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GARANTEES AND SEGURITIES IN PORTUGAL

In an open economy model, it is more important than ever to know what the legal risks are and how to minimise and overcome them. The better you know, the better you perform. In this article, we will summarise a clear and updated understanding of law and practice regarding guarantees.

Guarantees and securities
As a general rule, the debtor is liable in respect of his obligations. This rule affects all the debtor's assets, including future ones. The breach of an obligation, such as a payment, means that the debtor is liable to pay compensation.

Personal guarantees
By the contract, the parties may request additional guarantees besides existing assets to ensure the fulfilment of the obligation. One of these guarantees is "fiança." By entering into this kind of guarantee, a guarantor undertakes to pay on behalf of a third party in the event of this party not complying with the obligation of paying. The obligation depends on a principal debt and cannot exist without a valid principal obligation.

Mortgage
Like the other guarantees, the mortgage is designed to protect a creditor in the event of debtor's default. In this case, the creditor can recover payment from the judicial sale of the property. A mortgage aims to secure a defined sum of money that has to be clearly stated in the deed or contract. A mortgage is created by means of a deed made by a notary or contract before the land registry is duly registered.

Pledge
The granting of certain securities will ensure that payment of a debt will be made by selling some specific assets of the debtor. Under Portuguese law, a pledge (penhor) may be created over cash or fungible securities. There are two types of pledge, civil and commercial. A commercial pledge is a pledge between entities or individuals subject to the regulations of the Commercial Code. These will be individuals with the capacity to carry out commercial acts and other entities that engage in commercial activities. In general, the requirements for a civil pledge are somewhat stricter than those for a commercial pledge. A civil or commercial pledge may be used depending on the status of the parties. In practice, a civil pledge is more likely to be used.

Bank guarantee
A bank guarantee is a guarantee from a lending institution ensuring that the liabilities of a debtor will be met. A first demand bank guarantee: is issued by a guarantor (a bank) on behalf of the applicant, assuming his responsibility to pay to the beneficiary under a complying demand; represents an independent and irrevocable payment undertaking; and is separate from the underlying contract obligations and thus opposed to the concept of a contract guarantee mentioned above. As there is no direct regulation in Portuguese law regarding bank guaranties, the "law" is what parties have agreed on. Accordingly, it is always advised to pay special attention to the agreement submitted by banks to the parties.

Other securities 
Generally, it is possible to secure an obligation, e.g. an obligation of payment, by cash deposits, securities, precious stones or metals, pledge, mortgage, or bank guarantee. This security works well, especially with cash deposits. However, it is difficult to obtain from a debtor. For amounts over €5,000, a bank guaranty is more commonly used than a "caução."

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WHAT IS THE MOST COMMON FORM OF SECURITY TAKEN OVER REAL ESTATE IN PORTUGAL?

There is three standard security taken over real estate: voluntary mortgage, retention of title and seizure. Concerning mortgage, it should be formalised through public deed or by a certified private document. To produce its legal effects, a mortgage must be registered at the land registry office. As for the retention of title, it should be incorporated using a duly authenticated contract or public deed and is also subject to registration at the land registry office so it can be used against any third parties. Finally, a seizure is done through a lawsuit and is not subject to specific conditions. The mortgage is by far the most widely used security.

WHAT IS A PLEDGE?

A Pledge is a security for an obligation to ensure that payment will be made by selling some specific assets of the debtor. Under Portuguese law, a pledge (penhor) may be created over cash or fungible securities. To be valid, a pledge depends on delivery of the asset or assets to the creditor or the third party as a trustee or bailee. There are two types of pledge: civil and commercial. A commercial pledge is a pledge between entities or individuals subject to the regulations of the Commercial Code. These will be individuals with the capacity to carry out commercial acts or entities that engage in commercial activities. In general, the requirements for a civil pledge are somewhat stricter than those for a commercial pledge. A civil or commercial pledge may be used depending on the status of the parties. In practice, a civil pledge is more likely to be used.

I FOUND THAT THE PROPERTY I PURCHASED HAS DEFECTS, WHAT CAN I DO NOW?

Every consumer purchase is covered by a mandatory legal guarantee. As long as you are a consumer, no seller can claim otherwise. Legally, the property must not suffer from any defect which has a negative impact on its value or which renders its regular use impossible. If these warranties are breached, the consumer can choose between repair, replacement, refund or a price reduction. However, the buyer must notify the seller of defects within one year of their discovery. If the property is newly built, the purchaser will also benefit from a five-year warranty period. According to Art. 1225 of the Civil Code, the seller is liable for damages in respect of certain defects during five years, if he has also constructed, repaired or modified the building.

Corporate tax rate reduction

The State Budget for 2015 lowered the corporate income tax rate to 21% (it was 23%). Corporate tax is a tax levied on profits derived by both resident and non-resident entities. This decrease corresponds to a loss of tax revenue of around EUR 200 million. The aim is to create conditions to attract foreign investment. It is important to note however the adding of the state tax (between 3% and 5%, depending on the amount of taxable income) and the municipal surcharge (up to 1.5%) wich give a real tax rate of around 25%.

NUMBER OF NEW COMPANIES RISES

Business formation with new businesses having been started in Portugal went up in 2017. Over 3,687 new companies were registered in Lisbon (14.5% more than in 2016), while Porto registered 7,107 new firms (5% up on the previous year). On the other hand, business failures in Portugal fell 12.7% in 2017 compared with 2016 to 6,284, while the number of new companies being set up rose 9.1%, to 40,465. Lisbon and Porto saw the highest number of bankruptcies – 1,683 and 1,330 respectively, but these were still 2.4% and 15.4% lower than in 2016.