We are often asked about the various options and structures of owning a property abroad through a company.
The theory is that if you put a property abroad into the name of, for example, a British company, then should you sell the property or should you die then you don’t transfer the property but instead simply transfer the company to the new owner and in the process potentially save a lot of costs, which in many foreign jurisdictions, can be surprisingly high.
Some of the advantages of buying a property abroad through a company are;
- The transfer costs of transferring the property to somebody else either by way of a sale, gift or inheritance is much cheaper. There are no Notary fees. There is no transfer tax. There is no land registry fees. This is because the overseas property stays in the name of the company and as far as the land registry and tax office in the country where the property is located is concerned the property is still registered in the name of the company.
- There is no new title deed as the property stays in the name of the company. Remember, you are simply transferring the shares in the company to somebody else.
- Depending on how this is set up and the countries involved there can be significant tax savings to be made in terms of income tax, capital gains tax and inheritance tax.
- Depending on how this is st up and depending on the countries involved, it may be possible to offset the costs of running the property against corporation tax.
Of course there are also some potential disadvantages to owning an overseas property in the name of a company;
- It costs more to set up the structure. You have to first form the company. You are likely to have to translate the company documents into the local language and will almost certainly need an Apostille on any documents for use abroad.
- There are costs associated with running the company every year. In addition to the normal running costs of a property (rates, insurance, maintenance etc) you also have to keep the company going every year and in some countries have to pay a special tax for the privilege of owning a property in the name of the company. These annual costs add up over the years and may actually equate to more than the taxes that you were trying to save in the first place.
- There may be some sort of “benefit in kind” tax payable on use of the property by you and your employees. Whether this applies will depend again on the various countries involved and also whether the company trades in other activities as well as owning the property abroad.
- It is more complicated to buy. In addition to setting up the company it is also necessary to get the Certificate of incorporation and Mem & Arts translated into the foreign language. The company will need a fiscal number in that foreign jurisdiction and the company will need to grant a Power of Attorney to somebody to sign on its behalf - even if you are going to sign the title deed yourself.
- It can put off potential buyers. One of the advantages of buying through a company is the potential to legally avoid Capital Gains Tax in that foreign country as the property does not change ownership and still remains in the name of the company. However, not everybody wants to buy in the name of a company. If you find a buyer who doesn’t want to buy in the name of a company then there is only a couple of options available to you – either the company sells the property, which negates all the advantages that you were trying to get by way of company ownership, or the sale falls through. We have seen numerous sales fall through as the seller wanted to sell the company rather than the property and the buyer didn’t want to buy a company.
- Tax systems and laws change. Many years ago for example most people buying properties in Portugal purchased through a company. Portugal then introduced a law which made this much less advantageous and overnight all those people who had properties in the name of companies spent a further amount of legal fees, costs and taxes transferring the properties out of the name of the company and into their individual names.
Buying a property in the name of a company is not for everybody. For some people it can be a good idea and can save quite a bit of tax. For other people it is an unnecessary expense and complication and may actually end up costing more than other options and being less flexible at the same time.
The calculation as to whether this is a sensible form of ownership is very individual and takes into consideration a whole range of different factors. Anybody who tells you that this is a solution that works for everybody either doesn’t understand the situation or is trying to encourage you to do this for their own advantage rather than yours as they are likely to be looking at picking up the company formation business to look after the company every year.
It is also important to look at the exact structure of company ownership to establish if this is the best way for you to buy a property abroad. Even if you decide to advance this structure, there can be several additional options ranging from having one single company owning the asset to a more complicated structure with several different layers.
It is also possible to look at different jurisdictions for the companies including the UK, Gibraltar, the Isle of Man, and Jersey. Each of these options has various advantages and disadvantages although it is worth remembering that the various governments around the world are trying to cut down on corporate ownership because it not only reduces the tax income that they receive, but is also a good way of money laundering or perhaps helping undesirable people own properties that they would not otherwise be allowed to do.
Generally we try and keep things simple and try and stay away from company ownership of overseas properties unless there is a good reason why this is necessary. Such reasons include;
- You may have a successful business that you own completely and would therefore pay quite a bit of tax if you took the money out of the business to buy the property. Part of the reason for buying the property may be for the benefit of your employees
- The country in which you are buying won’t allow foreigners to own property in their individual names and therefore you have to buy through a company
There can be all sorts of reasons why you may decide to buy a property abroad through a company but it is important to take advice on this before you do so as the decision as to whether this is right for you or not is not always obvious and buying a property overseas through a company is not the right decision for everybody.
Further to the above, in some countries they have laws which allow them to look through corporate structures and treat the situation as it is rather than the way that it is presented.
If you would like to know more about owning a property abroad and whether any form of corporate structure makes sense, you can contact a solicitor in our international property team.
Disclaimer – International legal issues are a complex area of law and this information is no substitute for independent legal advice on an individual basis taking into consideration your personal circumstances and legal requirements. This information is provided to provide general information only and was correct at the time of publishing. The legal position in relation to international transactions can change frequently and this page may not have been updated following any changes in the law. You should therefore not rely on this information and should seek legal advice in relation to your personal circumstances.