To many people purchasing property in Portugal, either as a holiday home or as a permanent residence, can seem fraught with difficulties. You are in a foreign country with a foreign language, foreign laws, taxes and customs, and will rely heavily on your legal advisor or the sales agent to guide you. In your mind you want to be sure that you have proper legal title to your new property, that you do not pay any unnecessary taxes and that your investment is secure, not only for you but especially for your successors.
Traditionally, one of the most suitable ways of owning property abroad, whether you intend to retire to it permanently or just use it as a holiday home, is through a company formed in another country. This need not necessary be what is loosely termed an " Offshore Company ", but may for example, be a company in a country such as the United Kingdom or Holland. It is also worth noting that the ownership of property world-wide in this way, not just in Portugal, can be beneficial, subject to the individual tax requirements in each different country.
Company registered ownership has become increasingly popular in Portugal over the years so why is it suggested, and what are the specific benefits in Portugal ?
To start with, constituting an "offshore company" is a quick process ( less than 2 weeks ) and the costs of the formation and annual maintenance is relatively low. What we are dealing with is a share company. The offshore company permits the participation of the whole family in the purchase of the property ( each member holding a determined number of shares ) and at the same time it provides the beneficiaries with anonymity throughout the whole process of the transaction. The beneficiaries of the company can be individuals or they even can be other companies already formed.
Ease of registering has to be one of the principle reasons - you simply choose your company jurisdiction, perhaps subject to the advice of your lawyer, and have the company incorporated. Many firms have companies ready and available on their " shelf ".
Once the company has been incorporated, it is in this name that the purchase of the property in Portugal will be finalised. After completing all the legal procedures from the signing of the promissory contract of purchase and the sale to the signing of the public deed of purchase and sale the property then will be registered in the name of the company. Those who hold the shares of this company are then the proprietors of all assets acquired in the company name. When you buy there are no cost savings: all the taxes and expenses normally paid by individuals have to be paid. But as soon as you wish to sell, the case changes radically.
When a company is the registered owner of the property, SISA tax ( land and building sales tax ), Notarial and Land Registry fees are not applicable. This is because the shares of the company are sold rather than the property itself. A saving which makes the purchase a more attractive proposition to a buyer if you decide to sell. The saving on Notarial and Land Registry and legal fees are approximately 3% of the contract price and the SISA tax an average 10% of the contract price.
Therefor when the beneficiary or beneficiaries intend to proceed with the sale of their property the only thing that is required is to transfer the shares of the company to that of the potential purchaser thus automatically transferring all assets registered in the company name. The whole operation could take less than a day, thus very simple and very quick.
Although the transfer of shares is easy as we can see somebody still should do a proper title search to see if the off-shore company has legal title of the property it owns in Portugal, also if there are no debts outstanding to tax department and other public service providers like electricity, water and telephone companies and has no claims against it.
But the fiscal advantages do not end here. Also the beneficiaries of the company do not pay any taxes preceding the sale of the property, once again because there is no public deed of purchase and sale, but merely a transfer of shares. The traditional Capital Gains Tax which the vendors of immovable assets are normally subject to, in this case does not exist.
When a property is registered and owned by an individual, and that individual dies, Portuguese inheritance tax ("IHT") is chargeable. This is the case even when the beneficiary is a surviving spouse and can range between 0% and 50% depending on the value of the property and the beneficiaries relationship with the deceased. However, company registered ownership of the property not only means that IHT is not charged, as a company never dies but also the associated« costs of transferring property into a beneficiary's name and winding up of an estate in Portugal are also saved. Possible succession law problems ( i.e. exactly who you may leave your property to and in what proportion ) are avoided which is important because these laws differ in Portugal to countries as the United Kingdom, Germany and Holland.
On the disposal and re-registration of immovable property in Portugal capital gains tax is payable by both resident and non-resident vendors. The assessment is based on one half of the national gain being added to the tax payers income for tax purposes. However, company registered ownership of your property means that this does not apply provided you sell the shares of the company and not the property itself. This has the additional advantage that simplifies the sale process, making it straightforward and inexpensive.
The final benefit of company registration of your property is confidentially of ownership. The company name, not your name, will appear on the Portuguese Land Registry and often, if you wish, the firm looking after your company will provide your company with nominee shareholders and directors which ensures the confidentiality of ultimate ownership.
It is only fair to say that against these advantages you have to set the cost of forming and maintaining your company. The company must be maintained in good standing with annual general meetings being held, annual returns filed and in some jurisdictions audited accounts prepared and filed with the relevant authorities. You should therefor choose your jurisdiction carefully and with a view to these ongoing costs. This is certainly where your lawyer or one of the professional firms in this field can assist you.
Recently the Decree Law nº 44/98 of the 3rd. of March introduced the requirement for a new type of special payment by account to be made by companies in which are included these "off-shore". Following this law the beneficial owners of these " offshore " companies have been receiving from the Portuguese tax department a form to be filled out in order to clarify the situation regarding to the use given to the property of which they are holders. However, neither the document or form sent by them put in jeopardy any of the above mentioned advantages.
the advantages of owning your property through a company are significant
and it is a path you should definitely investigate before purchasing.
by Robert M.L. Snapper
Rua Dr. Paulo J. Godinho, Lote 5 - Loja C, 8600-774 Lagos - Portugal
Tel: (+351) 282-768-821 Fax: (+351) 282-768-827