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Luxury Algarve properties owned off shore

7th July 2011: Algarve Property News

Over the past 15 years or so, more and more properties in the Algarve, particularly in the ''Golden Triangle'' have been purchased using corporate ownership. Back in 2002/3 this became a problem for a lot of people when the Portuguese government decided to move against corporate ownership and produced a list of blacklisted counties, including Gibraltar, where the majority of such companies were all registered.

Various penal taxes were introduced to discourage the use of off shore companies. The effect was quite dramatic. There was a mad rush either to dump the company ownership (usually at extremely high cost) and to transfer the property into their name, or to re-domicile the company to a non -blacklisted jurisdiction.

This affected the Portuguese property market so badly that the government soon changed the law again and reduced the penal tax rates on companies in blacklisted countries to a more reasonable level. This move encouraged investment in the Portuguese property market again.

Gibraltar, where the majority of the off shore companies were formed, is an English law jurisdiction with similar company law to the UK. In the rush to re-domicile companies away from Gibraltar, the firms of company administrators sought out other similar jurisdictions with company law similar to the UK and Gibraltar, hence the move to places like Malta, Delaware (USA) and even New Zealand, which are all English language countries and not on the blacklist.

When clients are first informed that the property they are interested in buying is owned by an off shore company they may have little or no idea of what this means. Here are some frequent questions and answers:


Q. Where and what exactly is off shore? A. Any place where accompany is registered outside the jurisdiction of Portuguese territory. Q. What does ''blacklisted country'' mean? A. Any country whose name appears on a list of jurisdictions where the tax regime is more favourable than in Portugal. EU countries are not on the list. So Malta is a suitable alternative but tends to be more expensive. Q. Why is Delaware not blacklisted? A. Delaware is a state in the US and therefore 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 within the US similar to Delaware as far as corporate structure and tax are concerned. Q. Is Delaware likely to become blacklisted in the future? And, if so, is it possible to move the company elsewhere? A. It is highly unlikely, as a great many US corporations have registered their head offices in Delaware. However, I the unlikely event that it should ever become necessary; it is possible to re-domicile the company Q. If this becomes necessary what do I have to pay? A. 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. Q. Is there a downside to owning a property in a company? A. Yes, possibly, if it ever became necessary to sell the company asset, namely the property. This would involve paying Capital Gains Tax on the profit made by the company ie the difference between the buying price of the property by the company and the selling price by the company subject to the usual allowances. Except in exceptional circumstances, it is better to sell the company and keep the asset in the company so that there is no taxable event in Portugal. Q. Why should I use an off shore company to buy my property and if I want to sell my property how do I do this? A. If the property value is high enough to justify the annual costs of management in whichever is the chosen jurisdiction, there are benefits to corporate ownership. Firstly, if an owner wants to sell this property, a prospective purchaser does not have to go through the Portuguese conveyance procedure of Promissory Contracts and Notarial Deeds, with the transaction carried out by selling the vendors interest in the company. Secondly, from a purchaser's point of view, this can be a huge cost saving as there is no Property Transfer Tax (IMT) to pay, usually 6% of the price if it is an expensive property, and no stamp duty or land registry fees to pay, as there is no change of, only the rights to the shares of the company. As the buyer has saved 7% on the cost of the property, the owner can expect to receive the full value for the property. Q. If I sell my interest in the property-owning company, what tax do I have to pay? A. This will be determined by the tax laws of the country in which you are considered to be tax resident. You would usually be liable to pay tax on the profit on the sale of your interest in the company, which is not the same as selling the property. Q. So, is there any good reason not to purchase a property, which is in a company? A. 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, and this amount 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. Purchasing property owned by a company does require a certain knowledge of the company law applicable to the particular jurisdiction in which the company happens to be registered. It also requires a full knowledge of the Portuguese conveyance system and property laws to ensure that the house or villa you are buying is fully legal.

Posted by Rob Shaw Elite Algarve Properties T: +44 (0) 208 529 3635 E: 1: 2: 3:

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