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Real Estate Companies with Housing Stock Pay Millions in AIMI Tax Bills

17 August 2017

 

Property developers begin to receive AIMI tax bills.

Business-related buildings or those used for services, commerce or industry are exempt from the IMI surcharge, not residential buildings

Real estate development companies, some with dozens of houses in stock waiting for an opportunity to sell, are being required to pay the IMI surcharge by Portuguese tax authorities. The tax surcharge covers properties that have already exhausted the three-year exemption granted to them by the new law. There are cases in which companies that are dedicated to purchasing existing homes or land for development and later resale have been receiving bills in the millions of euros.

“Many brokers with assets in their portfolios are being required to pay the surcharge, and the amounts being charged are not low. We are talking about charges of 30, 40, or even 50 thousand euros for properties that are already very difficult to sell,” Luís Lima, president of APEMIP, acknowledged in statements to Dinheiro Vivo. He added that this new surcharge, levied by the Portuguese treasury, constitutes a new financial shock to an industry that is only now beginning to recover from the crisis. “This IMI really scares me, especially since there is no expectation that it will be dropped in the Portuguese government’s next budget,” he adds.

Before buying property for later resale, companies may request exemption from the Municipal Tax on Onerous Transactions (IMT) and, after the actual acquisition, may request exemption from the IMI payment covering the same period. “The law stipulates that if this IMI exemption – which is granted within the scope of the company’s activity – has been requested, there is also no requirement to pay the IMI surcharge,” António Gaspar Schwalbach, head of Telles’ tax department, told Dinheiro Vivo.

The AIMI rules provide that the taxable amount corresponds to the total amount of assets declared on January 1 of the year to the IMI surcharge is related, but also determine that “any amounts” related to “any buildings that were exempted or not subject to IMI tax in the previous year” will not be included in tax bill calculations.

Barring any exemptions, the Tax and Customs Authority checks the amounts and sends the tax bill, which in this case implies a tax charge equal to 0.4% of the value of housing properties and land for construction.

Between the initial version of the law creating the IMI surcharge and the version that was eventually adopted, there was an extension of the exemptions that had been previously granted to the companies. This means that if the properties are linked to the company’s business activities, or whenever the properties are licensed for services, commerce or industry, the IMI surcharge should not be billed.

But this benefit leaves out companies that own real estate for residential development. As several real estate companies and developers own entire buildings which are then put up for sale, the companies are now liable for tax bills in the millions of euros, causing widespread consternation. António Gaspar Schwalbach considers that this distinction is difficult to understand and fiscally discriminatory.

Only rented properties are considered exempt from this rule. “Entities that have rented properties may deduct the corresponding IMI surcharge from the IRS or IRC (individual and corporate income taxes) levied on their incomes,” said Ricardo Reis of Deloitte, adding that “as a rule there are no exclusions or exemptions for ‘real estate companies'” and other companies that engage in the purchase of real estate for resale.

The controversy surrounding the AIMI is increasing after the nearly 212,000 tax bills started being distributed this month have caught many taxpaying couples unprepared. And the Finance Ministry has yet to deliver a solution that had been “promised” to those who did not deliver a statement on time that would have allowed them to “divide” the property between both spouses, thereby allowing them to their exemption from the tax from 600,000 to 1.2 million euros.

Original Story: Dinheiro Vivo – Ana Margarida Pinheiro / Lucília Tiago

Photo Credit: Filipe Amorim / Global Images

Translation: Richard Turner