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DSG – in the pipeline

Tag Archives: property

Capital Gains Tax

20 Monday Sep 2021

Posted by Ursula in Posts

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CGT, portugal, property, sale, tax

Options when selling Property in an Offshore Company

Many owners of Offshore Companies, both black and white listed, reach a point where, for any number of reasons, they wish to sell up. Yet most are uncertain of the Capital Gains Tax consequences of such a sale, particularly since there are a number of different ways to structure the transaction. While individual proceedings sometimes present unique circumstances, the following example should prove illustrative of most sales. Respective costs and savings ought to be proportional in most cases.

The Situation:   Non-Resident Owners selling a property held in an Offshore Company

1)   An Offshore Company purchases a property in Portugal for €200,000 (inflation-adjusted price).

      At this point, both the Property and the Company are worth €200,000.

2)   A Non-Resident couple buys the shares of the Company for €300,000.

While the Company has a share value of €300,000, the book value of the Property remains €200,000.

3)   The Company moves its headquarters and effective management (redomiciliation) from Gibraltar to Delaware. No change in respective values is registered.

4)   The Owners wish to sell the Property/Company for €550,000.  This can be done in one of three ways:

a)   the Company sells the Property directly to the Buyers; or

b)   the Owners of the Delaware Company sell their shares to the Buyers; or

c)   the Delaware Company is first moved to Portugal, then Owners of the Portuguese Nominee Company sell their shares to the Buyers.

The Tax Consequences for Buyer and Seller:

a) The Company sells its Property:

The Capital Gain on the sale of the Property is the net difference between purchase price (€200,000) and the sales price (€550,000) minus capital improvements in the previous 12 years minus deductible buying and selling costs. The net gain is then taxed at the rate of 25%.

Example – the final result might look something like this:

€550,000 (sale) – €200,000 (purchase) – €15,000 (improvements) – €5,000 (expenses) =

€230,000 (net gain) X 25% (non-resident tax rate on sale of property) = €57,500 (CGT)

The buyer will also pay the following acquisition taxes:

€33,000 (IMT) + €4,400 (Stamp Duty) = €37,400 (acquisition taxes)

Option nº 1

Seller is taxed €57,500 – Buyer is taxed €37,400

Since it is a Delaware Company that is selling the Property, then the taxable Gain will be to the Company. However, it is more than likely that the distribution of these profits to the shareholders will also incur an assessment to Owners in the home jurisdiction on these “dividends”. 

b)   Sale of the Shares of the Delaware Company

The shares of the Delaware Company are sold to the Buyer.  In accordance with the USA-Portugal Tax Treaty (Article 14), this transaction is treated as a Sale of Property Rights since the US Company, as a resident entity under the Treaty, consisting of more then 50% of immovable property located in Portugal. Therefore, the Gain may be taxed in Portugal in an identical fashion as above

Optionº 2

Seller is taxed €57,500 – Buyer pays no tax

with a net CGT due of €57,500. Since the Sellers are non-residents in Portugal, they will also be taxable on the worldwide income in their home jurisdiction. In this instance, the transaction will no longer be seen as a property rights transfer but merely as a sale of shares (movable assets). After application of any Capital Gains allowances, a second CGT assessment will be due on this gain. Given the deemed natures of the perceived transaction, together with the triangulation of the jurisdictions involved, there is no way to eliminate double taxation.

Option nº 3:   Sale of Portuguese Nominee Company

When the Portuguese Company is sold, the Gain is calculated as follows:

First, the Delaware Company must move to Portugal.  As part of this Redomiciliation, an appraisal is performed of the Property, determining that the Company’s sole asset is valued at €530,000. 

Therefore, at the time of the move to Portugal, the Company is worth €530,000 and the now Portuguese Company’s shares reflect this value.

The Shares are then sold as follows:

€550,000 (sales price of shares) – €530,000 (value of shares upon Redomiciliation to Portugal)  =

€20,000 X 10% (tax rates on sale of shares)  =  €2,000 (CGT)

           The buyers will also pay €25 (Stamp Duty on Share Transfer Deed)                                             

Optionº 3:

Seller is taxed  €2,000 – Buyer is taxed  €25

As the Sellers are Non-Resident, they may also be liable for CGT in their home jurisdiction. In this case, the tax paid in Portugal will normally serve as an international tax credit, reducing or eliminating any eventual CGT assessment. Needless to say, while the rate may be different, the basis should be the same.

Conclusion:

As you can see, there is considerable difference both for Buyers and Sellers when redomiciling to Portugal. By selling the Portuguese Nominee Company, rather than the Company selling the Property or the shares of the Delaware Company, both sellers and buyers save appreciably.  In comparison, the costs of Redomiciliation and the subsequent share transfer should prove only a minor inconvenience.

In addition, due to Portuguese fiscal transparency rules, owners of Nominee Companies are free from any possible double taxation in Portugal since liability for potentially chargeable events is transposed out of the Company directly to the Shareholders and is never be assessed to both.

Usucapio – Adverse Possession or “Squatter’s rights”

16 Monday Dec 2019

Posted by Ursula in Articles

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acquisition, holder, owner, possession, property, register, rights, squatter, usucapio

Usucapio (adverse possession), from the Latin usucapio: “to acquire by use”, is a form of acquisition of the property rights in function of having used or occupied a property continuously and unquestionably as if the holder were the real owner. In English Common Law, the equivalent of usucapio is commonly referred to as “adverse possession”. Continue reading →

Property Evaluations: Your “VPT” in 2019

09 Thursday May 2019

Posted by Ursula in Articles, Posts

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2019, age, area, formula, location, location coefficient, portugal, property, quality, usage, value, vpt

The “VPT” of your property is not directly related to construction costs or its market value (except for the soon-to-be-overhauled Location Coefficient). The Property Evaluation System (“Valor Patrimonial Tributário or VPT”) is a mathematical formula comprised of six factors, working as follows:

Continue reading →

Property sales continue to surge in Lisbon historical districts

02 Thursday May 2019

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al, historical, investors, lisbon, local lodging, property, sales, surge

The new regulatory restrictions implemented since October of last year have failed to slow demand for central Lisbon properties. While new Local Lodging applications dropped by 60%, foreign investors continue to seek out and buy property in historical districts as real estate sales soared by 38% over the period. While the  “AL” sector is still significant, there are clearly other factors driving the market as well.

One in four property owners pays “IMI” values below €100 in Portugal

02 Thursday May 2019

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dependents, IMI, owner, portugal, property, rateable

There are almost 4 million demands for Municipal Tax on Real Estate (“IMI”) being issued this year. Nearly one million property rates fall below €100. This annual tax is levied based on the rateable value of real estate. In the case of urban property, the rate is set by local authorities in a range between 0,3% to 0,45%. It is also up to the municipalities whether or not to grant a tax discount to families with dependents: €20 when there is one dependent, €40 when there are two and €70 when there are three or more dependents.

AIMI: what it is & how to avoid it

07 Friday Dec 2018

Posted by Ursula in Articles, Posts

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Adicional, aimi, exemption, IMI, imposto, Municipal, property, tax, urban, vpt

As a relatively new tax, it is not surprising that many have been caught unaware of their liability to pay AIMI and, more importantly, how they can avoid the disturbing consequences. The additional assessment to IMI (Adicional Imposto Municipal Imobiliário) is sending shock waves to individuals and company owners who unwittingly find themselves under the weight of this added fiscal obligation. Continue reading →

Lisbon’s historic districts still have many degraded properties

12 Monday Nov 2018

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districts, historic, lisbon, property, ruins, vacant

Despite positive evolution in recent years, Lisbon still has many buildings that are either abandoned, poorly maintained or even in ruins. According to data from the Lisbon Chamber of Commerce in 2018, there are 2,626 buildings in the city declared totally or partially vacant and 7,230 in poor condition, concentrated in the city’s historic neighbourhoods. Experts speak of the need for €4 billion in urgent rehabilitation works in the capital and over €24 billion nationwide.

Urban renewal with new tax breaks

12 Monday Feb 2018

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capital gains, city council, deduction, IMI, irs, property, tax breaks, Urban renewal

Upon approval within the framework of urban renovation, property owners can benefit from the following tax incentives:

  • Long-term rental income assessed at 5%;
  • “IMI” exemption for 5 years;
  • “IMT” exemption for the acquisition of rehabilitated properties;
  • 30% tax deduction under “IRS” for costs borne by the owner;
  • Capital gains at the rate of 5%.

It is the responsibility of the city council to verify the state of conservation of the property both before and after the restoration. Rehabilitation must maintain building façades, the number of floors above ground as well as any structural elements of heritage value (vaults, archways, metal or wooden structures, etc.)

Brexit not stopping British from property purchases in the Algarve

24 Thursday Aug 2017

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alagrve, brexit, british, property, purchase

UK nationals continued to invest heavily in residential real estate in Portugal in 2016. Brits made up the largest group of foreign investors with a 31% share of transactions carried out by non-residents. France (19%) and the Benelux and the Scandinavian countries (17%) were the other two most significant buyers in the Algarve.

12 reasons behind the current Lisbon property boom

24 Thursday Aug 2017

Posted by Ursula in Articles

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boom, libon, property, reasons

A series of factors contribute to the recent surge in prices in the real estate market in Lisbon in particular and throughout Portugal in general.

  1. An exodus of residents over the past half century from the historical centres;

Until the recent boom, central Lisbon has been experiencing degradation and urban flight over the past 50 years. Continue reading →

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