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.
What is Forced Heirship?
In many Common Law jurisdictions, testators enjoy full freedom to leave their assets to whomever they wish. However, in other countries, this is not the case. Succession laws define given rights for the heirs. Despite the provisions made in a testament, a will can easily be overturned by these protected heirs. This is called Forced Heirship. Continue reading
Inspections and audits of aquatic facilities in tourist resorts continue to be lacking more than a year after the latest legislation was passed. In question is Law 61/2017 of August 01 which exempted resorts from contracting lifeguards for their pools. According to this legislation, the presence of a lifeguard became optional, provided that permanent supervision was in place, secured by a duly identified technician with first aid training. According to the National Tourist Registry, there are currently 4,426 resorts registered in Portugal. “AL” units outnumber these registrations by almost 20 fold. Despite the disparity, the rules for tourist developments continue not to apply to Local Lodging Accommodations.
Settling cross-border tax conflicts within the European Union will follow new guidelines that entered into legislation as of 01 July as announced by the EU Commission. According to a recent directive, taxpayers confronted with double tax disagreements within the EU that arise from differing interpretations of bilateral tax treaties can initiate a joint agreement procedure, leading countries to either settle the issues or accept a arbitration made by an independent advisory committee. The criteria applies to income or capital earned on or after 01 January 2018.
3.4 million tourists who visited Portugal in 2018 were housed in Airbnb accommodations. The US company reports that these visits had an impact on the Portuguese national economy in the order of €2 billion, or the equivalent of 1% of GDP. On average, each of these visitors who booked via Airbnb spent €115 per day. Portugal is among the countries where Airbnb has the most significant economic impact, ranking 10th after the USA ($33,800,000), France ($10,800,000) and Spain ($6,900,000).