Apart from the standard direct acquisition of the asset (asset deal), investors tend to structure their investments by resourcing to indirect acquisition solutions (share deal), through different alternatives, as detailed below.
Corporate vehicles mainly include public limited liability companies (“sociedades anónimas”) and private limited liability companies (“sociedade por quotas”).
Companies incorporated under the form of public limited liability companies, have the following main features:
- (i) shareholders: a minimum of five shareholders or a single shareholder corresponding to a company;
- (ii) share capital: minimum of € 50.000,00 (fifty thousand euros);
- (iii) Corporate bodies (most common scheme): sole director or board of directors, sole auditor or auditing committee, general meeting (president and secretary).
Companies incorporated under the form of private limited companies, have the following main features:
- (i) share capital: minimum value for each quota of € 1,00 (one euro);
- (ii) Shareholders: minimum of two shareholders or a single shareholder (where the quotas are held by one individual – in this case its designation shall include the mention “sociedade unipessoal por quotas”);
- (iii) Corporate Bodies (most common scheme): sole manager or management board.
Collective Investment Undertakings
Introduction and Legal Structures Available
Real Estate Collective Investment Undertakings may correspond to (i) real estate investment funds (REIFs) or to (ii) real estate investment companies (SIIMOs), both types may have closed-ended/fixed capital or open-ended/variable capital, being REIFs represented by units and SIIMOs represented by shares.
Furthermore, SIIMOs may be self or externally managed. REIFs and externally managed SIIMOs need to engage an independent fund manager, duly authorized by Bank of Portugal and the Portuguese Securities Market Commission (CMVM), to manage their asset.
In Portugal, REIFs are the usual adopted structure, with a tested track-record, although in recent years it is noticeable a trend towards the conversion of standard commercial companies that invest in real estate into externally managed SIIMOs due to tax reasons.
REIFs and SIIMOs need to have a net asset value of at least € 5,000,000, after the first twelve months of activity. Privately subscribed REIFs/SIIMOs or REIFs/SIIMOs that only target professional investors are exempted from this limitation.
In addition to the limit above, SIIMOs need to have a minimum paid-up share capital of € 50,000 or € 300,000, depending on whether they are externally or self-managed, respectively.
The number and type of investors will impact the requirements regarding the portfolio composition and the leveraging limits of REIFs/SIIMOs. Nevertheless, real estate assets (i.e. property, units of other REIFs and shares of other SIIMOs or real estate companies) cannot represent less than two thirds of the total asset value.
The authorization proceeding for the setting up of REIFs and SIIMOs is filed with the CMVM. The authorisation is granted within 20 business days (or 40 business days in the case of self-managed SIIMOs) upon the receipt by CMVM of the complete application documents. The authorisation is considered to have been tacitly granted if at the end of such period CMVM remains silent. REIFs will be fully set up from the moment the first subscription is settled and SIIMOs are deemed set up from the moment the articles of association are registered with the Commercial Registry Office.
Fund managers are subject to the Bank of Portugal’s supervision concerning prudential matters and to CMVM’s supervision in respect of market conduct rules. Nevertheless, it is expected that during 2020 the full scope supervision powers of fund managers, REIFs and SIIMOs will be concentrated in CMVM.
It is due to CMVM a set-up fee of € 2,500 in respect of REIFs and externally managed SIIMOs and a fee of € 7,500 in case of self-managed SIIMOs. It is also due to CMVM an ongoing monthly fee of 0.026 ‰ applied over the net asset value of the vehicle, on the last day of each month, in an amount ranging between € 200 and € 20,000.
Portuguese REITs: Sociedades de Investimento e Gestão Imobiliária (“SIGIs”)
The Portuguese REIT regime was enacted in 2019, in order to create an additional instrument to attract local and foreign investment for the acquisition of real estate assets and projects mainly focused on the lease market.
SIGIS must follow certain mandatory rules, notably, (i) they shall adopt the form of public limited liability company by shares (sociedade anónima), (ii) they shall have a limited corporate purpose and its activities are restricted to investing in real estate assets for a certain purpose (mainly lease) and/or companies or collective investment undertakings that pursue a similar corporate purpose, (iii) they shall abide to certain limits to its portfolio composition and indebtedness level, (iv) their shares must be admitted to trading on a regulated market or selected for trading in a multilateral trading facility located in Portugal, in other Member Estate or in the European Economic Area and (v) they shall abide to mandatory thresholds for the distribution of dividends and mandatory rules on reinvestment of net profit obtained from the disposal of real estate assets.
Lease income generated by a Portuguese company forms part of the taxable profits and is subject to Corporate Income Tax at a rate of 21%.
In addition to the Corporate Income Tax, there is also a municipal surtax ranging between 0% and 1.5% on the annual taxable profit (applicable before tax loss deduction).
Moreover, for taxable profits exceeding certain values, there is still a state surcharge:
- 3% for taxable profits exceeding €1,500,000 and up to €7,500,000;
- 5% for taxable profits exceeding €7,500,000 up to € 35,000,000;
- 9% for taxable profits exceeding € 35,000,000.
All expenses relating to the lease activity – i.e. not only maintenance and repair expenses and Municipal Property Tax, but also depreciation charges plus financial costs – are generally tax deductible with certain limitations (please refer to “real estate financing” section).
Portuguese permanent establishments and companies are entitled to certain tax credits, and to carry forward tax losses (currently through a period of 5 years but limited to 70% of the annual taxable profits for losses originated).
It is expressly foreseen that there cannot be any kind of deductions to the total amount of autonomous taxation, even if those deductions are foreseen in special legislation. Autonomous taxation applies at different rates on certain expenses incurred by entities subject to Corporate Income Tax (such as, for example non-documented expenses, at a 50% tax rate; representation expenses, at a 10% tax rate and expenses incurred with vehicles, at taxes rates ranging from 10% to 35%). It is self-assessed in addition to Corporate Income Tax (even if no Corporate Income Tax is due), at variable rates.
Capital gains realized upon the sale of property by a Portuguese resident company are subject to Corporate Income Tax at a rate of 21% (plus the aforementioned surtaxes, where applicable).
Upon the sale of the Portuguese SPV, capital gains realized by the non-resident investor (shareholder) are subject to income tax (Personal Income Tax or Corporate Income Tax depending on the investor being a natural or legal person). Such capital gains will be subject to Corporate Income Tax at a rate of 25% (or to Personal Income Tax at a rate of 28%). The taxation of the capital gains may be eliminated pursuant to a domestic exemption foreseen in the Tax Benefits Code or pursuant to a double tax treaty, subject to certain conditions and formalities. However, provided that more than 50% of the Portuguese SPV’s assets are real estate properties located in Portugal, the domestic exemption and the majority of the double tax treaties executed by Portugal foresee that the capital gains remain taxable in Portugal.
Dividends distributed by a Portuguese SPV to the respective shareholder(s) are generally subject to income tax. Nonetheless, pursuant to the “participation exemption” regime, a Corporate Income Tax exemption is granted provided certain requirements are complied with. The main requirements are the following:
- (a) The recipient of the dividend distributions holds at least 10% of the share capital or voting rights over the Portuguese SPV;
- (b) The said shareholding was held for at least 1 year prior to the dividend distribution;
- (c) The shareholder is a company resident in Portugal, in another EU or EEA member state, or a third country with a double tax treaty in force with Portugal and is subject to Corporate Income Tax at a rate higher than 60% of the Portuguese Corporate Income Tax rate (i.e. 12.6%).
Collective Investment Undertakings
Collective Investment Undertakings are subject to Corporate Income Tax at the general corporate tax rate (currently set at 21%). No municipal tax or state surtax will apply.
The taxable income of Collective Investment Undertakings corresponds to the net profit assessed in accordance with their respective accounting standards. However, investment income, rents and capital gains (except when sourced in a blacklisted jurisdiction) are disregarded for profit assessment purposes. As a consequence, expenditure related to the disregarded income is also not tax deductible against the taxable profit of the Collective Investment Undertakings.
Collective Investment Undertakings are also subject to Stamp Duty on a quarterly basis. Stamp Duty is levied at a rate of 0.0125% on the Collective Investment Undertakings’ net asset value.
At the investor level, the distribution of profits and the capital gains derived from the sale of Collective Investment Undertakings is subject to withholding tax as follows:
- resident individuals are subject to a 28% withholding tax rate;
- resident companies are subject to a 25% withholding tax rate; and
- non-resident individuals or companies are subject to a 10% withholding tax rate.
Since January 2019, the regime applicable to the Collective Investment Undertakings was also extended to SIGIs, with a particularity regarding capital gains deriving from the sale of properties. Capital gains deriving from the sale of properties may only be disregarded for profit assessment purposes when such properties have been used for rental purposes or other forms of services necessary for the properties’ use for at least three years.
Please note, however, that the application of such regime depends on the compliance of the SIGI with the formal requirements described above in order to qualify as a SIGI from a legal and regulatory standpoint.