Contributed by Dennis Swing Greene
International fiscal consultant,
Why move a company to Portugal?
When a company redomiciles to Portugal, there is no property transfer: no Property Transfer Tax (IMT), no crystallisation of Capital Gains. Only the headquarters and effective management move. There is no transfer of the assets, which remain safely within the company. Thus, the alternative term for redomiciliation is continuance. This act of continuance opens attractive opportunity for tax mitigation.
Updated basis for Capital Gains Tax (CGT)
Following company registration in Portugal, a balance of accounts needs to be presented to mark the starting point as a Portuguese resident entity. This balance sheet must be based on current rather than historical values. Thus, the company’s assets reflect either the value or present market value of the property. The liabilities show the shareholders’ loans into the company, but not the invoicing of how they were spent, as well as the mortgage (if one exists).
Capital is the paid-up share capital as well as reserves, reflecting any appreciation in the value of the property. As such, there is a fresh start and many historical problems, such as under-declared deed values or lack of bonafide invoices for capital improvements, can be rendered mute.
From this new base as a resident Portuguese entity, Capital Gains Tax on the eventual sale of the company is reduced to 10 per cent, as compared to 25 per cent for non-resident companies. The combination of these two factors transform what is normally a colossal problem into a very manageable inconvenience.
Potential transfer tax exemption
Depending on the circumstances of the eventual buyer of the company, the purchase of the shares is usually exempt from IMT. Under Portuguese law, when one does not exceed a concentration of more than 75 per cent of shares to any one of the shareholders, no IMT is due on the underlying assets. If eligible, the buyers may potentially save tens of thousands of euros, thus making Portuguese property company acquisition far more desirable than purchasing in one’s own name.
If your new home requires major remodelling, these renovations will cease to offset CGT after five years in direct ownership. However, if you use a nominee company structure, any capital invested into the company will never expire.
When property changes hands, many organs of government get in on the act. Finanças records the change of ownership and updates the rateable value in a cumbersome and laborious process. The câmara checks to see that current architectural drawings match the building on site. The Land Registry verifies that boundaries and areas are correctly recorded. In short, a sea of bureaucracy that is both slow and expensive.
A transfer of ownership of shares is normally a simple notarial process. While there is some paperwork involved in amending records to reflect the changes of company domicile or ownership, the process is normally straightforward and does not trigger re-evaluations of the property, nor latent building licensing problems inherent in many older properties.
Next article: Portuguese nominee companies: the better solution
• 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 289 561 333 or in Lisbon, 213 424 210 or e-mail: [email protected], or on the internet at www.eurofinesco.com