Over the past 15 years, successive changes in legislation in Portugal have gradually tarnished the glow of these elusive structures. At first, black-listed jurisdictions began to be taxed a moderate 2% punitive assessment on their immoveable assets. By this year, these punishing levies have reached 15% per annum, costing owners tens of thousands of Euros annually.
New Legislation
Two recent changes in legislation have brought additional pain to popular “white-listed” jurisdictions such as Delaware and Malta. Transparency measures now allow authorities to look through companies directly to identify the underlying beneficial owners. In a parallel “look thru” move, the sale of a non-resident company’s shares can now be assessed as a transfer of the rights of the underlying Portuguese property.
Beneficial Ownership Central Register
Portugal has implemented the EU directive, approving the Legal Regime of the Beneficial Ownership Central Register (BOCR). These new regulations require reporting a structure’s beneficial owners. The statutes are far-reaching and include companies holding Portuguese property in jurisdictions such as Malta and Delaware. This EU-wide directive further enhances the Common Reporting Standards introduced last year and is part of the new era of information sharing.
Capital Gains from Immoveable Property
The most recent attack comes in the 2018 Portuguese State Budget which introduces an enhanced definition of Capital Gains on Immoveable Property. When shareholders’ sell their shares in a non-resident company which derives more than 50% of its value from real estate located in Portugal, Finanças now has been given the right to tax the transfer as an immoveable property conveyance rather than the mere sale of shares. In other words, the Tax Authorities “look thru” the corporate entity to assess individual shareholders directly on the sale of the property, regardless of whether they are resident or not. Both Malta and the US already have similar “anti-abuse” language in their bilateral tax treaties with Portugal.
Exaggerated CGT
Historically, many offshore jurisdictions levy Stamp Duty on the registered share value of Limited Liability Companies, typically at the rate of 1%. To avoid this potential extra cost, LLC’s have often assigned only a symbolic share value. For example, it is not uncommon for Delaware Companies to be nominally worth just US$1 or less. Under the new rules, rather than CGT being assessable in another jurisdiction, assessment takes place in Portugal, based on nearly 100% of the sales price.
EU Black list
White-listed jurisdictions recently were granted a temporary reprieve from being placed on the EU’s new blacklist. The revelations in the Paradise and Panama Papers about international tax schemes, exposing some of the intricate methods that the world’s wealthy use to avoid tax through offshore havens, raised hopes that Brussels would begin to rein in on abusive practices. For the time being, it is apparent that the EU could only muster the courage to target countries with little economic or political weight.
Nevertheless, the handwriting is on the wall. Efforts to constrain or eliminate dubious practices in offshore havens will only multiply in the future. The longer beneficial owners wait to achieve compliance, the more complicated and expensive solutions will become.
Portuguese Nominee Companies
Most of the problems associated with Offshore Companies, whether white or black-listed, can be readily resolved at relatively modest expense by transforming the structure into a Portuguese Nominee Company. This procedure, known as “Redomiciliation”, creates a fully compliant structure offering the beleaguered Company Owner a host of advantages:
• A fully compliant solution
• Tax-efficient Redomiciliation
• Potential tax-free uplift in share value
• Reduced closing costs
• Avoiding punitive “IMI” rates
• Capital improvements that never expire
• Possible IMT exemption
• Professional support unravelling
bureaucracy
• Ease of transfer
• Modest on-going domiciliary fees
Dennis Swing Greene is chairman and International Tax Consultant for euroFINESCOs.a.
www.eurofinesco.com
Hello
I am looking into purchasing an offshore company/property in Portugal and would be interested to understand the various options available.
Regards
Matthew
By Matthew Lindley from UK on 22 Mar 2019, 14:23
I own an apartment in Vilamoura which is offshore in Delaware how can I achieve redomiciliation and at what cost
Thanks for any help you can offer
By Jon Stevenson from UK on 05 Jun 2019, 08:17
Hello,
I am Portuguese Real Estate owner trying to sell some property.I would like to have an international bank account, especially to keep my money safe after the sale.What is the best way to pay less tax, too? What would you recommend?
By M. from Lisbon on 11 Jan 2021, 19:39
Hello,
I own a house in Vilamoura which is offshore in Delaware. I am interested in redomiciliation and look forward to hearing from you.
Regards
William Abbot
By William Abbot from UK on 29 Jan 2021, 09:02