P
ortugal’s real‑estate sector continues to attract foreign direct investment, especially in hospitality, student accommodation, and mixed‑use projects that blend branded residences with boutique resorts. The country’s tax regime is among the most competitive in Europe, but to unlock its full benefits investors must structure deals early, aligning corporate income tax (CIT), value‑added tax (VAT), and property duties with the project’s financing and exit plans. This guide offers practical, market‑ready tactics, concentrating on vehicle selection for CIT and VAT optimisation while preserving commercial goals.
### Choosing the Optimal Vehicle for CIT
Corporate special purpose vehicles (SPVs) are the default choice for many investors because they are familiar and easy to manage. However, the projected reduction of Portugal’s CIT rate—from 20 % in 2025 to 17 % in 2028—combined with global supply‑chain volatility and economic uncertainty, can increase the long‑term tax burden on SPVs.
To mitigate this risk, the market is shifting toward fund‑like structures similar to Luxembourg’s SICAFIs (SICs). SICs enjoy a special tax regime that exempts rental income, capital gains, and investment earnings from CIT at the vehicle level; taxation is postponed until distribution or exit. This deferral shifts the tax load to the investor’s own tax base and can significantly enhance cash compounding during the holding period.
SICs are versatile: they support build‑to‑rent and operational rental models, and they can facilitate buy‑to‑sell strategies across real‑estate and securities. For non‑resident investors, withholding tax on distributions from real‑estate SICs is capped at 10 %, and can drop to 0 % for vehicles investing in securities, compared with 25 % on standard SPVs.
The trade‑off is higher operating costs. SICs require a fund manager, extra compliance, and an annual stamp duty of 0.0125 % on net asset value. Because they cannot conduct day‑to‑day operations, SICs are often paired with operating SPVs (OpCos) that manage the assets. This structure enables joint ventures between institutional investors focused on real‑estate ownership and regional or global operators who run resorts, branded residences, office parks, or short‑to‑long‑term rentals. Governance can be tailored to each project, and financing can combine bank facilities with Interbolsa notes, offering a tax‑friendly environment for foreign lenders, especially alternative financiers.
Portugal’s application of the EU Parent‑Subsidiary and Interest & Royalty Directives to SICs is still evolving. Tax authorities have expressed a restrictive stance on whether SICs qualify for withholding‑tax exemptions under these directives. Investors may challenge this interpretation, potentially reducing the withholding‑tax leakage on profit distributions.
### VAT Planning for Cash Flow and Recovery
Real‑estate acquisitions and leases in Portugal are typically VAT exempt, leaving developers with unrecoverable input VAT on construction or refurbishment costs. This can erode returns, particularly for SICs that rely on a CIT exemption for real‑estate income (rents and capital gains). Careful structuring is required to recover VAT without compromising the CIT exemption.
Portugal, following EU practice, permits a waiver of the VAT exemption under specific conditions: both parties must be VAT‑able entities with a deduction right exceeding 80 %, and the asset must have been used exclusively for VAT‑able activities throughout its life. When these criteria are met—such as in a build‑to‑rent project—the waiver can be highly effective and compatible with SIC structures focused on operational rental income.
Two sectors illustrate VAT challenges:
1. **Tourist resorts with dual ownership** – Developers sell completed units to private individuals (VAT‑exempt) and operate them as tourist accommodation (VAT‑able). The timing and nature of each activity create uncertainty about VAT treatment.
2. **Hotel operator share deals** – An acquirer refurbishes a hotel and leases its operation to another entity. The lease income falls under the SIC tax exemption, but refurbishment VAT may not be recoverable because the lease and potential unit sales are VAT‑exempt and do not meet the waiver criteria.
Mitigation hinges on meticulous transaction design. Strategies include transferring a going concern, leveraging European and Portuguese case law to support input‑tax deductions, obtaining advance rulings from tax authorities, adopting hybrid operating models, and dynamically managing VAT pro‑rata based on project phases and intended uses. These measures can improve VAT neutrality while preserving the CIT regime for SICs.
By integrating early vehicle selection, aligning CIT and VAT strategies, and exploiting Portugal’s favourable tax environment, investors can protect value and achieve commercial objectives in the country’s thriving real‑estate market.
