Buying property in PortugalWritten by The Chesterfield Group
Portugal has long been a popular choice for people, particularly from colder climates of Northern Europe, looking to purchase a holiday home or a retirement home. Traditionally they have done so using offshore companies, mainly to avoid estate taxes. Unfortunately Portugal, along with some other countries, has made this route considerably less attractive by imposition of swingeing tax penalties on offshore companies. The magnitude of these penalties can be seen from examples below,Real Estate Transfer Tax This tax is paid by purchaser, at progressive rates of up to 6% (5% for rural property) on property used exclusively for residential purposes, on higher of registered value or purchase price agreed between parties. This is usually purchase price. For offshore companies this rate has been increased to 15%. Municipal Property Tax This is a tax, at a rate set annually, levied by local authority and based on registered value. The rates are different for urban and rural properties and total is typically about 1.6%. For offshore companies rate has been increased to 5% Tax on a Deemed Rental Income Where a property is owned by an offshore company, it is treated as having produced a rental income, which is charged to income tax, of one-fifteenth of registered value.
| | Taxation of Isle of Man Companies from April 2006Written by The Chesterfield Group
At present time a company incorporated in Isle of Man, owned by non-residents and which complies with other statutory requirements, is not liable to Isle of Man taxation. Whilst locally trading companies pay tax at 18%, a qualifying offshore company pays a flat annual tax of £475 or £1,000. The Isle of Man is however required to comply with E.U. Code of Conduct on Business Taxation and other international initiatives designed to eliminate discrimination between taxpayers. This means, essentially, that tax treatment of local and offshore companies should be same. The Island decided some time ago that it would meet its obligations by introducing a zero rate of taxation for all companies except those engaged in certain finance sector activities and Government has now issued a consultation paper outlining how it is proposed that new system will operate. From April 2006 distinction between offshore and locally resident companies will disappear and companies will be classified as distributing or non-distributing. A distributing company will be one of following, •Where whole of distributable profit has been charged to tax at rate of 10% or •Where company has distributed a specified minimum of its distributable profit, expected to be 60% for a trading company and 100% for an investment company or •A company owned wholly by non- residents, regardless of what percentage of profit is actually distributed.
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