INVESTING IN PORTUGAL
BUYING PROPERTY IN PORTUGAL
THE BENEFITS OF NOMINEE COMPANIES
FOR HOME BUYERS
SMALL PORTUGUESE COMPANIES PROVIDE INNOVATIVE SOLUTIONS
THIS FORM OF HOME OWNERSHIP ACHIEVES SOUGHT AFTER OBJECTIVES IN A COMPLIANT FASHION
FIRST TIME HOME BUYERS IN PORTUGAL SHOULD GIVE SERIOUS CONSIDERATIONS TO USING A PORTUGUESE NOMINEE COMPANY TO HOLD THEIR FUTURE PROPERTY
NEW LEGISLATION RECENTLY SET IN FORTH
FOR REAL ESTATE OWNED BY OFFSHORE COMPANIES PLEASE CHECK AT THE BOTTOM OF THIS REPORT
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, but it achieves these objectives in a compliant, mainstream fashion.
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. They are, therefore, fully compliant and not subject to any of the punitive laws that have made offshore property companies a pariah: no deemed income assessment, no 5% rates bill. In fact, the simplicity of this form of company makes the structure easy and inexpensive to run.
One of the big advantages of the Nominee Company is a substantial reduction in the capital gains rate on the sale of the company when compared to non-residents (whether individuals or companies). As a fully resident structure, eventual CGT – Capital Gain Taxes – assessment is only 10% on the sale of the shares, some two-and-a-half fold less than the non-resident 25% rate.
This assessment is flat-rated, so your profit will not push up the rest of your 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 owners and future buyers alike.
In addition, there is a potential exemption from property transfer tax (IMP) for the end buyer, something that would be impossible under direct property acquisition. If future shareholders avoid a 75% or greater concentration of shares in one individual, then the purchase of the company’s shares will not trigger IMT. At the current 6% rate, this can save tens of thousands of euros.
Like other assets in Portugal, bequests upon death or gifts during one’s lifetime have no inheritance tax. Exempt transfers are permitted to immediate relatives: spouse, children, grandchildren, parents or grandparents. All others are assessed stamp duty of 10%.
With the property secured safely within the company, bureaucracy is significantly reduced at the time of the sale, cutting the costs and complications often associated with property ownership in Portugal. All it takes is a simple Deed declaring the sale of the shares, thereby avoiding the headaches related to licensing, registrations and ever-changing rules related to property paperwork.
BUYING PROPERTY IN PORTUGAL
It is a straightforward process provided you stick to the letter of the law and are advised or represented only by competent and reputable specialists who are fluent in a language you understand. Deal with estate agents who are government licensed (Mediador Autorizado). In addition to introducing you to properties, some estate agents are sufficiently qualified and experienced to give a more efficient and diligent conveyance service than some lawyers. As a general rule, however, only use an estate agent to handle the legal side of the transaction if you are sure, through experience or high recommendation, of his competence. It is important too, that you do not let your estate agent handle legal matters, if he is doing the same for the seller.
Deal only with lawyers who are fully qualified, “advogados” or “solicitadores”, who come with a high recommendation from someone who has used them. Never use a lawyer who is acting for the seller.
Taxes are based on the value of the property being bought. So are legal fees. Taxes and legal fees are paid by the buyer, as are land registry and notary costs. You can give your lawyer or anyone else specific power of attorney to sign documents on your behalf, but closely follow that the proper steps are being taken without any undue delay.
Having chosen a property, have your representative search the local land Registry (Conservatoria do Registo Predial) to check that the seller (Vendedor) has clear title of ownership, that none else has rights over it, that it is exactly described and that it is free of charges or mortgages. Photostat extracts from the land registry are valid for a limited period only.
Apply for a fiscal number (Numero de Contribuinte) at your local tax office (Finanças). It will come in the form of a card which you will need for payment of rates.
Obtain the official tax document (Caderneta Predial) relating to the property from the seller and check that the description of the property (number of rooms, area of the house, area of the land, etc. ) is the same as in the land registry.
Obtain a copy of the usage license (Licença de Utilização) from the local town hall (Câmara Municipal). For residential property you will need a habitation license (Licença de Habitação). Check that the description on habitation license is totally in accordance with what you are buying. Non-residential licenses need to stipulate the appropriate commercial or industrial use the property is being put to.
Have a promissory contract drawn up (Contrato Promessa de Compra e Venda) to be signed by you and the seller. It should include all the terms and conditions of sale. You will normally have to pay the seller a deposit of 10% of the full purchase price at this stage. The contract is signed in front of a Notary. It is legally binding on both buyer and seller. If the buyer defaults he forfeits the deposit. If the seller defaults he has to pay the buyer double the deposit.
TRANSFER TAX (IMT)
IMT (Imposto Municipal sobre Transmissões), as transfer tax is now known (formerly SISA), is payable on a sliding scale of 2% - 8% on all properties valued at more than € 81,600. There is a flat rate of 6% for properties above € 510,000 and a flat rate of 5% for rural land.
Non-Portuguese who wish to be permanent residents in Portugal must, by law, apply for a residence permit (Residência) through an office of “Serviço de Estrangeiros e Fronteiras”. Most EU citizens have automatic entitlement but that does not mean they can ignore the bureaucratic process of applying for and periodically renewing permits.
An identity card ( Bilhete de Identidade) used to be a legal requirement for all permanent residents in Portugal. It is no longer for foreign residents. A valid passport is sufficient.
The easiest personal documents to obtain is a fiscal card. It will give you a “Numero de Contribuinte”, a number which you will frequently need to quote during financial transactions. These cards are issued by local tax offices (Finanças).
Imported vehicles are subject to tax and must be re-registered and equipped with Portuguese number plates. A valid driver’s license issued in any EU country is legally accepted in Portugal. Non-EU nationals driving Portuguese registered vehicles must swop their foreign driving license for a Portuguese “Carta de Condução”, but most do not have to undergo a driving test in this country.
As well as lawyers, there are knowledgeable and experienced individuals and small companies who specialise in helping foreigners obtain documents.
PORTUGAL LIFTS TAX PENALTIES FOR
NEW LEGISLATION - 21-Feb-2007
The government Budget for 2007, approved by Law No. 53-A/2006 of 29 December 2006, has reduced the annual Municipal Tax (IMI) levied on property owned by companies based in tax havens (blacklisted) from 5% to 1% - double the rate applied to non-offshore held property.
The property transfer tax (IMT) payable on initial acquisition by a blacklisted company has also been reduced from a flat rate 15% to 8%, which is 2% more than the highest rate for non-blacklisted acquisitions.
The retraction of a good portion of these taxes may help to revive the property market, which suffered a decline since the laws penalizing the use of offshore companies were enacted in 2003. It is also an indication that Portugal no longer considers the use of offshore companies to be the preserve of criminals.
But the government has also given approval in principle to proposed legislation to impose a duty on all consultants to report "aggressive tax planning" to the tax authorities. This includes banks and financial institutions, lawyers, economists, and auditors.
These changes are a significant reversal to the previous swingeing taxes and could mean that, for those who wish to retain the confidentiality of offshore ownership, this is now at an acceptable cost.
Any corporate owners who have "stayed offshore" may now feel it is more convenient to do so but they should consult this office for a full calculation of the future effects of the changes which can be done for a modest fee.
EUROFINANZZA INCORPORATION SERVICES
Eurofinanzza can provide you full assistance to setting you up your Portuguese Company to hold the ownership of your property in Portugal.
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