Asset Deals vs Share Deals
The transfer of real estate assets in Portugal (asset deal), may be performed by means of (i) a public deed, or (ii) a private document certified by a notary, a solicitor, a lawyer or a chamber of commerce and industry. The transfer of title must be registered with the Land Registry Office within 30 days as from the date of the transaction.
Land Registry Offices are the entities in charge of keeping public records reflecting the description of properties and their current status, including ownership and encumbrances. Land registry is guided under the principle of the registry’s priority.
Any foreign or non-resident investor is allowed to acquire a property, without any restrictions, although investors need to comply with certain tax formalities (including obtaining a Portuguese taxpayer number).
Prior to acquiring a real estate property, investors typically perform a due diligence review (both legal and technical).
The legal due diligence scope normally includes amongst other aspects, confirmation of title, verification of existing encumbrances, confirmation that there are no property taxes in debt, and confirmation of the existence of a valid municipal use permit (a valid use permit is a requirement for the use of the property and it is mandatory to allow the transfer of real estate assets through an asset deal).
In asset deals, the parties usually enter into a Promissory Sale and Purchase Agreement that precedes the definitive agreement of conveyance of the property. Under the promissory sale and purchase agreement the parties undertake to acquire/sell a real estate property at a certain moment in the future, under certain agreed terms and conditions.
A Promissory Sale and Purchase Agreement may include conditions precedent that need to be fulfilled prior to the execution of the Sale and Purchase Agreement. Conditions precedent are usually foreseen when the property is affected by irregularities and /or licensing issues that must be settled by the seller in order to conclude the transaction.
Upon signature of the Promissory Sale and Purchase Agreement, the promissory purchaser usually pays to the promissory seller a down payment ranging between 10% and 25% of the purchase price.
Under Portuguese Law, unless otherwise agreed between the parties, a breach of the Promissory Sale and Purchase Agreement entails the following consequences:
• Vendor’s breach: the promissory purchaser may claim twice the amount of the down payment;
• Purchaser’s breach: the promissory vendor may keep the amount received as a down payment.
As an alternative to the above, in case of breach, the non-breaching party may, in certain circumstances, apply in court for the specific performance of the Promissory Sale and Purchase Agreement, with the purposes of obtaining a court decision that shall enforce the execution of the transaction.
After entering into a Promissory Sale and Purchase Agreement, the promissory purchaser is entitled to submit a provisional registration for the acquisition of the property. Under the principle of the registry’s priority, such provisional registration may provide security towards subsequent liens and/or encumbrances that could possibly be registered against the property. Upon completion of the Sale and Purchase Agreement, the provisional registration becomes definitive upon request filed by the purchaser.
Alternatively, to asset deals, the acquisition of real estate properties in Portugal may be performed indirectly, by means of the acquisition of shares or units in the property of fund holding company (share deal). The transfer of shares or units may be effected by means of a private agreement between the parties.
There are no restrictions to the acquisition of an interest in Portuguese Companies or funds by foreign or non-resident investors, although the investors may have to comply with certain tax formalities, including obtaining a Portuguese taxpayer number.
In case of a share deal, in addition to a due diligence review of the property, the purchaser typically also conducts a due diligence to the company/fund encompassing the customary aspects involved in the acquisition of companies/funds (corporate status, financing status, tax aspects, debts, employment agreements, etc.).
The acquisition of shares in public limited liability companies (“sociedades anónimas”) must, in certain cases, be notified to the company (notably for the registration of the shares on behalf of the purchaser) and to public authorities (tax authorities and regulatory entities). The acquisition of a stake in a private limited liability company (“sociedade por quotas”) must be registered with the Portuguese Companies Registry.
Property Transfer Tax ("IMT") and Stamp Duty (Imposto do Selo)
Property Transfer Tax is a municipal tax levied on the transfer of real estate located on Portuguese territory.
Property Transfer Tax is levied on the higher of (i) the declared acquisition value and (ii) the Property Tax Value.
In case of the acquisition of an urban building, or autonomous unit of an urban building, destined exclusively for permanent dwelling purposes, IMT is only due if the value over which the tax is payable is greater than €97,064.
The applicable tax rates are as follows:
- Urban property used exclusively as a primary residence: 7.5% (maximum progressive rate, according with the Property Tax Value);
- Rural property: 5%;
- Urban property not intended for residential purposes: 6.5%;
- Property purchased by entities resident in a blacklisted jurisdiction (as detailed in the Ministerial Order 150/2004, of February 13, as amended): 10%;
- Property purchased by a company that is controlled, directly or indirectly, by an entity resident in a blacklisted jurisdiction (as detailed in the Ministerial Order 150/2004, of February 13, as amended): 10%.
In addition, the acquisition of real estate is also subject to Stamp Duty at a rate of 0.8%. Stamp Duty is levied on the higher of (i) the declared acquisition value and (ii) the Property Tax Value.
Notary and registration fees
Notary and registration fees are payable by the purchaser upon the execution of the public deed of transfer and the respective registration with the Land Registry. The value of these fees is normally negligible.
The transfer of property in Portugal is exempt of VAT. However, such exemption may be waived, provided that the purchaser uses the acquired real estate for activities subject to VAT and that give the right to deduct VAT.
If the transaction is subject to VAT, the standard rate (currently, 23%) will be applicable and levied on the purchase price. The VAT is self-assessed by the purchaser, meaning that it is assessed and deducted in the same periodical VAT return.
It is relevant to note that, if the property is later used for non-VAT taxable activities, the VAT initially deducted must be adjusted. This restriction binds the taxpayer for a 20-year period.
Property Transfer Tax ("IMT") and Stamp Duty (Imposto do Selo)
Acquisition of property by means of share deals are, as a general rule, not subject to Property Transfer Tax, nor to Stamp Duty. As way of exception Property Transfer Tax is triggered by the acquisition of more than 75% of the share capital of a Portuguese company, whose assets are comprised in more than 50% by real estate located in Portuguese territory, as well as of the units of a privately placed closed-end real estate investment fund (“fundo de investimento imobiliário fechado de subscrição particular”), which own real estate located in Portugal.
Property Transfer Tax will be triggered in the following transactions:
(i) acquisition of, at least, 75% of the share capital of a private limited liability company (“sociedade por quotas”) or of (ii) public limited liability company (“sociedades anónimas”) if:
- (i) More than 50% of the assets of the company consist of real estate located in Portuguese territory;
- (ii) The real estate assets are not used or exploited for agricultural, industrial or commercial activities, with exception for buying and reselling real estate (compra para revenda); and
- (iii) As a result of this acquisition the shareholder holds, at least, 75% of the share capital or the number of shareholders is reduced to two married people or under a civil union (“unidos de facto”)
The State Budget for 2021 has excluded for this purpose companies with shares admitted to trading on regulated market.
(ii) acquisition of units of a private placed closed end real estate investment fund (“fundo de investimentos imobiliários fechado de subscrição particular”) when one of the investors acquires, at least, 75% of the units of the fund.
Notary and registration fees
No notary or registration fees are payable in a share deal, except in case of acquisition of an interest in a limited liability company (“sociedade por quotas”), where registration with the Portuguese Companies Registry is required and, consequently, the payment of the respective registration fees is due. The value of these fees is negligible.
In light of the above, an indirect acquisition of real estate, through the acquisition of the share capital of a limited liability company by shares (“sociedade anónima”) owning such real estate property, is normally considered the most efficient way to invest in the Portuguese market. Nonetheless, a final decision on the transaction structure should be taken on a case - by – case basis.