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 accept 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 20%, 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.

Tax losses can be deducted against taxable profit generated in future taxable years for an unlimited time period. The deduction of tax losses is capped at 65% of the taxable profit.

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: 

Concerning the entity that receives the dividends:

• A CIT taxpayer that is not tax transparent;
• Owns directly or indirectly, at least 10% of the share capital or of the voting rights of the payer;
• Holds such interest 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.

Concerning the entity that distributes the dividends:

• It is subject to CIT
• to a tax mentioned in Article 2 of Council Directive 2011/96/EU, of November 30th, or to a tax similar to CIT to which the applicable legal rate is not lower than 60% of the CIT standard rate  however, in some conditions this condition may be waived.));
• Is not resident in a country, territory or region with a privileged tax regime (as per the Portuguese “blacklist”).
• Is not resident in a country, territory or region with a privileged tax regime (as per the Portuguese “blacklist”).
• Anti-avoidance rules may apply, namely, if there is an arrangement, or a series of arrangements are not carried out based on valid economic reasons and lack 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 on the tax deductibility of net financing expenses 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 realized on the disposal of shareholdings if among other requirements, the shares have been held for at

 least an uninterrupted period of 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]).

Micro, small or medium sized or small-medium capitalization companies (Small Mid Cap) are subject to a reduced rate of 16% on the first € 50,000 of taxable income.

Finally, companies incorporated in the Autonomous Regions of Madeira and Azores are liable to a reduced CIT rate of 14.7%. Small Mid Cap are subject to a reduced rate of 11.9% on the first € 50,000 of taxable income.

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 is 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 13% 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 arising from the sale of shares and other securities held for more than a year, interest and dividends (amongst other income) will be taxed at 28%. However, tax resident individuals are given the option to report 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.

Income received by residents in a “blacklisted” territory is subject to an aggravated rate of 35%.

The annual net balance between capital gains and capital losses arising from the sale of shares and other securities will be mandatorily aggregated (and taxed at the PIT progressive rates) if:

• The assets are held for less than 365 days; and
• The taxable income of the taxpayer considering the balance of said capital gains and capital losses amount (or exceeds) € 83,696.

Tax Incentive Scheme for Scientific Research and Innovation (IFICI)

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. and have not benefited the Non-Habitual Resident scheme (or equivalent tax regime), and carry out one of the eligible activities (as defined in the applicable legislation).

• The regime regime provides for: 
• Exemption on foreign 
• sourced income, other than pensions and income arising from a “blacklisted” jurisdiction

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. However, an exemption is granted where the beneficiary of the inheritance/gift are the spouse, ascendants and/or descendants of the deceased.

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, there is a Portuguese Golden Visa regime, which allows non-EU investors to obtain a second residence in Portugal by only spending 7 days per year in the country. 5 years after the Golden Visa request was submitted, the investor becomes eligible for the Portuguese citizenship.

The following investments are eligible for Golden Visa purposes:

• Capital transfer in the minimum amount of €500,000 through the purchase of participation units in qualifying venture capital funds with the maturity of at least 5 years and provided that at least 60% of its capital is invested in companies based on the Portuguese territory;
• Capital transfer in the minimum amount of €500,000 for the set-up of a company based in the Portuguese territory with the creation of 5 permanent jobs positions, or for the increase of the share capital of an existing company, creating 5 permanent job positions or maintaining 10 job positions with a minimum of 5 permanent
• Donation of €250,000 for cultural and artistic projects or maintenance of national cultural heritage.

Both the Portuguese Golden Visa, the D7 and amost of the Portuguese visas for non European allow free circulation within the Schengen area for periods up to 90 days, in every 6 months.

Both the Portuguese Golden Visa, the D7 and most of the Portuguese visas for non European allow free circulation within the Schengen area for periods up to 90 days, in every 6 months.

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.  

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.