C.G.T. = Capital Gains Tax = Mais-Valía
An issue people in the past never worried about when selling a property was tax, but now it is!! Everyone will agree this is a valid concern. What most people do not know is that it is at the point of purchase that one should be concerned about capital gains. Why? Because the purchase structure will play a significant role in the final bill and thus have an important influence if an investment in Portugal, being profitable or not in the end.
Only properties purchased after 31st. of December 1988 are subject to capital gains (CG). An exception however are building plots! If you bought yours before that date then you are exempt.
There are several possible property purchase structures, some more common than others. We can divide “the buyer” into four different common structures:
“Offshore” limited company.
This is the most usual and basically means you buy the property in your personal name. If you are a Resident and thus tax liable in Portugal only half of any CG will be added to your income and will then go into your Portuguese individual tax statement (IRS).
If you are a non-resident, then this is a flat 25 per cent of all Capital Gains.
This is the same as the individual structure, with the nuance that you only own a quarter of a property. It is very commonly used by investors and holidaymakers, who will then share the purchase price in equal amounts and also share the 12 months of usage in equal amounts. For the CG, the calculation is the same as individual, each owner is only responsible for its quarter.
When buying a property using a Limited (Ltd) company, CG are put in the Portuguese Company tax statement (IRC) of that company and taxed at a flat rate of 25 per cent, like any other profits the company makes.
If you pass on the property by selling the company that owns it, then you need to be aware that selling shares also makes you tax liable, unless the company is an SA (which is a different structure from Ltd) and you own the shares for more than one year.
When selling shares, the buyer might save on Property Transmission Tax, if one of the buyers does not purchase more than 74 per cent of the company shares. If that happens, the government will consider the transaction as a masked property sale and IMT tax needs to be paid as well.
A possible solution to this is passing on the company shares to two different entities/individuals, one with 26 per cent and the other with 24 per cent.
“Offshore” Ltd company
Offshore is normally the term that people use to refer to a “Tax Haven”. By “Tax Haven”, we mean all places which have very favourable tax laws for local companies owned by non-residents.
However, since 9/11 and the consequent concerns about terrorist money being hidden in offshore companies, the tax regulations have been tightened.
In my opinion, most countries just used 9/11 as an excuse to implement a series of tax irritations to businesses set up by companies registered in these “Tax Havens”. Some of these countries were “blacklisted” and taxes on businesses operated by companies from such countries suffered a series of increases.
There are still some which are not blacklisted, like Delaware (American State) and in fact nearly all American states qualify as also not black-listed. Most people redirected their offshore company domicile to Delaware when Gibraltar, Guernsey and others were blacklisted.
In terms of capital gains tax when a property is sold, if the offshore company sells the property, then tax is 25 per cent.
If the owner of the offshore company sells his sha