Contributed by DENNIS SWING GREENE
Portuguese nominee companies: the better solution
A Portuguese nominee company is the best solution for those stuck with non-resident structures. Combining tax efficiency, low cost and simplicity, this type of non-trading company embraces many of the advantages that property buyers once sought in offshore property companies, yet achieves these objectives in a compliant, mainstream fashion, squarely under the Portuguese “umbrella”.
A fully compliant structure
These small nominee companies have existed in Portuguese statute law since the 19th century, and have been embraced in subsequent legislative reforms over the past 150 years. Therefore, they are fully compliant, and are not subject to any of the punitive laws that have made offshore property companies a pariah – no deemed income assessment or five per cent rate bills. In fact, the simplicity of this form of company makes this structure easy and inexpensive to run.
Lower taxation
– Capital Gains Tax (CGT)
One of the big advantages of the nominee company is a substantial reduction in the Capital Gains rate on the sale of the company. As a fully resident structure, eventual CGT assessment is only 10 per cent on the sale of the shares, some two-and-a-half fold less, than the 25 per cent of the non-resident rate. In addition, this assessment is flat-rated, so your profit will not push up any other income into a higher tax bracket. The operating costs of a nominee company are a fraction of other company structures, thereby making them more attractive to both owners and future buyers alike.
– Property Transfer Tax (IMT)
In addition, future buyers qualify for exemption from Property IMT, something that would be impossible under direct property acquisition. If future shareholders avoid a 75 per cent or greater concentration of shares in one individual, then the purchase of the company’s shares will not trigger IMT (formerly called Sisa). At the current rate, of up to six per cent, this can save tens of thousands of euros.
– Stamp Duty
Using a nominee company also avoids the usual Stamp Duty of 0.8 per cent on property deeds, giving additional savings of thousands of euros on the transaction.
– Inheritance Tax (IHT)
Like other assets in Portugal, bequests upon death, or gifts during one’s lifetime, suffer no Inheritance Tax. Exempt transfers are permitted to immediate relatives: spouse, children, grandchildren, parents or grandparents. All others are assessed for Stamp Duty at 10 per cent.
Ease of transfer
With the property safely secured within the nominee company, bureaucracy is significantly reduced at the time of the eventual sale of the company, cutting the costs and complications often associated with property ownership in Portugal. A simple deed declaring the sale of the shares is all it takes, thereby avoiding the headaches related to licencing, registration and ever-changing rules associated with property paperwork.
Expenses never expire
Unlike direct ownership, where capital improvements can no longer be offset against Capital Gains after five years, any capital invested into your nominee company is always reflected in the company value. This is important when major remodelling is contemplated, such as a new kitchen, bathroom, swimming pool and the like.
No benefit-in-kind assessment
for non-residents
While no specific rulings from tax authorities in other EU jurisdictions have, as yet, been made regarding potential benefit-in-kind assessment for non-residents in Portugal, it is clear that the presumptions surrounding this type of taxation do not apply to Portuguese nominee companies and their owners. Both under legislation as well as company statutes, there is clearly no basis to conclude that the shareholders could be construed as “shadow directors”, the underlying premise for any benefit-in-kind assessment.
International tax credits
for non-residents
If you are non-resident in Portugal, you now understand your compliance obligations. Under bilateral double taxation treaty agreements, any CGT paid in Portugal should be eligible for an international tax credit, thereby reducing or eliminating the assessment you paid in Portugal. It is now up to your local tax advisors to apply their ingenuity and knowledge of the law to mitigate your final tax liability at home.
This concludes the series on Using a company to own Portuguese property
Dennis Swing Greene is Senior Partner and International Fiscal Consultant for euroFINESCO. Private consultations can be scheduled at our offices in Guia (Albufeira) and Lisbon (Chiado). In the Algarve, call 289 561333 or in Lisbon, 21 342 4210 or e-mail: [email protected]. You can also visit the EuroFINESCO website at www.eurofinesco.com
