Financing a Real Estate Transaction in Portugal

Raizers, a real estate crowdfunding platform, gives you access to investment opportunities in Portugal. It’s a great way to further diversify your investments while still investing in the same type of financial product.

The opening of this market is accompanied by an in-depth analysis of its technical, administrative, legal, and tax-related specifics. Here is a summary of the key things to know about real estate in Portugal.

A Unique Structure

As part of a real estate project in Portugal, and in order to use crowdfunding on Raizers, a specific structure must be put in place. This is because, pending the granting of European authorization (PSFP), Raizers cannot raise funds directly on behalf of a Portuguese company.

That is why a company wholly owned by Raizers SAS must be established. This company acts as the issuer and raises the funds. These funds will then be transferred to the Portuguese company carrying out the project through a loan agreement. This agreement, entered into between the Portuguese company and the company established by Raizers, mirrors all the terms and conditions of the bond agreement.

Beyond this specific structure, Portugal has legal, administrative, and tax rules that differ from those we are familiar with in France.

A Regulated Insurance System

The Portuguese government requires several types of insurance for real estate transactions. These differ somewhat from those required in France.

First of all, all real estate properties must be insured against fire. This requirement is less applicable to real estate development projects, since such insurance must be purchased only after construction is complete. Therefore, it will be purchased only upon completion of the project and for the units still available for sale.

However, this insurance is essential in real estate investment transactions when the property was already part of the portfolio prior to the transaction.

The law also requires the purchase of “Civil Liability for Responsible Technicians” insurance, similar to the “Professional Liability” insurance required in France. This coverage applies to all damages (resulting from acts, omissions, or negligence) caused to a third party in the course of the insured company’s business.

Mortgaged properties must also be covered by a specific insurance policy that covers all risks related to the nature of the mortgaged property.

The imposition of an additional tax

In Portugal, interest on loans between two entities (other than banks) is subject to taxation. This tax must be withheld at source directly by the borrower and amounts to 25 percent of the interest.

In addition to these taxes, there is a stamp duty, the amount of which depends on the term of the loan and ranges from 0.04% to 0.6%.

An exemption from this tax and this stamp duty is possible under certain conditions (parent-subsidiary tax regime, tax rules applicable within a corporate group, double taxation treaty).

This exemption is difficult to apply in the context of crowdfunding on Raizers.

To offset this tax, the rate agreed upon between Raizers and the operator is higher than the rate displayed on the platform and the rate paid to investors. The interest rate agreed upon between the Raizers SPV and the Portuguese company includes the interest tax, which is withheld at source and paid directly by the operator to its tax authority.

This tax structure is therefore transparent to investors, as the rate displayed on the platform corresponds to the expected rate of return.

Expanding into the Portuguese market allows Raizers to offer you even more opportunities to diversify your portfolio.

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