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Property Structuring

It is usually beneficial to structure the purchase and holding of real estate through non-resident companies.
26th October, 2016

It is usually beneficial to structure the purchase and holding of real estate through non-resident companies.

Indeed, substantial tax savings may be obtained by individuals who purchase property through a non-resident company and thereafter effect any subsequent transfer of the property by way of a transfer of the shares in the property owning company, leaving the title to the property unchanged.

Main Advantages

LOWER PURCHASE COSTS

A purchaser of property will usually have to pay a real estate acquisition tax and also Notary and registration fees. The purchase of shares in a non-resident company owning a property will avoid these expenses, making the purchase a more attractive proposition for the purchaser and allowing the seller to charge more for the property.

EXEMPTION FROM CAPITAL GAINS TAX

Income derived from the sale of a property will be subject to tax irrespective of the tax residency of the seller. This tax will be avoided by transferring the shares in the property owning company so that no transfer takes place in the country where the property is situated.

EXEMPTION FROM INHERITANCE TAX

Inheritance tax is payable on the death of the owner of a property irrespective of the tax residency of the owner. The rates of tax applicable naturally vary from country to country depending on the size of the gift and of the relationship between the deceased and the recipient. The more distant the relationship, the higher the rate of tax. A property owned by a company will not be subject to inheritance tax.

EASE OF SALE

There is very little bureaucracy involved in the process of transferring the shares of a non-resident company and thus the bureaucratic and lengthy procedures which are necessary to purchase a property and register a new title in some countries are avoided. Buying and selling can therefore be done much more cheaply, quickly and easily.

ASSET PROTECTION, CONFIDENTIALITY AND PRIVACY

Legal ownership with the property lies with the company, which has limited liability, and not with the individual. It is fairly simple to protect the beneficial ownership of the property with the advantages referred to above.

It is important to choose carefully the jurisdictions of the company that is going to acquire the property and to obtain local advice. Some countries forbid or penalise the purchase of real estate by offshore companies. These jurisdictions are usually on the so-called 'black-list', so it is advisable to choose a 'white-listed' jurisdiction.

On the other hand, some countries only allow for the acquisition of property if beneficial ownership is revealed, or do not allow property to be bought by non-resident companies at all. Care should be taken about having a trust owning a property in some countries, particularly those with civil law based systems. A trust might not be recognised and it will be considered that the trustees are the owners of the property.

We cannot emphasise enough how important it is to obtain good advice in order to select a solution that effectively works and fulfils the need of clients.

How can we help?

We can advise on the best jurisdictions to set up a property holding company, obtain local advice so that local legislation is complied with and give full support to the acquisition of the property and the subsequent management of the company that holds the property.

Paulo Réfega
Paulo Réfega
Managing Director Portugal
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