Algarve property guides – Offshore company purchase explained
When property within the Golden Triangle changes hands a fairly common practice is the necessary transfer of ownership not just of the property but importantly the holding Offshore company. This is particularly common place within the Quinta do Lago and Vale do Lobo developments where property values are generally in excess of €1,000,000.
What does it mean?
In simple terms, the property is owned by the off shore company and rather than the property itself changing owners, the company shares are transferred instead. This of course eliminates the IMT and stamp duty levied on property transactions. Buying costs are therefore limited to lawyers’ fees only.
Benefits of an Offshore company
A significant benefit of purchasing your Algarve property under the offshore company vehicle is without doubt the considerable saving in purchase tax. In real terms this is a saving of c. 7% of the purchase price, a significant figure by any standard.
The tax payable on the sale of your property will also be different to that of private ownership. Presently non-residents pay a flat 28% on any profit following a property sale. This does not apply to properties owned offshore. The tax will be calculated in accordance with tax laws of your country of residence, and will be based on the sale of a company rather than a property.
Details of Offshore company ownership are not easily accessible, another main reason why it is employed on the higher priced properties. No property deed is exchanged so ownership is not made public.
So why doesn’t everyone buy an Offshore company?
There are costs associated with offshore ownership. Namely an annual fee levied by the managing agent for the company. This will generally be c.€2,000 per year to manage the annual filling of accounts and upkeep of the company.
2017 has seen a new tax introduced for the additional payment of IMI (property tax) on all offshore properties. This will be on top of the current IMI payments and will be another 0.4% of the fiscal value.
There will generally be an inbuilt capital gains liability with off shore properties. Although this is only applicable if the house is brought back on shore and sold out of the company, it is worth noting.
For more information on property purchasing here in the Algarve you can donwload our free Portugal Property Guide here.
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