A cross-border review of a tech founder’s corporate structure ahead of a $5M funding round. A personal company in a Portuguese free zone, an operating company in Southeast Asia, and a US LLC holding $3M in investments. The review surfaced 11 issues and more than €1M in potential exposure.
A tech founder with entities across Portugal, Singapore, and the United States. A personal company registered in a Portuguese free zone. An operating company in Southeast Asia. A US LLC with a reported $3M investment portfolio. The investor needed to understand the exposure before committing capital.
Whether the founder’s personal structure created liability for the operating company. Whether tax positions were defensible. Whether disclosed arrangements matched the filings. And whether any of it could affect the funding round.
A detailed analytical report covering filings review, offshore entity analysis, controlled foreign corporation exposure, social contribution shortfalls, and unsecured related-party loans. Total potential exposure exceeded €1M.
The investigation began with the founder’s Portuguese free zone company. The entity had been registered in the Madeira International Business Centre, a special economic zone offering reduced corporate tax rates for qualifying activities. The question was whether the founder’s actual use of the structure matched the conditions required to claim the benefit.
The review found gaps between the claimed tax position and the underlying substance. Several compliance requirements for the free zone regime appeared unmet. The structure had also been used to receive income from the operating company in ways that raised transfer pricing questions.
The Portuguese free zone structure offered significant tax advantages — but only if the qualifying conditions were met. Several of those conditions appeared unfulfilled.
The US LLC presented a different set of questions. The entity held approximately $3M in investment assets, primarily in venture capital positions and public equities. The concern was whether the founder had correctly reported the LLC as a controlled foreign corporation under Portuguese tax rules.
Under Portuguese CFC rules, a resident who controls a foreign entity in a low-tax jurisdiction must include that entity’s passive income in their personal tax return. The US LLC appeared to meet the CFC criteria, but no corresponding reporting was evident in the founder’s disclosed filings.
The investigation then turned to the Southeast Asian operating company. The founder had made several related-party loans to the company, totalling more than $400,000. These loans were unsecured, carried no documented interest rate, and had no formal repayment schedule.
From a due diligence perspective, the loans created several risks. They could be recharacterised as equity by tax authorities in either jurisdiction. They created personal exposure for the founder if the company failed. And they raised questions about the founder’s financial management practices.
The founder appeared to have underpaid mandatory social contributions in both Portugal and Singapore. The combined shortfall, including potential penalties and interest, exceeded €200,000.
The social contribution issue emerged from the filings analysis. The founder had been drawing income from multiple sources across the three jurisdictions, but the social security position did not appear correctly coordinated. Portugal requires contributions on worldwide self-employment income; Singapore has its own mandatory CPF requirements for residents. The disclosed payments did not match the apparent obligations.
One investor had already withdrawn from the $5M funding round before we were engaged. After the investigation, the client had a documented picture of the founder’s exposure. The 11 issues identified ranged from administrative gaps to material tax positions that could crystallise into liabilities.
The total potential exposure exceeded €1M. That figure included back taxes, penalties, interest, and social contribution arrears across the three jurisdictions. Some issues could be remediated; others represented structural problems with the founder’s arrangements.
The report was prepared as an investor-side analytical investigation using corporate registry records, tax filings, regulatory disclosures, free zone compliance requirements, and the relevant controlled foreign corporation rules in Portuguese tax law.
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