Buying Algarve Property in an Off Shore Company : A brief overview
Firstly it should be noted that the owning of a property in such a manner as an off shore company is very much the norm here, especially when it comes to higher end properties. So do not be put off by this method of purchase, there is in fact many benefits to purchasers and also sellers (which inevitably you will be at some stage too).
What are the benefits of Buying Algarve property off shore?
Keeping it straight forward here, the key benefits are there are no IMT taxes to pay (Property transfer tax for property over €500,000 is 6%) and no stamp duty either (0.8%). So on a €1,000,000 property the initial savings work out as €68,000 for the buyer.
There are also no notary fee’s or processes to go through which eliminates a lot of time consuming bureaucracy, the paper work is all prepared (the majority of the time at least) in English also. Ownership issues in respect to inheritance is also simplified as the company continues with the remaining company partner(s). Therefore avoiding any property related inheritance tax or title changes in Portugal.
There is also no Capital gains Tax payable upon the sale of the property/company paid in Portugal, at present 28%. As the sale is of the company shares opposed to the property itself.
What is the downside to Buying Algarve property off shore?
Of course there are always negatives with any transaction and although they are, in our opinion, outweighed by the positive, it’s important to be clear of any such items. Firstly and most importantly is that should the property ever be sold out-with the company (i.e. bought on shore) into a private name, then all the capital gain incurred since the first off shore purchase will be paid by the owner. This will be calculated on the property value from the day it was deemed an asset of the company irrespective of any other share transfers since that time. This can be costly and should be avoided if at all possible.
Of course it’s also worth considering that whatever ownership regime. You will be taxed for any profit made, either via share transfer of traditional sale, based on your country of residence. This should be done via a self assessment tax return to declare the profit, all relevant deductions would also be applicable for the country of residence.
So realistically the difference could be argued to be the elimination of all buying taxes, which is substantial. There are benefits also on the capital gains taxes but that would be somewhat dependant on your country of residence, but there’s a fair change it will be more favourable than the Portuguese non resident system which is a straight 28% with no threshold.