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Government Wants Fiscal Mechanism to Facilitate Urban Renewal Partnerships

28 September 2017

The Government is studying the creation of a new tax mechanism that promises to simplify and facilitate partnerships created for the renovation of degraded urban properties. The Secretary of State for Fiscal Affairs, António Mendonça Mendes, gave the notice at a dinner with real estate industry players held at the Portugal Real Estate Summit, which recently took place in Estoril.

The Portuguese government is in favour of “attracting investors with different profiles” to accelerate its commitment to urban renewal. In that sense, it is “assessing the introduction of Limited Liability Partnerships (LLP)” in Portugal, the Secretary revealed, as reported by Público.

Inspired by the English tradition of LLPs, António Mendonça Mendes’ proposal is based on the creation of a corporate vehicle somewhat like a consortium, where taxation is directed towards the partners and their corresponding participations, the publication reported. Público also noted that LLPs – which have been highly successful in the UK – are corporate structures in which partners limit their liability relative to other members.

The advantage of establishing a company as LLP is mainly fiscal since this type of business is taxed as partnerships, plus the limited liability of each shareholder. Each partners’ responsibility is limited to their participation.

This type of structure may be especially attractive to smallholders who, although interested in renovating their properties, often lack the financial capacity or sufficient knowledge to invest in this type of project. This is the thinking of real estate industry sources cited by the publication.

APPII supports measure

The Portuguese Association of Real Estate Developers and Investors (APPII) supports the bill, as it is competitive on a European and global level.”

According to Hugo Santos Ferreira, secretary general of the association, believes that “we should applaud the creation of new investment mechanisms whose taxation is based on results (as has already been done in other countries for a long time) and each investor.” “Also, it’s important that the measure gives small investors access to major real estate projects,” he said.

And how can a partnership be set up? An LLP is constituted, for example, by a property owner who wishes to have his property renovated and by a construction company that will undertake the renovation, establishing the participation of each partner for taxation purposes. If for example, the property accounts for 30% of the partnership and the construction work for 70%, the owners would be taxed on 30% of the proceeds from the sale based on their current tax regime, while the construction company would face the remaining taxation, again, under their tax regime.

Original Story: Idealista

Translation: Richard Turner