Portugal increases taxes on the acquisition and ownership of real estate assets

By Diogo Ortigão Ramos & João Pedro Russo, Cuatrecasas, Portugal

Effective from 1 January, the Portuguese State Budget for 2021 introduced significant changes to the real estate transfer tax (a tax generally imposed on the acquisition of Portuguese real estate assets) and the municipal property tax (a tax generally imposed on the ownership of Portuguese real estate assets).

One new amendment applies to acquisitions of Portuguese companies holding real estate in Portugal.

Prior to the Portuguese State Budget for 2021, real estate transfer tax was levied on acquisitions of at least 75% shareholdings in Portuguese limited companies holding real estate assets in Portugal. Thus, Portuguese stock corporations holding real estate assets in Portugal were outside the scope of this tax regime.

With the Portuguese State Budget for 2021, acquisitions of at least 75% shareholdings in both types of companies are now subject to real estate transfer tax.

However, the new law applies only where more than 50% of the company’s total asset value comes directly or indirectly from Portuguese real estate not directly allocated to commercial, industrial, or agricultural activities, other than the mere purchase and sale of real estate assets.

Therefore, acquisitions of qualifying shareholdings are now subject to real estate transfer tax, ordinarily at a rate of 6.5% (potentially increased to 10%, under the specific real estate transfer tax regime, discussed below) over the greater of the patrimonial tax value and the accounting value of the underlying Portuguese real estate assets.

The Portuguese State Budget for 2021 also introduced measures aimed at strengthening the taxation imposed of the acquisition and ownership of Portuguese real estate assets by entities tax resident in tax havens (as defined in Portuguese tax law) and those directly or indirectly controlled (i.e., 50% of their share capital or voting rights) by such entities.

These entities are subject to specific real estate transfer tax and municipal property tax regimes, which, besides precluding the application of certain exemptions and reduced rates, also foresee for the application of municipal property tax and real estate transfer tax at the increased rates of 7.5% (instead of the usual 0.3% to 0.45%) and 10% (instead of the usual 5% to 7.5%), respectively.

Although these changes may raise issues of compatibility with European Union Law (namely those rules governing the free movement of capital), the recommended course of action for multinational enterprises falling within their scope should entail a reevaluation of the ownership structures of Portuguese real estate assets, particularly those involving entities that are directly or indirectly controlled by entities that are tax residents in tax havens.

— Diogo Ortigão Ramos is Partner, Head of Tax, at Cuatrecasas, Portugal

— João Pedro Russo is Associate, Tax, Cuatrecasas, Portugal