The guide to spectacular property in and around ... - Quinta Properties

‘Company-owned’
property in Portugal
What are the advantages?
The confusion about
companies owning
property in Portugal has
now largely been
resolved.
Owners have generally complied with
Portugal’s requirement that property
be owned in an acceptable jurisdiction,
generally choosing Malta, Delaware
or Portugal.
Buyers continue to ask us many
questions regarding the different
methods of owning a property in
Portugal. They naturally want
reassurance when so much money is
being invested in a property abroad,
and we fully understand that concern.
There is some misunderstanding,
which can lead to incorrect and
unhelpful advice. In an attempt to help
all of our clients, both buyers and sellers,
we have therefore decided to
devote a few words in this publication
to explain in a clear way the reasons
why many owners of property in
the Algarve decided, and continue
to choose, to purchase and own their
property through a corporate
structure.
Our speciality is property here in
the coastal region of central Algarve,
with particular emphasis on the areas
of Quinta do Lago, Pinhieros Altos and
the surrounding areas. For the most
part the building development in these
areas post dates the Portuguese revolution
of 1974, and this is a useful
starting point in our explanation.
The majority of buyers (and now
property owners) here in our area
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have been, and remain, English or from
English speaking countries, or simply
adopt English as the international
language of the Algarve. Accordingly,
when property development started
here post 1974, matters had to evolve
and cater to English speaking buyers.
Owning a property through an
English speaking venue, coupled with
the benefits of corporate property
ownership, offered a very attractive
method for owning property here in
the Algarve, and in fact, it still does.
The Benefits:
• Transfer of property is a very
simple and tax efficient procedure,
being simply a transfer of shares by
a document in the English language.
• IMT – Property Transfer Tax,
notary and land registry fees are
avoided – up to 8% of purchase price.
• Company owned properties can
be mortgaged quite simply in
English speaking jurisdictions and
the documentation will also be in
the English language.
• Transfer on death ensures that
heirs can deal with their inheritance
in the English language, and according
to British law, and do not have
to deal with the Portuguese legal
system. In Portugal there is forced
heir-ship – spouse and children
inherit automatically. Individuals cannot
choose to whom they wish to
leave their estate.
• Capital Gains Tax is not payable
in Portugal on the increased value
of the property. The capital gain on
the sale of the shares is subject to
the jurisdiction of the seller.
• Buyers/owners enjoy anonymity.
So the process began, and over the
years the ownership of property here
in the Algarve through a company
became the accepted practice. The
property owners themselves owned
the shares in the company, and when
the property was sold, all that actually
happened was that the shares were
sold; the company remained the owner
of the property and the buyers became
the new shareholders.
In 2003 there were some
fundamental changes. All of those
countries outside of Portugal (sometimes
referred to as Offshore Centres)
were classified by an international body
known as OECD into Black List and
White List jurisdictions. The Black List
jurisdictions were for the most part
those countries that offered beneficial
tax regimes that were out of line with
the White List countries. The intention
being that those on the Black List
would be thus encouraged to fall into
line with White List jurisdictions.
It was decided that a special higher
tax would be applied on those
property owning companies that were
based in Black Listed countries. For
details please see the taxation article
on page 48. Many owners of properties
here in the Algarve, that had for years
been based in Gibraltar and other
(now) Black Listed jurisdictions, had to
make fundamental decisions about the
way that their properties would continue
to be owned.
At that time the overwhelming view
of most clients and their professional
advisers was that they wanted to
continue to own their properties in a
company, but not in places such as
Gibraltar and those other Black Listed
jurisdictions. Most clients continued to
be of the opinion that the benefits of
corporate ownership outweighed the
disadvantages.
Because of the advantages of owning
a property through a company, the
search was now on for a practical
solution to what threatened to
become a real additional tax burden on
many (mostly foreign) Algarvean
property owners.
The solution was to find countries,
that were not on the Black List, which
offered (within their law), the
possibility for companies to migrate to.
Yes, companies do ‘migrate’ just like
people! There were 2 clear possibilities:
Malta, and Delaware, USA.
The effect was that thousands of
companies owning properties here in
the Algarve were on the move to a
new home. Malta, being English
speaking and a full member of the
European Union, was immediately
attractive and many companies
re-domiciled there. Delaware, being
one of the 53 States of the USA also
offered confidence, and many
companies went there.
Now, in 2006 at last, most of the
‘migrating’ has been completed and the
situation has been clarified, giving
buyers and sellers the confidence that
their properties are now owned by
companies in jurisdictions in White
Listed areas. It is now quite normal to
see Algarvean properties in Estate
Agents windows described as owned
in Malta or Delaware. It is completely
acceptable for properties to continue
to be owned by such companies. The
valuable advantages we listed on the
opposite page continue, and the majority
of properties in and around Quinta
do Lago continue to be sold by the sale
of the shares in the companies now
based in Malta or Delaware.
There continue to be very real
advantages in CORPORATE ownership,
and you should consider these
when you find that the property you
want to buy is owned by a company
based in Malta or Delaware.
Now let us tell you some other
things that might be said about corporate
ownership. Firstly, you may be told
of a Capital Gains Tax (CGT) problem
if you buy the shares in the company. It
is likely that there is a ‘locked in’ CGT
liability because the property is a company
asset which has likely increased in
value. If the company is ever called
upon to sell that asset out of the
company to a 3rd party there will likely
be a CGT liability on the company
(and in practice payable by the under-
lying owners of the shares). Good
agents and professional advisers will
inform you about this, and we make a
point of explaining this to all our clients.
Our opinion is: we have a settled
market here in the Algarve, and the
intention is (and always has been) that
properties in corporate ownership,
remain in corporate ownership. In
other words the ‘locked in’ CGT
liability should never materialise, for
practical purposes.
The issue of the ‘locked
in’ CGT liability has become
a negotiation issue, not a
deal breaker.
The ‘locked in’ CGT liability issue
has now become part of the negotiation
which we undertake for vendors
and buyers. You can be assured that we
have considerable experience and are
doing this to great effect. We are here
to help both sides reach a deal they
both feel comfortable with – otherwise,
there is of course no deal at all.
Subsequent to writing this article, we looked into a new structure of corporate property ownership – namely a Portuguese nominee company, and our
opinion is that this may be an option for some. Like with everything, there are advantages and disadvantages and they should be looked into
carefully. We think this option however is only interesting for people who are tax resident in Portugal.
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