Portugal country tax guide

Portuguese. Foreign documents should be translated into Portuguese when provided to the Portuguese Tax Authorities. In some cases, Portuguese Tax Authorities have accepted documentation in English. 

No tax is payable on the incorporation of a Portuguese company.

Portuguese resident companies are liable to Corporate Income Tax (“CIT”) on a worldwide income basis.

Under the Portuguese CIT Code, the taxable profit is calculated by reference to the taxpayer’s profit and loss account drawn up in accordance with the rules set out in the Portuguese General Accounting Rules (GAAP), as adjusted pursuant to the CIT Code.

Taxable income is subject to a standard CIT rate of 21%, which may be increased by a municipal surcharge (“derrama”) of up to 1.5% (levied on taxable profits before the deduction of any carry forward losses).

Additionally, taxable income in excess of EUR 1.5 million is subject to a state surcharge (“derrama estadual”), also levied before the deduction of any carry forward losses. In this respect:

• the part of the taxable profit exceeding EUR 1.5 million and up to EUR 7.5 million is subject to a 3% surcharge rate
• taxable income in excess of EUR 7.5 million and up to EUR 35 million is subject to a 5% surcharge rate
• an excess of EUR 35 million is subject to a 9% surcharge rate.

Corporate wealth tax

Portugal does not have a corporate wealth tax (however, please refer to the comments below on the Additional Property Tax or “AIMI”). 

Specific tax regime for dividends

Dividends are subject to Portuguese CIT at the standard CIT. However, a participation exemption on dividends received is granted if all of the following conditions are verified: 

• the entity that receives the dividends owns directly or indirectly at least 10% of the capital or voting rights of the payer
• the entity that receives the dividends holds the interest referred above for an uninterrupted period of at least 1 year, or it makes a commitment to hold the interest until the 1-year holding period is complete
• the payer of dividends is a Portuguese resident company that is also subject to, and not exempt from, CIT (or Game Tax, if applicable).

Dividends paid by entities from EU member countries to Portuguese entities (or Portuguese Permanent Establishment of EU entities) also benefit from a tax exclusion, if the above requirements are verified and both the payer and the recipient of the dividends qualify under Council Directive 2011/96/EU of 30 November (“EU Parent-Subsidiary Directive”). The regime also applies to dividends distributed by companies in other countries (except ‘blacklisted’ jurisdictions) if the subsidiary is subject to CIT at a rate not lower than 60% of the CIT. (However, in some circumstances, this condition may be waived.) 

However, certain anti-avoidance rules may apply, namely, if an arrangement or a series of arrangements is performed with the primary purpose, or with one of the principal purposes, to obtain a tax advantage that frustrates the goal of eliminating double taxation on the income, and if the arrangement or series of arrangements is not deemed genuine, taking into account all of the relevant facts and circumstances. For this purpose, an arrangement or series of arrangements is deemed not to be genuine if it is not performed for sound and valid economic reasons and does not reflect economic substance. 

• Special Regime of Group Taxation: as a rule, all payments, including dividends, made between companies that are part of a group taxed under the Special Regime of Group Taxation are not subject to withholding tax.

Specific tax regime for interest

Interest is also taxed at the standard CIT rate and, simultaneously, is allowed as a tax deductible expense in the hands of the company that bears the interest. 

However, the CIT Code contains a limitation to the deduction of interest expenses (net of interest revenues), according to which their deduction is capped at whichever is higher: 

• EUR 1 million, or
• 30% of earnings before depreciations, net financing expenses and taxes (EBITDA). 

Any exceeding net financing expenses in a given tax year are deductible in the following 5 tax years, after deducting the net financing expenses of that same tax year, with the above-mentioned caps.

In case the net financing expenses do not exceed 30% of earnings before depreciations, net financing expenses and taxes, the remaining amount is added to the maximum deductible amount (30% of the EBITDA), up to the following 5 tax years.

Capital gains

Capital gains derived from the sale of fixed assets and from the sale of financial assets are included in taxable income subject to CIT (at the CIT standard rate). 

A participation exemption regime is available for capital gains and losses on shareholdings held for at least 12 months if the remaining conditions for the dividends participation regime are met (please see above).  The regime does not apply if the main assets of the company that issued the shares being transferred are composed, directly or indirectly, of Portuguese real estate (except real estate allocated to an agricultural, industrial or commercial activity [other than real estate trading activities]). 

In case the company is deemed as a micro-, small- or medium-sized enterprise (according to the Annex to the Decree-Law no. 372/2006 of November 6), it is taxed at a 17% tax rate on the first EUR 25,000 of taxable income, and at a 21% tax rate on the remaining income. 

Entities licensed to operate under the Madeira International Business Centre (MIBC) special tax regime, between 1 January 201 and 31 December 2021, are eligible, among other tax benefits, to a 5% CIT rate, applicable until 31 December 2027 (on thresholds of taxable income, which depend on the number of jobs created). 

Finally, companies incorporated in the Autonomous Regions of Madeira and Azores are liable to a reduced CIT rate of 14.7%, as opposed to the 21% CIT rate applicable in the mainland. 

Portugal Personal Income Tax (“PIT”) relies on the concept of residence, whereby residents of Portugal are subject to tax on their worldwide income, and non-residents are subject to PIT on income arising in Portugal.

An individual is considered a resident for tax purposes in Portugal if, among other conditions, he/she:

• stays in Portuguese territory for more than 183 days in any 12-month period, beginning or ending in the fiscal year concerned, or
• has a dwelling in Portuguese territory in any day of the aforementioned period, which must be regarded as his/her habitual residence.

Regarding PIT taxpayers:

• general income (employment income, self-employed activities, etc.) will be taxed on a progressive scale ranging from 14.5% to 48%
• taxable income exceeding EUR 80,000 but not exceeding EUR 250,000 is subject to an additional solidarity tax of 2.5%
• taxable income exceeding EUR 250,000 is subject to an additional solidarity tax of 5%.

Capital gains, interest and dividends (amongst other income) will be taxed at 28%. However, tax resident individuals are given the option to disclose such income/gains with overall income and to be taxed at the progressive tax rates. In that case, a 50% relief applies to dividends received from resident companies subject to CIT, or from EU companies or companies resident in the EEA countries that have entered into an exchange-of-information agreement with Portugal concerning tax matters, provided that these companies fulfil the requirements of the EU Parent-Subsidiary Directive. 

Non-Habitual Resident regime 

A special tax regime applies to individuals who become tax residents of Portugal and have not been taxed as such in the previous 5 years. The Non-Habitual Resident (“NHR”) status applies for up to 10 years and requires the individual taxpayer to be registered as such with the Tax Authorities. 

The main features of the NHR regime may be summarised as follows: 

• a reduced PIT rate of 20% applicable to employment income and self-employment income arising from high-added value (“HAV”) activities (as defined by Ministerial Decree)
• a reduced PIT of 10% applicable to pension income from a foreign source 
• an exemption method regime applicable to foreign source income, provided that certain conditions are verified, as follows: 
  • foreign source employment income will be exempt from taxation in Portugal, provided that one of the following conditions is verified: 
    • liability to effective taxation in the source country, pursuant to the applicable tax treaty provisions; or, in the absence of an applicable tax treaty,
    • liability to effective taxation in the source country, as long as not considered obtained from a Portuguese source in accordance with Portuguese domestic legislation
  • income derived from the rendering of services of HAV activities, intellectual property, industrial property rights, transfer of know-how and income derived from capital investments (including dividends and interest), income derived from real estate and increases in net worth (including capital gains) will be exempt from PIT in Portugal if one of the following conditions applies: 
    • possible taxation in the source country, in accordance with the applicable tax treaty provisions; or, in the absence of an applicable tax treaty,
    • possible taxation in the source country (provided that it is not blacklisted), in accordance with the provisions established by the OECD Model Convention as adopted by Portugal, and as long as not considered obtained from a Portuguese source in accordance with Portuguese domestic legislation.

Other income obtained outside the Portuguese territory by NHR that does not qualify for either of the applicable rules will, as a general rule, be taxed according to the tax rules applicable to regular tax residents in Portugal.

The only Portuguese tax that can be assimilated to wealth tax is the Additional to Property Tax (“AIMI”), which is due by individuals (and companies) which own residential urban real estate properties located in Portuguese territory.
The AIMI is assessed on the sum of the tax registration value of all the properties located within the Portuguese territory (except those allocated to trade, industry or services and “others”), either owned by individuals and corporations, at the following rates (depending on the type of taxpayer): 

• individuals and undivided inheritances: 0.7% 
• corporations: 0.4%
• entities resident or domiciled in tax havens: 7.5%

Notes: 

• Individuals and undivided inheritances are entitled to a deduction of EUR 600,000 to the taxable basis (or EUR 1.2 million in case of taxpayers who are married or living in non-marital status and opt to submit a joint return). 
• In case of individuals, a marginal rate of 1% applies on the part of the sum of the taxable value of eligible properties that exceeds EUR 1 million (or EUR 2 million for married taxpayers and unmarried cohabiting couples who opt for an aggregated taxation).
• In case of urban properties owned by corporations that are allocated to the personal use of the shareholders, board members or members of any administration management or supervisory bodies, the rates for individuals apply. 

Gift and inheritance taxes were eliminated as from 1 January 2014. However Stamp Duty (at a 10% rate) applies where the beneficiary of the gift/inheritance is an individual (except where the beneficiary of the inheritance/gift are the spouse, ascendants and descendants of the deceased/donor, who benefit from an exemption). 

Where the beneficiary is a corporate taxpayer, the gift/inheritance will be subject to CIT at the standard rates referred above. 

Stamp Duty or CIT on gifts/inheritances is only due if the goods or rights that are being transferred are deemed to be located in Portugal, as pursuant to the criteria defined in the Stamp Duty or CIT Code, as the case may be. 

Yes, a Golden Visa could be obtained in Portugal upon a relevant investment in Portugal.

N/A

As Portugal belongs to the Schengen Space, Portuguese citizens and persons having a Portuguese ID number are allowed to travel in the European Union without a passport or a visa. 

Portuguese PIT rules do not contain a specific regime for non-resident trusts. Therefore, the applicable tax treatment should be determined based on the general tax principles, namely taking into consideration the taxation rules of the so-called fiduciary structures.  

In this respect, we note that it was only in the 2015 State Budget Act that Portugal formally acknowledged the fiduciary concept – which is implicit in a Trust – whereby one party gives another party, the trustee, the right to hold title to property or assets for the benefit of a third party, the beneficiary. 

A case-by-case analysis is required depending on the type of investor, on the location of the trust and also on whether the investor is the settlor or a mere beneficiary.