Since the Local Lodging boom began in 2008, small property owners are returning in increasing numbers to traditional long-term rentals. Numerous factors are pushing this trend. “AL” offerings have reached glut conditions in some central urban areas. Excessive offerings and limited demand push down prices. Over the last ten years, Local Lodging enrolments in Lisbon have soared from less than 3,000 to almost 50,000. In addition, Local Lodging can prove to be demanding work. Outsourcing tasks such as cleaning, marketing and maintenance can eat into profits. In contrast, long-term rentals require only a minimum involvement on the part of landlords.
Many French, English and Americans are looking to settle far from the mainstream. For these affluent migrants, the Alentejo is the new eldorado. As a small, diverse country, numerous factors are key to the decision to move to Portugal. These include a mild climate, rich culture, low crime rate and attractive fiscal incentives, to name a few.
There are almost 50,000 more houses paying Additional IMI in 2019, the tax on properties with a fiscal value exceeding €600,000. Last year, the number of homes covered by AIMI rose by 10%. In 2019, there are 47,134 more properties paying the levy. This growth earned the state €139.6 million, eight million more than a year earlier.
Bilateral income tax treaties do not always operate effectively to eliminate double assessment in situations where more than two states are involved. These fiscal situations are known as “triangular cases”.* In a nutshell, triangulation can lead to, rather than avoid, international double taxation. Continue reading
When a company redomiciles to Portugal, no assets are transferred: no crystallisation of Capital Gains, no “IMT”(Property Transfer Tax), no Stamp Duty on Real Property. With no chargeable events taking place, only the headquarters and effective management move to Portugal. The assets remain safely within the Company. Thus the alternative term for Redomiciliation: Continuance. Continuance opens attractive opportunities for legitimate tax mitigation.
Updated Basis for Capital Gains Tax
Following Company registration in Portugal, a Balance of Accounts needs to be presented to mark the starting point as a Portuguese resident corporate entity. In accord with most recent legislation (May 2019), this Balance Sheet must be based on net book value, rather than the historical value according to the relevant 2016 EU Directive. Any shareholders’ loans to the Company as well as outstanding bank mortgage show as “Liabilities”. “Capital” is the paid-up share capital as well as Reserves. There is a fresh start. Many historical problems, such as under-declared deed values or lack of bonafide invoices for capital improvements can be mitigated.
Reduced CGT following Redomiciliation
With the move to a Portuguese domiciled entity, Capital Gains Tax on the eventual sale of Company shares reduces to 14%, as compared to 28% that otherwise would be the norm. Further Capital Gains Tax mitigation can take one of two forms. With the uplift in the nominal price of the stock upon registration of the now Portuguese entity, the shares can be sold at full value with little or no gain. Alternatively, the company can be liquidated and the assets distributed to the shareholders. As in the previous instance, with similar values, there should be little or no tax to pay.
Potential Transfer Tax Exemption
If the Company assets include Portuguese immoveable property, the sale of the shares may be exempt from “IMT”, depending on the circumstances of the eventual buyer of the Company. When a shareholder does not exceed a concentration of more than 75% of shares to a shareholder, no Property Transfer Tax (“IMT”) is due on the underlying asset conveyance. If eligible, the buyers may potentially save thousands of Euros, thus making the acquisition more appealing than a purchase in one’s own name.
In contrast, when a property changes hands, many organs of government get into the act. Finanças records the change of ownership and updates the Ratable Value (“VPT”) in a somewhat lengthy and labourious process. The local Council checks to see that current architectural records match the building(s) on site. The Land Registry verifies that boundaries and areas are correctly recorded. In short, a sea of bureaucracy that can be both slow and expensive. The transfer of ownership of Portuguese shares is normally a simple notarial process. While there is some paperwork involved in amending records to reflect the changes of Company domicile, the process is straightforward and does not trigger reevaluations of the underlying assets nor latent licensing problems inherent with many older properties.
While Redomiciliation may not always be a “magic bullet”, this solution can offer significant advantages to many owners who find themselves unwittingly trapped offshore.