Pros and cons of owning an abroad property in an offshore corporate structureBy Lina Rodrigues • Mar 1st, 2008 • Category: Company News, Property News & Info
When buying a property in Portugal area, and especially one priced at over 1 million euros, you may well be confronted with the question as to whether to buy it in your own name, or to use a corporate structure.
Owning through a corporate structure
Owning a property through a corporate structure continues to be a popular choice for higher priced properties.
The property owners themselves own the shares of the company which in turn is the registered owner of the property.
When the property is sold, the shares are sold through a share purchase agreement; the company remains the owner of the property and the buyers become the new shareholders.
Black List and White List
In 2003 changes in local legislation meant that countries outside of Portugal (sometimes referred to as Offshore Centres) were classified by an international body known as OECD as either Black List or White Lis jurisdictions.
The Black List jurisdictions were for the most part countries that offered beneficial tax regimes (eg: Gibraltar, Isle of Man) that were out of line with the White List countries.
Property-owning companies on the Black List faced a higher tax (for details see the taxation article on page 104), and for this reason many decided to re-domicile to other non Black Listed jurisdictions, principally Malta and Delaware, USA. Malta, being English-speaking and a full member of the European Union, was immediately attractive and many companies moved there. Delaware, being one of the 53 States of the USA also offered security, and many companies relocated there.
At the time the overwhelming view of most clients and their professional advisers was that they wanted to continue to own their properties through a corporate structure, but not in places such as Gibraltar and other Black Listed jurisdictions. Most clients continue to be of the opinion that the benefits of corporate ownership far outweigh the disadvantages, if such financial penalties can be avoided.
Despite rumours to the contrary, anyone holding a property through a corporate structure is usually a professional, who earns his income honestly and uses these corporate structures for the ease, flexibility and speed that they lend to personal assets management, as well as to avoid some of the costs and benefit from certain tax deductions.
The Benefits of Corporate Ownership:
- Transfer of property is a very simple and tax efficient procedure; a transfer of shares conducted in English via a Share Purchase Agreement. ie facilitates asset management.
- Both IMT – Property Purchase Tax which can be up to 8% of the purchase price, as well as notary and land registry fees are avoided.
- Company owned properties can be mortgaged quite simply in Englishspeaking jurisdictions.
- Transfer on death ensures that heirs can deal with their inheritance in English, and according to British/Irish law. They do not have to deal with the Portuguese legal system where there is forced heirship â€“ spouse and children inherit automatically and individuals cannot choose to whom they wish to leave their estate.
- Capital Gains Tax is not payable in Portugal on the profit when the property is sold via a corporate structure. The capital gain on the sale of the shares is subject to the jurisdiction of the seller.
- Buyers/owners enjoy anonymity
What about the “locked in” Capital Gains Tax?
It is likely that there is a “locked in” CGT liability because the property is a company asset which is likely to have increased in value. If the company is ever called upon to sell that asset out of the company to a 3rd party they are likely to face a CGT liability (which in practice is payable by the underlying owners of the shares). Good agents and professional advisers will inform you about this. We personally make a point of explaining this to all our clients. We have a settled market here in the Algarve, and the intention is (and always has been) that properties in corporate ownership remain in corporate ownership. In other words the “locked in” CGT liability should never materialise. The “locked in” CGT liability issue has become part of the negotiation which we undertake for vendors and buyers.
The Benefits of buying a Property in your own name
If the value of the property is less than Euro 1million, one may want to consider owning the property in one’s own name. The costs of running a corporate structure are thereby avoided.
An example of costs involved in Buying, Owning and Selling a property valued at Euro 1 million as a non resident of Portugal: