used in the acquisition of property

Investments in property in Portugal may be carried under any of the following structures:

• Direct ownership by the investors;
• Indirect ownership by way of the incorporation of a foreign special purpose vehicle (SPV); and
• Indirect ownership by way of the incorporation of a Portuguese SPV.

If the investors choose to incorporate a Portuguese SPV to carry out transactions in Portugal, they may opt between one of the following forms:

• A joint stock company;
• A real estate investment fund;
• A real estate investment company; or
• A real estate investment trust.

Joint stock companies

Typically, joint stock companies are well suited for investing in real estate because transferring a company’s shares is easy and does not need to be registered at the Commercial Registry Office.

Real estate invetment funds and companies

The incorporation of collective investment entities in Portugal is subject to the rules established in Law no. 16/2015, of February 24th, 2015, which constitutes the Collective Investment Entities Act.

Collective investment entities may assume the form of a real estate investment fund (thereinafter, FIIs) or a real estate investment company (Organismo de Investimento Coletivo sob a Forma Societária, OIIs).

FIIs may be open-ended, closed-ended or even mixed entities depending on whether the participation units issued are variable or fixed. These entities may acquire any property rights over immovable assets for leasing, reselling or any other economic purpose and any shareholdings in real estate companies, subject to certain limitations.

The incorporation of FIIs and OIIs must be authorised by CMVM.

The following is a summary of the main rules governing the incorporation and management of OIIs:

• Types of companies. OIIs may be SICAFI or SICAVI, depending on whether their share capital is fixed or variable. SICAFI are subject to the rules of closed FII and SICAVI to the rules of open FII.
• Management. If not self-governed, OIIs must be managed by fund managing companies. If the management is not entrusted to a fund managing company, OIIs will have to comply with the fund managing companies and FII minimum capitalisation requirements described above.
• Share capital. OIIs must be incorporated with a minimum share capital of EUR. 50,000 or EUR. 300,000 depending on the management type. The share capital of OIIs must be represented by nominative shares.
• Minimum net assets. OIIs must hold a minimum of EUR. 5 million of net assets.
• Office. OIIs authorised by CMVM must have their head offices in Portugal, be managed from Portugal.

Real estate investment trusts

The Portuguese Real Estate Investment Trusts (REIT) have been established as a new type of property investment companies (Sociedades de Investimento e Gestão Imobiliária. SIGI).

SIGIs are established and regulated by Decree-Law no. 19/2019, of 28 January, which entered into force on 1 February 2019. SIGI are also governed by the rules applicable to quota companies of the Portuguese Commercial Companies Code (CSC).

To be qualified as SIGI, a company must be incorporated as a joint stock company (sociedade anónima) with a minimum subscribed and fully paid-up share capital of EUR. 5,000,000. Furthermore, they must have their registered office and their effective management in Portugal.

SIGIs also must adopt the supervisory bodies in accordance with the CSC, implementing a supervisory board and an official chartered accountant. Their corporate name must include the reference «Sociedade de Investimento e Gestão Imobiliária, S.A» or the abbreviation «SIGI, S.A.».

Their main corporate purpose is the acquisition of:

• Property rights;
• Shares of other SIGI or similar companies based in another Member-State; and
• Participation units or shares of real estate investment funds for urban leasing, real estate investment companies for urban leasing and collective investment undertakings (with dividend rules similar to a SIGI).

SIGIs can directly manage the properties whose rights they own or contract third parties for that purpose. In addition to leasing, such properties may be used for construction and rehabilitation projects or allocated to stores or spaces in shopping centres or office premises.

SIGIs are subject to rules on the composition and holding of assets, to the obligation of distributing dividends as a percentage of their profits and to comply with a maximum indebtedness cap.

The assets of a SIGI must be primarily composed by property ownership rights, surface rights or other similar property rights for leasing or destined to other forms of economic exploitation.

Rights over real estate properties and equity must represent at least 80% of the total assets’ value. The value of real estate assets subject to leasing or other forms of economic exploitation must represent at least 75% of the total assets’ value. Such assets must be held for at least three years after their acquisition.

The abovementioned asset composition requirements must be met at any time starting from the second year after the incorporation of a SIGI. Finally, SIGIs also must comply with a maximum indebtedness cap of 60% of the total value of their assets.

Within nine months after the closing of the financial year, a SIGI must distribute:

• At least 90% of the profits related to that period resulting from the payment of dividends and profits of units distributed by the referred entities; and
• At least 75% of the remaining distributable income under the terms of the CSC.

At least 75% of the net proceedings of the sale of assets related with the corporate purpose of a SIGI must be reinvested in other assets related with that purpose until three years after the sale.

A SIGI’s legal reserve may not exceed 20% of their share capital and it is not allowed to set up other unavailable reserves.

It is possible, upon decision of the general meeting, to convert existing companies or property investment undertakings with a corporate form into a SIGI.

The decision to convert a company into a SIGI must be taken by the majority of votes required to adopt the amendment of the articles of association.

To be converted they should comply with the requirements of the Decree-Law no. 19/2019, of 28 January, approving the necessary amendments to the articles of association in the referred general meeting. The conversion takes effect on the first day of the taxation period following the date of registration of the alterations to the articles of association.

The conversion resolution and the amended articles of association must be immediately notified to the Portuguese Securities Market Commission for publication in its website.

SIGIs benefit from the taxation rules applicable to all real estate investment undertakings. For the purposes of corporate income tax, as a rule, their rental income, real estate capital gains and capital income and dividends are not taxed.

Income distributed by SIGI to resident individuals is taxed at a rate of 28%. The capital gains resulting from the sale of the shares are also subject to a tax rate of 28%.

Companies resident in Portugal which receive income from SIGI are subject to withholding tax at the rate of 25%.

Non-resident investors, including private individuals or companies, without a permanent establishment in Portugal are subject to withholding tax at the rate of 10%.

The transfer of immovable property is taxable under the Municipal Property Transfer Tax (Imposto Municipal sobre as Transmissões Onerosas de Imóveis – IMT).

IMT is calculated based on (i) the tax value of the property or (ii) the declared purchase price, whichever is the highest. IMT rates are the following:

The table below summarises the IMT rates applicable to the acquisition of urban property intended exclusively for housing purposes in mainland Portugal.

The table below summarises the IMT rates applicable to the acquisition of urban property for non-housing purposes in mainland Portugal.

The IMT rate will be 10%, irrespectively of the value, in case of properties owned or controlled, directly or indirectly, by legal entities resident in a state, territory or region with a clearly more favourable tax regime.

Typically, real estate transactions are exempt from VAT. Notwithstanding, under certain conditions, the seller or the lessor may opt to renounce to such exemption to be able to deduct the input VAT.

Ownership of immovable property is subject to the Municipal Property Tax (Imposto Municipal sobre Imóveis – IMI). IMI is levied on an annual basis, is payable in up to three instalments on the value of urban property and land property located in Portugal and is owed by the property or usufruct owner or the holder of the surface right of a real estate unit at the following rates:

• 0,8% on land and attached facilities (prédios rústicos);
• Between 0.3% and 0.45% on urban properties (prédios urbanos); and
• 7.5% on properties owned or controlled, directly or indirectly, by entities resident in a state, territory or region with a clearly more favourable tax regime.

The applicable rate within these ranges will be determined by the municipalities on a yearly basis and increase threefold in the case of urban property left vacant for more than a year or of buildings in a state of ruin.

The urban buildings and apartments will be deemed not to be in use if the owner has not contracted the provision of essential public services or there is no consumption of water, electricity, gas and telecommunications for a period of one year.

Real estate assets (excluding assets allocated to commercial, industrial and service activities) may also be subject to an Additional to IMI (Adicional ao IMI – AIMI).

For individuals, the taxable value up to €600,000 will be AIMI exempt.? Above this amount the following rates will apply:?

• 0.7% on the taxable value from €600,000 to €1,000,000; ?
• 1% on the taxable value up from €1,000,000 to €2,000,000; and
• 1.5% on the taxable value above €2,000,000.?

For companies, the AIMI is lower (0.4%) but there is no exemption. However, if the real estate is used as a residency of the shareholder or a corporate body member, AIMI will apply at the following rates instead:?

• 0.7% on the taxable value up to €1,000,000;
• 1% on the taxable value from €1,000,000 to €2,000,000; and
• 1.5% on the taxable value above €2,000,000.

Relevant legislation

Civil Code [Portuguese Only]

New Urban Lease Regime [Portuguese Only]

Contract templates

Lease Agreement for Residential Purposes [Portuguese] [English]

Lease Agreement for Non-Residential Purposes [Portuguese] [English]

Draft Property Purchase and Sale Deed [Portuguese] [English]

Macedo Vitorino's briefings

«Investing in Real Estate in Portugal» (2021)

Important notice

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By using this library, you agree (i) that nothing in this library constitute or substitute legal or business advice, (ii) that the availability, transmission, receipt or use of this library is not intended and does not create an attorney-client relationship and (iii) to use the documents available in this site in compliance with all applicable laws. You should make sure that this library are not or have not become out-of-date by supervening laws or regulations or other events.

We are used to working on all aspects of real estate, planning and construction. We act regularly in domestic and cross-border transactions involving real estate assets, including mergers and acquisitions, financings and foreign investments involving real estate assets.

We can assist you in all aspects related to real estate and planning, including:

• Negotiating property acquisition, transfer and lease agreements
• Conducting due diligencse on real estate assets
• Preparing applications and dealing with construction and use licenses
• Handling real estate disputes

If you have any question or wish us to provide a budget, please contact us to: whyportugal@macedovitorino.com

For more information on our practices and expertise please go to www.macedovitorino.com/en/expertise