Here’s the TLDR version – given the complex web of anti avoidance provisions in Portugal’s tax code, one cannot LEGALLY avoid capital gains taxes by using an offshore entity whose sole purpose is holding Portugal situs real estate. It may however, be possible to avoid stamp duty and it may be possible to avoid the purchase tax. Therefore a real estate agent should advise clients to just hold the real estate in a Portugal company rather than an offshore SPV or special purpose (offshore) vehicle for holding the real estate.
That’s the short quick version. Now having said that, the offshore entity can work to legally avoid the Portugal taxes but it’s structure would much more complicated that using a quick, cheap and easy offshore company in a whitelisted jurisdiction. As always – get ADVICE from a tax team qualified to give it.
Histrocially, popular structures include Malta or the USA (especially Delaware). Other popular jurisdictions included the UK and New Zealand. Countries beyond of Portugal (“offshore centres”) where the corporation is domiciled are either classed as Black or White list Jurisdictions. When dealing with Portugal, once should always choose a white listed jurisdiction. I talk more about this issue here – https://htj.tax/2020/11/nhr-non-habitual-tax-status-in-portugal/
Black listed jurisdictions are often taxed punitively
Corporate ownership of property
Below is a chart, which shows some of the Costs involved for a Non-resident of Portugal. It is extremely difficult, but possible, to avoid certain taxes as showed below.
If you think that the annual property tax or IMI seems expensive, consider how much it could be in the US –
Rhode Island. Average effective property tax: 1.53% …
Ohio. Average effective property tax: 1.62% …
Nebraska. Average effective property tax: 1.65% …
Texas. Average effective property tax: 1.69% …
Connecticut. Average effective property tax: 1.70%
Overview of Investment vehicles in real estate
A public limited company (SA), often known as a joint stock company, is the most frequently used vehicle for investing in real estate in Portugal. It is an unregulated flexible vehicle with low initial and continuing administration costs and few compliance requirements.
Regulated vehicles, such as real estate investment funds (FIIs), real estate investment companies (SICAVIs or SICAFIs), and real estate investment and management companies (SIGIs), might also be appealing investment vehicles; however, they are not so widely used because of their highly regulated regimes, as well as their higher management and compliance costs.
Corporate forms and corporate tax framework
The corporate forms that are used most in Portugal for investment in real estate are SAs and private limited companies (Ldas).
SAs have a minimum number of shareholders of five (or one, if it is a corporate entity) and a minimum share capital of €50,000, with the nominal value of each share not being less than €0.01. The liability of the shareholders in an SA is limited to the shares subscribed by each shareholder, with the company’s assets being the only assets liable for the company’s debts. The most common corporate structure includes a board of directors (or sole director), the general shareholders’ meeting and a supervisory body (supervisory board or single auditor). Alternatively, it is also possible to adopt Anglo-Saxon or continental European models of corporate governance, involving the creation of different bodies.
As for the Ldas, the minimum number of quota holders is two and the minimum share capital is of €2 (minimum of €1 per quota). The liability is limited to the amount of the contribution of each quota holder, although, generally, only the company’s assets are liable for the debts of the company. The corporate structure of an Lda comprises the management (one or more members, who may or may not be quota holders) and the general meeting. The appointment of a supervisory body is generally optional but is compulsory in cases whereby the company exceeds certain established legal limits for two consecutive fiscal years.
Other (less commonly used) corporate forms allowed by the Portuguese legal system include single limited companies by quotas, general partnerships and limited partnerships.
Regardless of the legal form they use, all corporate entities engaged in a commercial activity in Portugal are deemed taxable entities subject to corporate income tax (CIT).
CIT is levied on the annual profit obtained by such entities, at the standard rate (in mainland Portugal) of 21 per cent, to which a municipal and a state surcharge can be added.
It should be noted, however, that some entities are deemed tax transparent for CIT purposes, namely entities that have simple assets and either are managed by a family or have no more than five shareholders. In these cases, personal income tax (IRS) rules shall also be taken into consideration.
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