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Foreign Ownership of Portuguese Property

The Situation

Mr. P purchased a substantial Portuguese property in the name of an offshore company. At the time of purchase, Mr. P was advised that using an offshore company would avoid liability to Portuguese inheritance tax (this has since been largely abolished) and that resale could be achieved by a transfer of the shares in the offshore company, thereby avoiding Portuguese capital gains tax and high transaction costs amounting to some 16%.



The Problem

Portugal has recently introduced new legislation that imposes tax on property owned by companies located in "blacklisted" jurisdictions. Most popular offshore financial centres appear on the Portuguese blacklist. Mr P considered transferring the property back into his own name, but this would remove the advantages of offshore ownership.

The transfer would also have to be made at the current market value, which would trigger a large capital gains tax liability despite Mr. P not having any sale proceeds at his disposal with which to pay it.



The Solution

Mr. P should redomicile the offshore company to a tax efficient jurisdiction that is not on the Portuguese blacklist. A number of jurisdictions are suitable but the preferred option is Malta. Malta is now a full member of the European Union and has a tax treaty with Portugal, but it retains a highly advantageous tax regime.

When the company has been redomiciled in Malta, the annual taxes imposed under the new legislation in Portugal would no longer apply but all the advantages of

offshore ownership would remain - avoidance of Portuguese inheritance tax, avoidance of capital gains tax on resale and avoidance of Portuguese transfer taxes on resale.

This solution also means that there would be no need to transfer the property out of the corporate structure and thereby trigger immediate capital gains and sales tax costs.



Notes

The Sovereign Group was instrumental in getting the legislation for redomiciliation of companies into Malta passed into law and is the world expert on implementing both the offshore and Portuguese elements of this solution.

All offshore companies must appoint a fiscal representative resident in Portugal and present an annual return for the offshore company. Through Sovereign, UJ provides a full fiscal representation and accounting service in Portugal to meet these requirements.





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