Structuring the project vehicle in Portugal

Developers frequently treat the ownership structure as paperwork to be resolved once the site is secured. In practice the structure determines four things that cannot easily be undone: who bears liability, how the project can be financed, how profit is taxed and distributed, and how the asset can be transferred at exit.

Restructuring after acquisition is typically treated as a new transaction, with its own costs and registrations. That is why the decision belongs before the promissory contract, alongside the feasibility and the legal due diligence.

The questions that drive it:

• How many parties are investing, and on what terms?
• Is there external debt, and what will a lender require?
• What is the intended holding period and exit route?
• Are the participants resident or non-resident, individuals or entities?
• Is there an existing portfolio that the project should sit alongside, or apart from?

Direct ownership by one or more individuals is simple and cheap to establish. It can suit a single small project with no external debt and no partners, where the intention is to build and sell quickly.

A dedicated project company — a special purpose vehicle — is the standard structure once any of the following are present: bank finance, co-investors, multiple phases, an intention to sell the project as a whole, or a desire to ring-fence liability away from other assets.

WHAT A PROJECT COMPANY GIVES YOU

• a clean perimeter for the project's assets, liabilities and accounts
• a single counterparty for the lender, the contractor and the design team
• a governance framework for decisions between investors
• the option of a share sale at exit rather than an asset sale
• a defined place for profit to accumulate and be distributed
• continuity if a participant needs to be replaced.

The cost is administration: incorporation, accounting, filings, statutory audit thresholds and the discipline of keeping the entity's affairs separate from its owners'.

The two entity forms most used for development in Portugal are the sociedade por quotas (Lda) and the sociedade anónima (SA).

An Lda is the standard vehicle for most projects: simpler governance, ownership held in quotas, straightforward management structure. It suits a small number of known investors.

An SA is a share-based structure with more formal governance, typically chosen where there are more investors, an expectation of share transfers, institutional participation, or a structure designed for future capital raising.

The choice affects transfer formalities, governance requirements, disclosure obligations and how a future buyer will view the vehicle. It should be tested against the exit route rather than against present convenience.

• tax identification numbers (NIF) for the entity and, where required, for the participants
• incorporation and registration in the commercial registry, with the certificate available for counterparties
• the beneficial ownership declaration (RCBE), kept current
• bank account opening, which for foreign shareholders can take considerably longer than expected and should be started early
• registration for tax purposes, including the VAT position
• appointment of a certified accountant, mandatory for Portuguese companies
• tax representation arrangements where participants are non-resident.

Bank onboarding is the item that most often delays completion. Institutions apply detailed source-of-funds and beneficial-ownership checks to development vehicles with foreign shareholders, and the process cannot be compressed at the end.

Where more than one party is investing, the shareholder or joint venture agreement is the document that prevents the ordinary disagreements of a development project from becoming disputes.

TERMS THAT SHOULD BE AGREED IN WRITING

• the funding split, the timing of contributions and what happens if a party fails to fund
• whether funding is equity, shareholder loan, or a combination, and the return on each
• decision thresholds — which matters require unanimity and which are delegated to management
• appointment and removal of managers, and the scope of their authority
• the budget and the process for approving variations and cost overruns
• deadlock resolution
• transfer restrictions, pre-emption rights, drag-along and tag-along
• the exit trigger, valuation mechanism and distribution waterfall
• reporting: what information is produced, how often, and to what standard.

The distribution waterfall deserves particular attention. Development returns arrive late and unevenly, and the sequence in which loans, preferred returns and profit shares are repaid materially changes each party's outcome.

Every euro entering the vehicle should be documented at the moment it moves, not reconstructed later for the bank or the auditor. That means written shareholder loan agreements with defined terms, formal capital contributions properly registered, and intercompany service arrangements documented at arm's length where a group provides development management.

Poor funding documentation causes concrete problems: banks refuse to treat undocumented injections as equity, tax authorities question deductions, and buyers' due diligence at exit turns unexplained balances into price retentions.

The vehicle's tax position must be established before the transaction, not discovered during construction. Two areas matter most at structuring stage.

Acquisition taxation applies to the purchase itself, and the treatment depends on what is bought, by whom, and in what form. The transaction should be modelled at the correct rate, with the tax paid before the deed and rarely financed.

VAT on construction is a cash-flow question. Whether input VAT on the works can be recovered depends on the nature of the vehicle's activity and the treatment of the eventual sales. A structure that leaves construction VAT unrecoverable can absorb a large part of the project margin, and the position must be confirmed with a Portuguese tax adviser before the build contract is signed.

The holding period brings municipal property tax, and the exit brings corporate taxation on the gain, withholding considerations on distributions, and treaty analysis where investors are non-resident.

The exit route should shape the structure, not the other way round. Selling finished units one by one, selling the completed asset, and selling the shares in the project company are three different transactions with different tax outcomes, different buyer pools and different due-diligence burdens.

A vehicle intended for a share sale has to be kept clean throughout: single project, no legacy liabilities, complete corporate records, documented funding, tidy contracts with assignable warranties, and a full technical and planning file. That discipline costs little during the project and is very expensive to retrofit at the point of sale.

• Buying personally with the intention of transferring to a company later.
• Signing a promissory contract before deciding who the buyer will be, with no assignment right.
• Non-resident participants without the required Portuguese tax arrangements.
• Bank account opening started after the promissory contract, delaying completion.
• An out-of-date beneficial ownership filing blocking a deed or a drawdown.
• Equity injected with no loan agreement, creating an unexplained balance at exit.
• No documented decision process, so a cost overrun becomes a shareholder dispute.
• A VAT position assumed rather than confirmed before the construction contract.