Recent interest from the international financial and investment community in Portuguese real estate has motivated the Portuguese Government to introduce a new investment vehicle, exclusively dedicated to real estate investment.
Introduced in February 2019, the 'Sociedades de Investmento e Gestao Imobiliaria', ('SIGI') introduces a number of features generally associated with Real Estate Investment Trusts.
The SIGI is a new type of real estate company designed to acquire and/or manage, commercial or residential, properties within the rental market.
The tax framework mirrors that of another investment vehicle, the 'OIC - Organismos de Investimento Colectivo', and the tax benefits relevant to the latter are also applicable to SIGI's, and regulated by the Portuguese Company Code.
The Advantageous Tax Regime
A key advantage of an SIGI is its tax framework.
The goal is to attract small investors and to provide them with re-assurance that, as long as there are profits to be distributed, they will benefit from them. The Law therefore states, that 9 months following the end of the tax year, the SIGI should pay, as dividends:
90% of the profit arising from; dividends, income generated by its own shares, or income generated by other shares or units (when the SIGI holds the shares of other SIGI's, or units in an investment fund); 75% of the profits generated by the direct real estate activity; In addition, at least, 75% of the net profit resulting from the sale of assets under the management of the SIGI, must be reinvested. This reinvestment should be made in other assets, within a 3 year period. Failure to comply with any of the above requirements will result in SIGI status being withdrawn, for a minimum of 3 years.
Corporate tax, applicable to the profits of the SIGI, is at a rate of 21%.
However, in calculating the net profit, the following sources of income are NOT included:
Capital gains; Income arising from real estate (including rental income); Income arising from capital. These exemptions are not available, if the source of the income is a country considered to be a tax haven by Portugal.
In relation to withholding tax:
If the investor is an individual tax resident in Portugal, withholding tax at a rate of 28% is applicable, when dividends are paid; If the...