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July 12, 2021 - Articles
After selecting what property to buy in Portugal from a myriad of options, a decision must be taken on how to actually do it. There are several topics to understand and address and, therefore, it is highly recommended that you seek advice from trusted and reputed legal and tax advisor(s).
In any case, there are natural guidance tips that may be generally followed to get this transaction successfully through so that you may fully enjoy your new property.
The first relevant topic is if the property is to be acquired personally or through a corporate structure. There are naturally pros and cons for each option that should be taken into consideration and, therefore, professional assistance in selecting the best option for your particular case is of utmost importance.
Private Ownership
The benefits of private ownership are mostly related to the fact that it is a fairly straight forward process in Portugal. Your local legal counsel will ensure the property and its paperwork are in order and walk you through all the required steps to get the acquisition done.
But there are also other benefits associated to buying a property directly. While taxes upon acquisition of the property are virtually always applicable irrespective of the implemented acquisition model (but may be offset against CGT in a future sale), there may be possibilities to optimize the tax impact upon divestment, if you are a resident in Portugal (or even for non-residents, in line with certain favorable decisions by Portuguese Courts, which are building some jurisprudence). In addition, no exit tax applies in Portugal to individuals, so there is maximum flexibility regarding the assets you hold while residing in Portugal.
“The benefits of private ownership are mostly related to the fact that it is a fairly straight forward process in Portugal.”
Finally, succession planning is also a benefit of taking Portuguese residency and owning properties directly, since there is no inheritance tax in Portugal between close relatives.
Corporate Ownership
The use of corporate structures is popular for acquiring properties in Portugal, whether this stems from reasons related to asset protection or to securing additional tax efficiency for acquiring, holding and potentially disposing of your property.
And, even considering some tax changes that have occurred recently, this continues to stand true.
If a corporate structure is to buy a property directly, all taxes discussed above remain applicable. In addition, there are additional costs involved in running companies under corporate ownership and the value of the property needs to justify these costs. Obtaining professional assistance is advisable on this specific topic.
However, there may be certain tax advantages in using a corporate structure to buy and/or hold a Portuguese property.
How?
Using a corporate structure for acquiring and/or holding a Portuguese property may be a very interesting option, from an asset protection and tax standpoint.
Even considering some recent tax changes to Portuguese law, there may be several ways to properly structure the acquisition and/or holding of properties through corporate structures, so that no transfer taxes apply upon acquisition (namely, where shares in “real estate companies” are acquired), as well as to tax optimize any future disposal of such properties, both at corporate and personal level.
Where?
Specific jurisdictions have been commonly used for asset-owning structures, like the USA (Delaware), the UK and Malta. These are well established legal systems, are flexible, and have uncomplicated corporate compliance requirements and re-domiciliation legislation in place.
The USA has a sophisticated and flexible corporate legal regime and one state in particular, Delaware, is commonly used for property ownership. The UK and Malta’s company laws are broadly similar and offer a tax regime suitable for both personal property holding structures, as well as for investment purposes.
Buying an already established corporate structure (with underlying Portuguese properties) might also be an interesting option, where possibilities do exist to optimize the location of such structures (and their final tax status) and tailor it to the specific needs and objectives of the ultimate buyer.
Ultimately, the use of corporate structures, for both personal enjoyment of real estate or investments, provides for additional flexibility to meet the needs of the acquirer and, modelled properly, may enhance the tax efficiency of any transaction to be made in the future with the properties.
All parties involved in a corporate structure transaction should obtain professional legal and tax advice to maximize the benefits associated to such structures.
“Ultimately, the use of corporate structures, for both personal enjoyment of real estate or investments, provides for additional flexibility to meet the needs of the acquirer.”
Special regimes
Independently from how your property may be acquired, there are certain special regimes in Portugal that are specifically designed for individuals and may be taken into consideration upon moving to Portugal or simply intending to buy a property herein.
