In 2002 and 2003, during a general reform of property taxation, the Portuguese authorities introduced legislation which limited the advantages of purchasing property by the traditional “offshore” company. This had the effect of raising the level of Municipal Tax (rates) payable on offshore owned property to a flat 5% and also imposed a tax on a presumed rental income calculated at 1/15th of the “Valor Patrimonial” (Rateable Value). In the 2007 Budget, the Municipal Tax payable on offshore owned property has been reduced to 1%, however there is still the necessity to submit a tax return on presumed rental income.
Nevertheless, there are still substantial advantages to be achieved by holding a Portuguese property in the name of a non resident company including:
1. SUCCESSION CONSIDERATIONS – Whilst inheritance tax in
It should also be noted that the purchase of property by a company may give tax planning opportunities in respect of the eventual transmission of ownership on death, where the beneficial owner of the company is subject to inheritance tax in his or her home jurisdiction. The establishment of a discretionary trust to hold the shares of the company offers considerable advantages which may include any or all of the following: (i) avoidance of the considerable expense and delays of probate; (ii) asset protection; (iii) capital or income tax savings; (iv) confidentiality; (v) flexibility. For further information please contact us.
2. AVOIDANCE OF PORTUGUESE CAPITAL GAINS TAX - Portugal taxes resident individuals under a unitary individual income tax, capital gains being amalgamated with other income for tax purposes. For residents only half the capital gain is considered as taxable so the higher rate of tax is effectively 20% on capital gains. There is also an opportunity for residents to “roll-over” a gain into a similar investment. For non-residents however, any gain made is taxed at a flat rate of 25% on the wh
3. SAVING OF PURCHASE COSTS - A purchaser of property in Portugal is liable to pay a property transfer tax called I.M.T. (Imposto Municipal sobre Transmissões) and will also incur notarial and registration fees. I.M.T. is charged on a sliding scale dependent on the valuation of the property. The maximum rate is 6% which applies to properties valued at €511,000 and over. As an example, a property valued at €400,000 would attract I.M.T. of €20,914.00. Notarial and registration fees are fixed by law at reasonably low amounts but Stamp Duty is charged at 0.8% of the value. Plots of urban building land are charged at a flat rate of 6.5%.
If a purchaser is offered the opportunity of purchasing shares in a non resident company he or she may avoid incurring these expenses. This makes the purchase an attractive proposition for the purchaser and would normally allow the seller to charge more for the property. The savings made by a purchaser of the shares would often, if invested, earn more than the cost of maintaining the company.
4. EASE OF
5. PROPERTY FINANCE FACILITY - The shares of a non resident company can be used to secure a loan for the purchase of the property. Commonly, the shares are charged to the bank in return for a loan equal to a proportion of the value of the property. This can also be advantageous when two or more parties join together in an investment and/or development project as loan agreements between the parties can be drafted and shareholders agreements entered into to protect or determine future decisions.
6. PRIVACY, CONFIDENTIALITY AND ASSET PROTECTION - These are other advantages of company ownership. It is relatively straightforward to hide the beneficial ownership of the property with subsequent advantages under the above headings.
SUITABLE JURISDICTIONS FOR PROPERTY HOLDING
As mentioned at the start of this information sheet, the traditional holding company jurisdictions of Gibraltar,
Sovereign believes that the most suitable corporate vehicles to hold Portuguese property are those incorporated in either
In the case of Malta, the vehicle used is subject to Malta corporation tax.In the case of a property company this would normally only be in respect of rental income which would be taxable in the first instance in Portugal due to the fact that the income producing asset is sited there. Whilst that income should be declared as well in
In respect of the
A Danish Smba company is regarded by
Capital Gains: Capital Gains Tax in
Income Tax: If the property is rented out then the rental income must be declared in
Whilst the power of attorney issued by the Company to acquire the property can be prepared in the Portuguese language it is also necessary to provide the Land Registry with a translation of the notarised and legalised copy of the Certificate of Incorporation. This translation is not included in the attached fee structure and would normally be attended to by the client’s lawyer or other legal representative. If requested, Sovereign can arrange for this translation to be effected and legalised in
Fiscal Representation: Any non-resident of
Administrative offices of The Sovereign Group are able to assist clients with the preparation and submission of annual accounts for their companies. The costs quoted for accounts support on the Fee Schedule are on the understanding that the client provides the relevant information for accounts to be prepared in a timely manner and that the property is not receiving rental income. If information is not forthcoming Sovereign reserves the right to increase costs according to the extra time spent.
Property Insurance: Irrespective of the requirements of a mortgage lender, it is important that a property is adequately insured. Sovereign Insurance Services can give advice on a wide range of insurance – property or otherwise They will liaise with various insurance companies to obtain the best policy for you. Please contact us for a quotation, without any obligation.
Sovereign Asset Management: Sovereign Asset Management Limited (SAM) is the division of the Sovereign Group that provides advice and management on investment related matters, specific to client needs. Please contact us for further information.
Whilst every effort has been made to ensure that the details contained herein are correct and up-to-date, this information does not constitute legal or other professional advice. We do not accept any responsibility, legal or otherwise, for any error or omission.
Article with the courtesy of Sovereign Trust Ldª in Lagôa
Article with the courtesy of Sovereign Trust Ldª in Lagôa
This article is written and provided with permission by Robert M.L. Snapper, fully licensed real estate agent in Portugal.