When selling a company in Portugal, what taxes are incurred?

Quais os impostos pagos na venda de uma empresa em Portugal
Financial Literacy

When selling a company in Portugal, what taxes are incurred?

If you’re considering selling your business, it’s important to understand the taxes associated with the transaction. This article will outline the taxes involved in selling a business in Portugal and guide you on how to calculate their value.

The taxes imposed on the sale of a business include:

  • IRS (Personal Income Tax) – applicable when you, as an individual, are selling your share.
  • IMT (Municipal Tax on the Onerous Transfer of Real Estate) – a tax paid by the buyer
  • IS (Stamp Duty)

Let’s delve into the specifics of each of these taxes.

IRS
If you decide to sell your company, you’ll be required to pay IRS (category G) on the capital gain you’ve earned. This refers to the disparity between the sale value and the book value of the company.

The book value of the company is calculated based on its net assets, equivalent to the total assets minus the total liabilities.

The sale value of the company is the mutually agreed-upon price between the seller and the buyer, as specified in the purchase and sale agreement.

The surplus value is essentially the variance between the sale value and the book value of the company. For instance, if you sell your business for €100,000, and your net assets amount to €80,000, the resulting capital gain would be €20,000.

The capital gain from the sale of shares is subject to a withholding tax of 28% (or 14% for SMEs). Therefore, using the earlier example, you would be required to pay €2,800 in IRS (14% x €20,000).

IMT
The IMT is a tax imposed on the transfer of real estate for consideration. If you sell your company, and it includes real estate in its assets, the buyer will be responsible for paying IMT on the value of the transferred properties. This applies if the buyer acquires more than 75% of the company’s share capital.

The value of the transferred properties is established based on their taxable patrimonial value (VPT), corresponding to the value recorded in the property matrix for IMI (Municipal Property Tax) purposes.

The IMT is computed using a progressive table that varies depending on the type and location of the properties involved.

For instance, suppose you sell your company for €100,000, and it includes an urban property in Lisbon designated as your permanent residence with a VPT of €80,000. In this case, you would be obligated to pay €2,560 in IMT (3% x €80,000 – €1,680).

Nevertheless, if the property is designated for the company’s activities, and the buyer preserves this allocation for a minimum of five years, they may qualify for an exemption from IMT. To achieve this, specific requirements must be met:

  • The property must be categorized as allocated to the company’s activity on its balance sheet;
  • The purchaser must be a legal entity engaged in a commercial, industrial, or agricultural activity;
  • The buyer must retain the property used for their activity for a minimum of five years, unless the activity ceases before the stipulated period;
  • The buyer is required to inform the Tax and Customs Authority about the property’s acquisition and its allocation to the activity within 30 days.

IS
The IS (Stamp Duty) is a tax imposed on specific acts and contracts. If you decide to sell your company, you’ll be obligated to pay IS on the value of the transfer of shares, specifically the quotas or shares you hold in the company.

The value of the shares is determined by either the nominal value or the market value, whichever is higher.

The VAT is computed at a rate of 0.4% based on the value of the transferred shares.

For instance, if you sell your company for €100,000, and it is a private limited company with a share capital of €50,000, you would be required to pay €400 in IS (0.4% x €100,000).

However, if the transfer of shareholdings occurs within the framework of a corporate restructuring operation (such as a merger, division, or transfer of assets), you may qualify for an exemption from IS. To avail of this exemption, you must fulfill the following requirements:

  • The restructuring operation must be conducted for valid economic reasons and must not have fraud or tax evasion as its primary objective or one of the main objectives;
  • The restructuring operation must be reported to the Tax and Customs Authority within 30 days of its completion;
  • Companies participating in the restructuring operation must be subject to, and not exempt from, corporate income tax or an equivalent tax in another Member State of the European Union or the European Economic Area;
  • The companies engaged in the restructuring operation must retain the received shares for a minimum of three years, unless alterations in the shareholding structure occur due to reasons beyond their control.

Selling a business in Portugal involves the payment of several taxes on the transaction’s value. These taxes include IRS, IMT, and IS, which are imposed on the capital gain realized, the value of the properties transferred, and the value of the shares transferred, respectively.

Nevertheless, there are instances where you may qualify for exemptions or reductions from these taxes, provided you meet specific requirements. Hence, it is crucial to consult with an accountant or a tax lawyer before selling your company. This ensures you understand your tax obligations and explores opportunities to optimize your tax burden.

If you’re contemplating selling your business, reach out to ValuingTools and discover how we can assist you in obtaining the optimal value for your business. Our team comprises experienced and qualified professionals well-versed in the market and equipped with best practices for a successful sale.

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