IN487 - Portugal - A Family and Business Friendly Jurisdiction

Since 2009 over 5,000 high net worth individuals and their families have made Portugal their home, attracted by the lifestyle, the Non-Habitual Resident tax regime and the Golden Visa residency programme.

In 2014 the Portuguese Government made Portugal more attractive to companies by reforming its Corporate Tax Code to meet international standards. Since then Portuguese companies have enjoyed an internationally competitive tax framework that is also transparent, compliant and in-line with best international practice.

As an alternative to being registered on the mainland, Portuguese companies can, in the correct circumstances, be registered on the island of Madeira. The Madeira International Business Centre (MIBC) offers a number of attractive tax advantages.

Portugal Corporate Tax Structure

Overview

Portuguese companies are subject to tax on their worldwide income. Branches of non-resident companies are only taxed on Portuguese-source profits.

Corporate tax is charged on a company's profit, although some exemptions may apply in relation to passive income, under the Participation Exemption Method (details overleaf).

Rates

Entities

Portugal mainland

Madeira

Madeira Free Trade Zone

Azores

Resident entities and permanent establishments of non-resident entities

21%

21%

5%

16.8%

Resident entities and permanent establishments of non-resident entities, certified as small or medium companies

17% (first €15,000 of taxable income)

21% (for the remaining taxable income)

17% (first €15,000 of taxable income)

21% (for the remaining taxable income)

5%

13.6% (first €15,000 of taxable income)

16.8% (for the remaining taxable income)

  1. Participation Exemption

Under Portugal’s participation exemption regime, dividends received and capital gains realised by a Portuguese company from a domestic or foreign shareholding are exempt from tax, provided that:

  1. The shareholder is not considered to be a transparent entity; AND
  2. The shareholder has held, directly or indirectly, at least 10% of the capital or voting rights of the company for at least 12 months;
  3. the subsidiary must not be resident in a listed tax haven; AND
  4. the subsidiary must be subject to a corporate tax rate listed in the EU Parent-Subsidiary Directive or a tax rate that is at minimum 60% of the Portuguese corporate tax rate.

The Participation Exemption also applies to dividends distributed to a non-resident company if this entity holds 10% of the capital for at least 12 months, and is resident in the EU/European Economic Area (EEA) or in a tax treaty jurisdiction.

Madeira Free Trade Zone companies can also take advantage of the Participation Exemption benefit relating to dividends, as long as the shareholder is an individual and the other criteria, detailed above, are met.

In all other cases, the dividend is subject to withholding tax at 25% (35% if paid to a resident of a Portuguese listed tax haven). The 25% rate may be reduced by a tax treaty.

Portugal grants a tax credit up to the amount of Portuguese tax payable on foreign income, which is calculated net of expenses on a per-country basis.

  1. Interest and Royalties

Under the EU Interest and Royalties Directive, payments to qualifying EU recipients are exempt.

Interest and royalties paid to a non-resident company are subject to withholding tax at 25% (35% if paid to a resident of a Portuguese listed tax haven), unless reduced under a tax treaty or the payment is to a qualifying EU recipient.

  1. R&D

The current Portuguese R&D benefit package is valid until 2020.

A tax credit is available, under certain conditions, for R&D expenses:

  1. A corporate tax credit of 32.5% of qualifying R&D expenses is available in the relevant tax year and may be carried forward for eight years;
  2. 50% of the surplus of expenses suffered in the tax year over and above the average two previous tax years, capped at €1,500,000.

Up to a maximum 50% of the revenue earned from the licensing of patents, designs and industrial models is exempt from taxation.

Other Tax Benefits

Portuguese companies registered in the Madeira Free Trade Zone and known as MIBCs enjoy a number of tax benefits, in particular a reduced rate of corporate tax:

  • Corporate tax: 5%
  • The total tax benefit available to MIBC entities is capped at the highest of:

    • 20.1% of annual gross added value OR
    • 30.1% of annual staff costs OR
    • 15.1% of annual turnover

  • Exemption from taxation on dividends received and capital gains under the Participation Exemption Regime (shareholder must own at least 10% of the shares which they must have held for a minimum of 12 months);
  • Exemption from withholding tax on dividend distributions and capital gains;
  • Exemption from withholding tax on interest, service fees and royalties paid to non-resident shareholders;
  • Exemption from stamp duty, property tax, property transfer tax, and regional and municipal surcharges (up to a maximum 80% per tax transaction, or per tax period);

Portuguese Start-ups - the “Semente” Programme:

  • A tax benefit, is applicable to individual entrepreneurs; 25% of the eligible investment can be deducted from the entrepreneur’s individual income tax payment.
  • Capital gains arising from the sale of shares are not taxable, as long as the investment is held for at least 48 months and the monies are reinvested that year or the year following the transaction.

Additional Relevant Tax Feature

Tax losses generated from 1 January 2017 onward can be carried forward for up to a maximum 5 year period.

How can Dixcart Help?

In addition to assisting families and entrepreneurs to select the most appropriate legal route for a move to Portugal and a consideration as to how wealth and commercial interests may need to be restructured, Dixcart also provides;

  • Assistance to entrepreneurs and their families in relocating to Portugal and in obtaining the necessary residence permits.
  • A complete range of services related to the incorporation of a company and its day-to-day obligations; from bookkeeping through to tax compliance.

Additional Information

If you require additional information regarding this topic and the types of company and tax structures available in Portugal and/or the types of visa and residency options, please speak to your usual Dixcart contact, or to Carlos Santos at the Dixcart office in Portugal:

carlos.santos@dixcart.com - https://www.linkedin.com/in/carlosperdigaosantos.  

Portugal’s Double Taxation Treaties

 

Rate(%)

Country

Dividends

Interest

Royalties

Algeria

15/10

15

10

Austria

15

10

10/5

Barbados *

15/5

10

5

Belgium (Additional convention)

15

15

10

Brazil

15/10

15

15

Bulgaria

15/10

10

10

Canada

15/10

10

10

Cape Verde

10

10

10

Chile

15/10

15/10/5

10/5

China

10

10

10

Colombia

10

10

10

Croatia 

10/5

10

10

Cuba

10/5

10

5

Cyprus

10

10

10

Czech Republic

15/10

10

10

Denmark

10

10

10

East Timor *

10/5

10

10

Estonia

10

10

10

Ethiopia  

10/5

10

5

Finland

15/10

15

10

France

15

12/10

5

Georgia 

10/5

10

10

Germany

15

15/10

10

Greece

15

15

10

Guinea-Bissau

10

10

10

Holland

10

10

10

Hong Kong

10/5

10

5

Hungary

15/5

10

10

Iceland

15/10

10

10

India

15/10

10

10

Indonesia

10

10

10

Ireland (Protocol revising the Convention)

15

15

10

Israel

15/10/5

10

10

Italy

15

15

12

Ivory Coast*

10

10

5

Japan

10/5

10/5

5

Kingdom of Bahrain *

15/10

10

5

Korea

15/10

15

10

Kuwait

10/5

10

10

Latvia

10

10

10

Lithuania

10

10

10

Luxembourg (Additional convention)

15

15/10

10

Macau

10

10

10

Malta

15/10

10

10

Mexico

10

10

10

Moldova

10/5

10

8

Morocco

15/10

12

10

Mozambique (Protocol revising the Convention)

10

10

10

Norway

15/5

10

10

Pakistan

15/10

10

10

Panama

15/10

10

10

Peru

15/10

15/10

15/10

Poland

15/10

10

10

Qatar

10/5

10

10

Republic of San Marino  

15/10

10

10

Republic of Senegal

10/5

10

10

Romania

15/10

10

10

Russia

15/10

10

10

São Tomé and Príncipe *

15/10

10

10

Saudi Arabia

10/5

10

8

Singapore (Protocol revising the Convention)

10

10

10

Slovakia

15/10

10

10

Slovenia

15/5

10

5

South Africa

15/10

10

10

Spain

15/10

15

5

Sultanate of Oman *

15/10/5

10

8

Sweden

10

10

10

Switzerland (Protocol revising the Convention)

15/5

10

5

Tunisia

15

15

10

Turkey

15/5

15/10

10

United Arab Emirates

15/5

10

5

United States of America

15/5

10

10

United Kingdom

15/10

10

5

Ukraine

15/10

10

10

Uruguay

10/5

10

10

Venezuela

10

10

12/10

Vietnam *

15/10/5

10

10 / 7.5

*Not yet enacted.

 

Portuguese List of Countries Regarded as Tax Havens

Countries, Territories and Regions

American Samoa

Liechtenstein

Andorra

Maldive Islands

Anguilla

Marshall Islands

Antigua and Barbuda

Mauritius

Aruba

Monaco

Ascension Island

Monserrat

Bahamas

Nauru

Bahrain

Netherlands Antilles

Barbados

Northern Mariana Islands

Belize

Niue Island

Bermuda

Norfolk Island

Bolivia

Pacific Islands

British Virgin Islands

Palau Islands

Brunei

Panama

Cayman Islands

Pitcairn Island

Channel Islands

Porto Rico

Christmas Island

Qatar

Cocos (Keeling)

Queshm Island

Cook Islands

Saint Helena 

Costa Rica

Saint Kitts and Nevis

Djibouti

Saint Lucia

Dominica

Saint Pierre and Miquelon

Falkland Islands or Malvinas

Samoa

Fiji Islands

San Marino

French Polynesia

Seychelles

Gambia

Solomon Islands

Gibraltar

St Vicente and the Grenadines

Grenada

Sultanate of Oman

Guam

Svalbard

Guyana

Swaziland

Honduras

Tokelau

Hong Kong

Trinidad and Tobago

Jamaica

Tristan da Cunha

Jordan

Turks and Caicos Islands

Kingdom of Tonga

Tuvalu

Kiribati

United Arab Emirates

Kuwait

United States Virgin Islands

Labuan

Vanuatu

Lebanon

Yemen Arab Republic

Liberia

 

 

 

 

Categories: Portugal, 2017