Since 2014 approximately 100,000 companies have been incorporated in Portugal, representing a 10% increase in comparison to 2011, when Portugal was granted an international bailout package, which culminated in a “clean exit” in May 2014.
This significant increase in incorporations has been driven mainly by foreign companies seeking a jurisdiction in which the quality of life matches the attractive business environment.
After a major and ambitious reform of the Portuguese Corporate Tax Code, which was implemented in compliance with the guidelines and recommendations of the OECD and European Commission, Portugal offers a transparent and comprehensive corporate tax regime.
The tax regime is also sufficiently competitive to appeal to investors around the world, including the 2016 “Web Summit - Europe’s Largest Technology Marketplace” and biggest start up event in the world, who have chosen Lisbon as their “home” for the next 3 years.
Portuguese Corporate Income Tax Code Highlights
- The worldwide participation exemption regime; applicable to capital gains and inbound and outbound dividend payments.
Under Portugal’s participation exemption regime, dividends received and capital gains received and distributed by a Portuguese resident company from a domestic or foreign shareholding are exempt from tax, provided that the shareholder holds, directly or indirectly, at least 10% of the capital or voting rights of the other company for 12 months.
The subsidiary may not be resident in a listed tax haven and must be subject to, and not exempt from, income tax at a rate which is equivalent to at least 60% of the Portuguese corporate tax rate (currently 21%).
A tax credit may be applicable when the conditions for the application of the participation exemption regime are not fully met, with an option for an underlying tax credit for dividends on foreign shareholdings held for 12 months of at least 10%.
In terms of capital gains, the participation exemption method applies to the gains on disposal of shares.
- Corporate Income Tax Rate (CIT)
The Portuguese corporate Income tax rate is 21% on the mainland and 5% on the island of Madeira.
- Patent Box Regime
There is a 50% exemption on income generated by intellectual property. This is applicable to income generated by the assignment or sub-licensing of patents, models and industrial designs protected by intellectual property which have been subject to registration.
The acquisition costs of certain intangible assets, with unlimited durability, and goodwill are deductible on an annual basis of 5% for a period of 20 years. In addition, all costs associated with the development of such intellectual property are tax deductible.
- Madeira Free Trade Zone
Taxable income derived from the activities of licensed financial, industrial, international service and shipping companies established in the Madeira free trade zone are subject to a reduced corporate tax rate of 5% when certain conditions are met.
Portugal - International Bilateral Agreements:
Portugal benefits from 72 Double Taxation Agreements and 53 Mutual Promotion and Protection of Investment Agreements. The relevant countries are detailed below:
If you would like additional information regarding Portuguese Holding companies and the advantages that they can provide, please speak to Carlos Santos at the Dixcart office in Madeira, or to your usual Dixcart contact.