Company Owned Properties - On-/Offshore Jurisdictions

Nowadays, Portuguese properties, particularly in the central Algarve, tend to be owned and traded using a corporate structure. Most high end properties are held in this way.

In 2002/3, when the Portuguese Government targeted corporate ownership they produced a list of blacklisted countries, which included Gibraltar. This became a problem for many people, as the majority of such companies were registered there. Penal taxes were introduced to discourage the use of these offshore “Fiscal Paradise” jurisdictions.

The effect was quite dramatic and there was a rush either to escape from company ownership, (usually at a high cost) and transfer the property into personal ownership, or to redomicile the company to a non-blacklisted country.

Gibraltar, is of course an English law jurisdiction with a similar company law structure to England. In the rush to redomicile companies away from Gibraltar, the firms of company administrators sought out other jurisdictions with similar laws to the UK and Gibraltar, hence the move to places like Malta, Delaware in the US and even New Zealand, which are all English language countries and were not on the blacklist. The good news is, that sometime this year, Gibraltar hopes to have its “Blacklisted” status changed.

When clients are first advised, usually by the estate agent, that the property they are interested in buying, is owned by an “off-shore company”, they may have little or no idea what this means in relation to the property and start by asking some valid questions concerning ownership of a property in Portugal, in this way.

Here are some questions and answers concerning company ownership of property in Portugal:

Why should I use a corporate structure to buy, own and sell my property in Portugal?

If the property value is high enough to justify the annual costs of off-shore company management, there are some attractive benefits to corporate ownership. It is generally thought that owners of properties with values in excess of €uros 1 million may benefit from this regime. If the property is of a lower value private ownership may be the better option.

Some of the benefits of Corporate ownership are:

1. Buyers and sellers enjoy a degree of anonymity
2. Contracts are drawn up in English and avoid the use of the Notarial system of property conveyance
3. Buyers avoid payment of IMT (property purchase tax) up to 6% as well as Notary and registration fees – a further 1%
4. Dealing with inheritance laws in Portugal is made simpler

Which countries are considered to be “blacklisted jurisdictions”?

Any country whose name appears on the list of jurisdictions where the tax regime is considered more favourable than in Portugal. EU countries are not on the list, so Malta is a suitable alternative, but tends to be more expensive. As mentioned earlier in this article, it is hoped that Gibraltar will be soon back in business and its proximity to Portugal will once again make it a popular choice.

Why is Delaware not blacklisted?

Delaware is a state within the US and it would require the USA to be blacklisted. It is doubtful that a specific state within the US could be specified. There are other states in the US similar to Delaware so far as corporate structure and tax are concerned.

Is Delaware likely to become blacklisted in the future and, if so, is it possible to move the company elsewhere?

It is highly unlikely as a great many major US corporations have registered head offices within Delaware. However, in the unlikely event that it should become necessary, it is possible to redomicile the company away from Delaware.

If this becomes necessary, what do I have to pay? Are there any US or Delaware taxes?

Unless the company, or the owner of the company, actually receives income in Delaware, there are no Delaware or US taxes to pay. You would have to pay the costs of transferring the company to another jurisdiction.

Is there a downside to owning a property in a company?

Yes, possibly, if it ever became necessary to sell the company asset, namely the house, out of the company. This would involve paying Capital Gains Tax in Portugal on the profit made by the company - the difference between the buying price of the property by the company (not what you may have paid for the shares) and the selling price, by the company subject to the usual allowances. Except in exceptional circumstances, it is better to sell the beneficial ownership of the company and keep the asset in the company, so that there is no taxable event in Portugal.

So, is there any good reason not to purchase a property, which is in a company?

On balance, no, but you should keep in mind that corporate ownership of a property would always imply that there is usually a built in Capital Gains Tax liability should you be forced to sell the asset. This can usually be calculated before you buy. You should also consider whether the value of the property is enough to justify the long term costs of running the company and whether you intend to keep it, or sell it in the short term. Should you require a mortgage to assist with the purchase, this can be somewhat difficult at the present time.

Please note that it is still strongly recommended that you appoint a local lawyer when buying a property via a corporate structure. The lawyer not only needs to check the due diligence of the company, but also ensure that the property is properly licensed and built accordingly to the plans approved by the local authority and that both are clean and free of any debts!