Holding and exit taxes in Portugal

From the deed until the last unit is sold, the project pays to own the asset. These costs are small per month and large over a long licensing period.

• municipal property tax (IMI) on the articles held
• additional property tax (AIMI) where the ownership position brings it into scope
• insurance on land, works and, later, completed unsold units
• security and maintenance
• condominium charges once units are constituted and before they are sold
• accounting, audit and statutory compliance for the vehicle
• professional retainers and development management overhead.

These lines belong in the cash flow month by month. Expressed as a single annual figure they look trivial; spread across a three-year cycle with a delay they are not.

A Portuguese project company is taxed on its profit under the corporate income tax regime, with municipal and state surcharges applying depending on the level of taxable profit and the municipality. The taxable result is not the developer's cash margin: timing differences, capitalisation of costs, financing deductibility limits and loss treatment all affect it.

Three consequences for the model:

• tax should be calculated on a projected taxable result, not applied as a flat rate to the cash margin
• the timing of the tax payment matters, because it can fall before the final sales proceeds arrive
• distributions to shareholders raise a separate question of withholding and treaty treatment, particularly for non-resident investors.

SALES-SIDE COSTS TO MODEL

• agency commission, calculated on gross sale value
• marketing: brand, imagery, CGIs, website, show unit, portal listings
• legal costs on promissory contracts and deeds
• energy certificates, technical file and any certifications buyers require
• the cost of holding unsold units, including condominium charges and IMI
• any incentives or contributions offered to close sales in a slower market.

These are typically modelled as a percentage of gross development value and are frequently understated, particularly the marketing spend on a first scheme in a new market.

Three exit routes exist for a completed development, and they are taxed and negotiated differently.

Selling finished units individually produces the highest gross value but takes the longest, carries the most transaction cost, and extends the finance period.

Selling the completed asset as a whole is faster and simpler, usually at a discount to aggregated unit values, and attracts institutional buyers whose diligence focuses on the asset and the income.

Selling the shares in the project vehicle transfers the entity as well as the asset. It changes the tax analysis for both parties and shifts diligence onto the company's history — funding, contracts, tax filings, liabilities — rather than only the building.

The route should be identified at structuring stage, because it constrains how the vehicle must be run throughout the project.

A project company intended for a share sale must be kept clean from day one:

• one project per vehicle, with no unrelated assets or liabilities
• complete and current corporate records, filings and beneficial ownership register
• every funding movement documented at the time it occurs
• contracts drafted so warranties and defect liabilities are assignable
• the planning file, technical file and utilisation licence complete
• tax filings up to date with no open positions
• a title position that matches the registry, the tax record and the survey.

• Applying a flat tax percentage to the cash margin instead of modelling the taxable result.
• Ignoring holding costs across a long licensing period.
• Underestimating marketing spend on a first project in an unfamiliar market.
• No plan for unsold units at facility maturity.
• Deciding between an asset sale and a share sale only when a buyer appears.
• Reconstructing corporate and technical records during buyer diligence, at cost and with price retentions.