Promissory Contract and the new IUP Law: Where Property Law meets Tax Law

In the Cape Verdean legal system, the promissory contract is an essential tool for ensuring security and predictability in future business transactions, especially in the real estate sector. Whether in the purchase and sale of properties, or in the establishment of leases or service agreements, this instrument allows the parties to formalize their intention to contract, establishing clear obligations before signing the final contract.

With the approval of the new Law No. 55/X/2025 of June 6 (approving the Property Tax Code – hereinafter IPI Code), which revokes Law No. 79/V/98 of December 7 (former IUP Law) and Decree-Law No. 18/99 of April 26 (former IUP Regulation), new tax implications arise that directly affect property transactions, including those initiated by a preliminary contract.

The Promissory Contract in the Cape Verdean Legal System

A promissory contract is an agreement by which one or both parties undertake to enter into a specific contract in the future, respecting the legal requirements of validity, form, and content. The preliminary contract can thus be classified as a preliminary contract whose object is the conclusion of another contract, the promised contract.

Despite this autonomy between the two contracts, the law does not fail to subject, in principle, the promissory contract to the same regime as the definitive contract, calling this precept the principle of equivalence, so that the promissory contract is subject in principle to the same rules that apply to the definitive contract. In the case of real estate, a public deed is required, especially when it involves assets of considerable value or specific clauses, under penalty of nullity.

Essential elements:

To ensure effectiveness and legal security, the promissory contract must contain:

• Full identification of the parties;
• Precise description of the object of the future contract (e.g., real estate, service);
• Deadline for signing the final contract;
• Suspensive or resolutive conditions, if applicable;
• The amount of the deposit, if any, and a penalty clause for non-compliance;
• Legal form required, especially in real estate transactions.

Although there is no transfer of ownership, the promissory contract legally prepares the asset transaction, with significant effects for the tax system.

The New IPI Code: What Changes?

The new legislation, published on June 6, 2025, replaces the old IUP Law and the old IUP Regulation, consequently creating a more modern and transparent system for the taxation of real estate properties. The IPI will apply to transfers, for consideration, of the right of ownership over real estate. But, in addition to the general rule, the IPI will now apply mainly to transfers that directly or indirectly imply the transfer of real estate and that have economic characteristics that justify their inclusion within the scope of incidence, as is the case with promissory contracts.

This new law further expands the tax base for legal transactions that, prior to or even incidental to the formalization of real estate transfer contracts, have equivalent economic results but are not subject to any type of taxation. This is the case with successive assignments of the contractual position of prospective buyers in purchase and sale agreements, which are often used by some developers with the legitimate objective of anticipating construction financing and by investors to obtain some profits, but which, in most cases, are not declared, either for income tax purposes or for transfer tax purposes.

Relationship between a Promissory Contract and the IPI:

• Before the Public Deed: No Tax Liability

A promise to purchase agreement does not generate an obligation to pay IPI (, as there is no transfer of ownership. The tax is only due after the signing of the public deed, at which point the effective acquisition of the property occurs.

The obligation to pay IPI only persists when the promise to purchase agreement is given real effect, in the case of the promise concerning real estate or movable property subject to registration, and the parties expressly declare the attribution of real effect and proceed with the registration, i.e., public deed.

• After Public Deed: IPI Tax Applicability

The buyer becomes a taxpayer and must pay IPI based on the taxable value of the property. It is essential that the final contract accurately reflects the property’s details to avoid discrepancies in the tax assessment.

Case Law and Legislative Trends:

Although a preliminary contract does not generate direct tax effects, Cape Verdean case law has recognized its binding force and the possibility of specific performance in case of default. With the new IPI law, it is expected that the courts will also begin to consider the tax impacts in property disputes.

Therefore, the purchase and sale agreement continues to be an instrument of legal security in the real estate market. With the entry into force of the new IPI Code, it is essential that buyers, sellers and lawyers understand the tax implications of property transfer, even when initiated by a preliminary contract, where there is a promise of ownership, there is also tax liability.