Oscar Valdez, a Mexican high net-worth individual is planning to invest in new recreational and tourist facilities (spa resort, golf links, holiday cottages, restaurant, etc.) in Portugal. Part of the investment will be wholly-owned by Mr. Valdez, part of the investments will be made together with local Portugal investors. The development of the various sites may take several years after the acquisition of land and property and hence, the business operations are expected to commence after the development of the sites has been completed (depending on the type of facility, after one to five years).
Mr. Valdez is interested in structuring his investment in such a manner that: the assets wholly or partly owned by him in Portugal are well protected against various business, economic or political risks; and the return of his investment after the commencement of the business operations is tax effective.
Mr. Valdez could split the business operations and the real property by setting-up separate companies for the various business operations and for the real property. The real property companies are then renting out the property to the operational companies.
The rental income will be subject to corporate tax in Portugal at a rate of 28%, regardless as to whether the real property company is resident in Portugal or not. Additional taxes will be due if the real property companies are established in “black-listed” offshore jurisdictions. During the development phase, the operational companies will have accumulated losses. If the real property companies are resident in Portugal, both the real property companies and the operational companies can be held by a Portuguese holding company. In this way, the entire group can claim group relief under Portuguese law, as a result of which the profits of the real property companies can be offset against the initial losses of the operational companies, thus minimising exposure to Portuguese tax.
If the Portuguese holding company is owned by a foreign holding company under such conditions that dividends will Not be subject to withholding tax on dividends Not be subject to corporate income tax upon receipt by the holding company (or are qualifying for a credit for Portuguese underlying taxes) Not be subject to withholding tax on dividends paid by the holding company then this would result in an effective tax planning solution. The effectiveness is further increased if the international holding company is owned by an IBC or a tax-exempt company in an offshore jurisdiction.
These conditions would be met if the Portuguese company is owned by a UK holding company, the latter being owned by a company on the BVI, as illustrated by the diagram below.
Note: A holding company in, for example, Cyprus, would not work as long as Cyprus is black-listed under Portuguese law.