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Corporate Tax Guide: Portugal


The information is valid for the entire country except where indicated. For example, in the case of Malaysia, Labuan is part of Malaysia but has a special tax regime, so this is noted.
Portugal – mainland and islands (Azores and Madeira)
The corporate tax rate shown is the typical corporate tax rate that a domestic corporation owned by non-resident persons would pay. The tax rate does not include withholding tax on dividends, but does include a distribution tax shown separately if applicable. Certain countries have a low corporate tax rate, but charge an additional tax when a dividend is distributed. Because this tax is paid by the corporation, and not deducted from the amount of the dividend itself, it is not a dividend withholding tax. As a result, it typically cannot be reduced by an international tax treaty.
A flat CIT rate of 21% applies on the global amount of taxable income realized by companies resident for tax purposes in Portugal Mainland and in the Autonomous Regions of Madeira.

A lower rate of 16.8% CIT applies to companies resident in the Autonomous Regions of Azores.

The Autonomous Regions of Madeira benefit from a very advantageous tax system, which is recognized by the European Union – “The International Business Center” (“IBC”). Companies that fulfil the IBC requirements and operate under such regime are taxed at a 5% flat rate until 2027.

Additionally, a municipal surcharge (“derrama municipal”) up to 1.5% is usually imposed on the taxable profit determined for CIT.

Furthermore, depending on the taxable profit determined, the following state surcharge (“derrama estadual”) is imposed:
  1. 3% if the profit determined is between € 1.500.000 and € 7.500.000;
  2. 5% on the excess of the profit determined above € 7.500.000 and € 35.000.000;
  3. 9% on the excess of the profit determined above € 35.000.000.
A reduced 17% rate applies to micro, small and medium-sized (“SME´s”) companies for their first 15,000 of taxable income.

Moreover, SMEs that are located on Portuguese islands benefit from a rate of 12.5% for their first 15,000 of taxable income.
The basis of taxation for a corporation will typically be one of:
  • World income (i.e. income from all sources)
  • Territorial (i.e. only income from within the jurisdiction)
  • Territorial and remittance (income earned within the jurisdiction and income remitted into the jurisdiction)
Other basis of taxation are possible, and, if applicable, they are noted.
CIT is levied on resident and non-resident entities.

Resident entities are taxed on their worldwide income profit
Where non-resident corporation carries on business in a country, business profits may be subject to corporate tax. In addition, a branch profits tax may apply in lieu of dividend withholding tax. This branch profits tax applies to the after tax profits, typically at a fixed percentage. An international tax treaty may reduce the rate of branch profits tax, typically to the rate provided for dividend withholding.
Non-resident entities that operate in Portugal through a Permanent Establishment (“PE”) are subject to CIT on the profits attributable to the PE.

Non-resident entities that do not have a Permanent Establishment are subject to CIT on income considered to be obtained in Portugal
The common forms of business entity are noted. In addition, the entities which are flow through entities for U.S. tax purposes are indicated.
The Portuguese commercial legislation establishes many types of business entities.

The most commonly used ones are the Public Limited Companies and the Private Limited Companies, respectively:

The S.A. (“Sociedade Anónima”); and

The LDA. (“Sociedade por quotas”, also unipersonal as “Sociedade Unipessoal por Quotas”).

Additionally, each one of these companies can have the legal status of a regulated holding company (SGPS).
Capital gains may be fully taxed, partially taxed or not at all. In certain countries, an exemption, called the participation exemption, will apply to exempt from tax a capital gain from disposition of a substantial holding of shares of a subsidiary. Where a participation exemption is applicable, it is noted together with a summary of the main conditions.
Realized capital gains derived from the sale of fixed and financial assets are included in the taxable profits and to the Portuguese CIT rates mentioned above.

Under the Participation Exemption regime, capital gains and losses realized on the transfer of shares can be fully exempt from taxation. This exemption applies if, cumulatively:
  1. the shares have been held, uninterruptedly, for a period of 12 months before its sale;
  2. which represent 10% or more of the share capital or the voting rights;
  3. considering that the taxpayer is not covered by a tax transparency regime;
  4. the entity from which shares are being transferred is not a black-listed jurisdiction;
  5. capital gains obtained on the disposal of shareholdings in which the value of real estate, directly or indirectly held, represents more than 50% of the assets if they were purchased before 1st of January 2014 (except immovable property allocated to an agricultural, industrial or commercial activity as long as this commercial activity is not as of purchase and sale of real estate) are excluded from the participation exemption regime.
Moreover, 50% of gains derived from the disposal of tangible fixed assets and intangible assets held for at least one year may be excluded from taxation, if the total disposal proceeds are reinvested within:
  1. the period before the capital gains are realized;
  2. during the period when the capital gains are realized; and
  3. in the following two taxable periods.
Non-resident entities that do not have a head office, effective management control or a PE in Portugal are subject to CIT on capital gains derived from sales of corporate participations, securities and financial instruments if any of the following apply:
  1. More than 25% of the non-resident entity is held, directly or indirectly, by resident entities (unless the seller is resident in an EU, EEA or double tax treaty jurisdiction and certain requirements are met);
  2. The non-resident entities are resident in territories listed on the Portuguese blacklist;
  3. The capital gains arise from the transfer of shares held in a Portuguese property company in which more than 50% of the assets comprise Portuguese real estate or in holding company that controls such company.

    Finally, non-resident entities are also subject to CIT on capital gains derived from the transfer of shares and other rights in a foreign entity if, during one of the 365 days preceding the disposal, more than 50% of the value of those shares (or rights) is related, directly or indirectly, to immovable property in Portugal (subject to certain conditions).
Certain countries allow group taxation, otherwise known as consolidated tax filing. Here the tax returns of a group of corporations in the country may be combined together, which can be useful. If group taxation is permitted, it is noted along with the main conditions.
Optional tax regime for Portuguese resident companies members of an economic group (RETGS – “Regime Especial de Tributação de Grupos de Sociedades”). It can apply if:
  1. a company (parent) holds, directly or indirectly, including through a company resident for tax purposes in an EU country or in a country within the EEA (in the latter case, only when an administrative cooperation agreement applies), at least 75% of the share capital of other companies (controlled entities), and more than 50% of the voting rights;
  2. all group companies are resident for tax purposes in Portugal and are subject to the CIT general regime at the higher CIT rate;
  3. the parent company has held the relevant shareholding for more than 1 year (or from the date of its incorporation);
  4. the parent company is not controlled by any other company resident in Portugal;
  5. the parent company has not renounced the application of the regime in the three previous years;
  6. in case the holding participation had been acquired through a merger, demerger or asset contribution operation, the holding period above mentioned is computed considering the holding period of such participation by the merged, demerged or contributing company.
Countries offer various kinds of special exemptions and incentives. Examples are a reduced tax rate, a tax holiday, a tax credit on the purchase of equipment, special accelerated deductions for deprecation, incentives for R&D, and various others. Here the major items are noted.
Investment project – CIT credit between 10% to 25% of the relevant applications to the CIT assessed and reductions or exemptions from Property Transfer Tax, Property Tax and Stamp Duty may be granted to eligible investment projects (amounting to or exceeding € 3,000,000), set up until 31 December 2020, since they provide job creation or maintenance, it is proved their technical, economic and financial viability; there can also be municipal tax benefits;

R&D – Incentive regime for research and development (SIFIDE II), in force until 2020. A tax credit is available, under certain conditions, for R&D expenses;

Special Tax Regime to Support Investments (RFAI) – applies to relevant investments made on fixed tangible and intangible assets. A CIT credit is granted according to the eligible region in which investments are made;

Patent box – it allows for a 50% deduction to the tax base of income deriving from the temporary use or transfer of industrial designs, models or patents.
Many countries have thin capitalization rules which limit or deny the deduction of interest expense in certain circumstances. For example, if debt exceeds three times equity, a proportionate amount of interest expense may not be deductible. Limitations take various forms, restricting the interest expense deduction to a percentage of profit, deeming the debt to be equity and the interest to be a payment of dividends, and various other rules which may blend of these principles. Where a country has thin capitalization rules, they are briefly described.
Specific limitations apply to the tax deductibility of interest expense. Net financial costs are deductible only up to the greater of the following threshold: € 1.000.000 or 30% EBITDA as adjusted for tax purposes. Companies reporting under a tax group regime may apply the relevant thresholds at the group level. The amount exceeding the threshold in a given year may be carried forward for the following five years, up to the 30% threshold.
Many countries have transfer pricing rules. They very often follow the OECD guidelines and the arms length principle. Some countries have specific rules which apply in certain cases. In addition, some countries allow for a selection of the most appropriate transfer pricing methodology in the circumstances, while other countries follow a hierarchy of methods, with the CUP method (comparable uncontrolled price) often ranking first. The transfer pricing rules are briefly explained.
Yes, mirroring OECD rules and methods.

The tax authorities may adjust if special relations exist between the parties. Companies must prepare documentation to support their transfer pricing policies. Advance pricing agreements are available.
Many countries tax passive income earned in controlled foreign corporations (CFC’s) on an imputation basis while active income is not taxed. Such CFC rules are usually complex and vary significantly in what is considered passive income, and how foreign tax paid is taken into account. Some countries approach CFC rules on the basis of whether or not the foreign corporation is resident in a low tax jurisdiction or a tax haven. This may be done through a black list of countries.
The general overview of CFC rules is described in simple terms.
Under the Portuguese Controlled Foreign Company rules, undistributed profits on a non-resident company that is incorporated in a low tax jurisdiction may be attributed to the Portuguese resident shareholders with a substantial interest therein and taxed in proportion to their holdings.

A “substantial interest” is a direct or indirect ownership of at least 25% of the capital, voting rights or income or assets.

The company is considered to be incorporated in a “low tax jurisdiction” if one of the following conditions apply:
  1. The jurisdiction is black-listed under the Portuguese legislation; OR
  2. The CIT effectively paid is inferior to 50% of the one which would be due according to the Portuguese CIT Code.
Profits repatriated by way of dividends from a subsidiary to a parent company are typically taxed in one of three ways:
  • The dividends are exempt of tax.
  • The dividends are deductible from taxable income, but not fully (90%, for example, of the dividend is deductible).
  • The dividend is taxable, grossed up to the pre-tax amount, and a foreign tax credit claimed for foreign taxes paid.
The applicable method is noted.
Participation exemption regime – profits distributed to a Portuguese parent company are exempt from taxation, provided the following requirements are cumulatively met:
  1. the taxpayer directly or indirectly holds at least 10% of the share capital or voting rights in the subsidiary;
  2. the shares are held for a consecutive period of at least 12 months (or maintained for that period);
  3. the Parent company is not subject to a tax transparency regime;
  4. the company that distributes the capital reserves or the profits is subject to:
    • the Portuguese CIT;
    • a CIT tax according with the Directive 2011/96/EU from 30 November (Parent Subsidiary/Directive); or
    • a tax similar to the Portuguese CIT, as long as the applicable tax rate is not lower than 60% of the current Portuguese CIT tax rate;
This regime also applies to profits distributed to a Portuguese PE of an EU resident entity, which complies with the requirements foreseen in Article 2 of the EU Parent/Subsidiary Directive, or an EEA resident entity, subject to tax cooperation obligations similar to the ones established within the EU, provided that the entity complies with requirements that are comparable to those foreseen in Article 2 of the EU Parent/ Subsidiary Directive, or an entity resident in a state with which Portugal has concluded a DTT (except if resident in a black-listed jurisdiction) that foresees tax cooperation obligations similar to the ones established within the EU and is subject and not exempt in its state of residence from an CIT similar to the Portuguese one.
Most countries allow a foreign tax credit based on a formula, typically net foreign income over the net income times taxes payable. This limits the foreign tax credit to roughly the domestic tax otherwise applicable to the foreign income. There are numerous variations and technical rules in the details of foreign tax credit calculations. Where a foreign tax credit is allowed, the general principles are described.
A tax credit is granted up to the amount of Portuguese tax payable on foreign income, which is calculated net of expenses on a per-country basis. By elections, profits of foreign PEs may be exempt. Credit for underlying tax may be available if the conditions for the participation exemptions are not fulfilled.
14. Losses
Losses typically can be carried forwards for a period of years, and sometimes can be carried back. Losses may be segregated into capital losses and non capital losses.
Tax losses generated can be carried forward for five years (twelve years for SMEs). There is no obligation to use the FIFO method when using carried forward tax losses.

The deduction of tax losses is capped at 70% of the taxable income.
It is not practical to list all of the tax treaties which a country has in a simple guide like this. Accordingly, a link is provided in each case to the tax treaties.
Some countries have entered into Tax Information Exchange Agreements (TIEA).
Treaties are more and more containing provisions that limit benefits (LOB provisions).
Double taxation Conventions in force: 78, including Angola
TIEA: 15

Portugal has already signed DTT with Timor-Leste which have not yet entered into force.
Withholding tax rates vary considerably from treaty to treaty, and countries may have domestic exemptions applicable in certain circumstances (for example copyright royalties, interest paid to arm’s length persons, etc.). A table shows the typical rates but cannot adequately summarize all of the details. The applicable treaty should be consulted.
Dividends – dividends paid to a nonresident company are subjects to a 25% witholding tax (35% if paid to a resident of a listed tax heaven). This rate may be reduced to 0% where the conditions for the domestic participation exemption regime are fullfilled and the recipient of dividends is resident in the EU/EEA and/or in a Country which has a double tax treaty in force with Portugal which provides for the exchange of information, as long as the company is subject to a tax similar to the Portuguese CIT with a tax rate which is not lower than 60% of the current Portuguese CIT tax rate.

Please be aware that special requirements to a Swiss Company:
  1. The subsidiary company has a shareholding of 25% from at least two years counting from the moment that the distribuition of dividends is performed;
  2. Both companies shall only be resident for tax purposes in Portugal or Switzerland according to DTT;
  3. Both companies shall be subject to a CIT without any applicable exemption;
  4. Both companies shall be incorporated a Limited Liabilty Companies.
Interests – interest paid to a nonresident company are subject to a 25% witholding tax (35% if paid to a resident of a listed tax heaven), unless reduced under a DTT.

Royalties – rotalty payments made to a nonnresident company are subject to 25% witholding tax, unless the rate is reduced under a DTT.

Under the EU interest and royalties directive, payments to qualifying EU recipients are exempt.
Some countries allow for the selection of year-end while other countries specify a particular year-end which all business entities must have. Normally the taxation year cannot exceed 12 months. Where it can exceed 12 months, this is noted.
The Portuguese tax year follows the calendar year and ends on the December 31st.
Please be aware that tax payers have the possibility to apply for different tax periods.
This is the due date for filing a tax return. Where extensions are available, this is noted.
The tax return must be filled within 5 months of the end of the accounting period. The supporting accounting and tax report must be filed by the 15th day of the seventh month following the company’s year-end. There are financial penalties for filing late or incomplete Portuguese tax returns.
The typical tax instalment requirements are noted.
Advance corporate tax and surtaxes are paid in instalments, both from Portuguese resident entities and from Portuguese permanent establishments of non-resident entities. Payments on account are computed based on the CIT assessed in the previous tax year, net of withholding taxes incurred that cannot be either offset or refunded.

If the amount of the payments on account exceeds the CIT due, the taxpayer is entitled to a refund corresponding to that difference.

Payments on account are due in July, September and 15th day of December of the respective tax year (otherwise on the 7th, 9th and until the 15th day of the 12th month of the tax year adopted, if different from the calendar year).
This is the date when the corporate tax owing for the year must be paid. It may be different from the tax return filing due date.
The company should pay the tax:
  1. In three instalments as explained in point 19;
  2. Until the end of the tax return filing period.
This is the period after which the tax department cannot in normal circumstances reassess a taxation year. It is sometimes referenced to the end of the taxation year and sometimes to the date of the first assessment of that taxation year.
As a general rule, the right to assess taxes expires within four years.

For regular taxes, the limitation period starts to run from the end of the year in which the taxable event occurred.

If the tax returns connect with events under criminal investigation, the limitation period extends until the investigation is closed or the case decided by court, plus one year.

The limitation period extends to 12 years when the tax assessment relates to undisclosed taxable events connected with black-listed tax havens or undisclosed deposit or securities’ accounts held in financial institutions located outside the EU.
If a country has exchange controls, this is noted, together with the main requirements.
No restrictions are imposed on payments to and from Portugal, although the Portuguese tax authorities must be informed of certain transactions.

Under an anti-money laundering measure, an individual leaving or entering Portugal with more than € 10.000 in cash or bearer instruments must report these to Customs.
23. VAT
A VAT tax system typically provides that the supply of goods and services is classified as taxable, tax exempt, or zero rated. Where a business is engaged in an activity which is taxable, it must charge VAT on its revenue, and can claim a refund of VAT on its expenditures. Where the activity is exempt, it does not charge VAT on its revenue, and cannot claim back VAT paid. Where the entity is engaged in activities which are zero rated (typically agriculture, food services and exports), then it can claim back VAT which it has paid on its expenditures, and does not charge VAT on its revenue.
If a country has a typical VAT system, this is noted. If a country has no VAT system but a sales tax system, this is indicated. Some countries may have a mixture, and taxes may apply at different levels (federal and state for example).
VAT is imposed on the provision of most services and the sale of most goods.

The standard VAT rate is 23% in Portugal mainland, 22% in Madeira, 18% in Azores.

There are some goods and services to which are applicable an intermediate rate of 13% in Portugal mainland, 12% in Madeira and 9% in Azores.

There are also some goods and services to which is applicable a reduced rate of 6% in Portugal mainland, 5% in Madeira and 4% in Azores.
Stamp duty, or land transfer tax, can apply on such things as the transfer of shares, land, or the issuance of bonds or debentures. This is described together with the applicable rates.
The Municipal Property Transfer Tax (“Imposto Municipal sobre as Transmissões Onerosas de Imóveis”) is a municipal tax levied on the transfer for consideration of real estate located on the Portuguese territory. Acquisition of more than 75% of a share capital of a company incorporated as a “LDA.”, which owns real estate, is also subject to IMT.

Rates are:
  1. 5% for rural real estate;
  2. up to 6% for urban real estate for residential purpose;
  3. up to 6.5% for other urban estate;
  4. 10% for taxpayers (not individuals) resident in a black-listed jurisdiction.
Exemptions may apply.

Real Estate transfers are also subject to stamp duty at a 0.8% rate.

There is no stamp duty on the transfer of shares or bonds.
If capital tax is payable, this is described. Capital tax may apply in specialized industries, such as banking and insurance, even if a country does not generally apply a capital tax to corporations.
Where significant, other taxes are noted.
Other autonomous taxations may apply on certain expenses incurred by entities subject to CIT.
Anti-Avoidance Rules take many forms, the most common ones are a general anti-avoidance rule, treaty shopping limitations, the requirement for economic substance (or a business purpose in carrying out transaction) and specific anti-avoidance rules for particular purposes. A very brief overview of the anti-avoidance rules is described.
General Anti-Avoidance Rule – Portugal tax authorities can disregard any arrangement that results from an abuse of law and that would not be set up for a purpose other than avoiding Portuguese tax.

Payments to entities located in tax heavens are not usually deductible.
Where a non-resident person holds shares of a corporation established in the country listed, the capital gain which results may be taxable or not taxable depending on the circumstances and, possibly, the existences of an international tax treaty. The general rules are noted.
Please see point 6) – “Capital Gains”, particularly the Participation Exemption regime.
Where a corporation is acquired through the purchase of shares, sometimes a step up is allowed so that the cost of its assets can be revalued. The main rules are briefly summarized.
Yes, on the acquisition of the target´s assets (properties, land, etc.), not on the acquisition of target´s shares.
In some countries, rulings are commonly used (and sometimes even required). In other countries the system is either unavailable or not commonly used except in special circumstances.
Three types: general, advance and advance pricing agreements (APAs).
31. Other
Other important aspects of the tax system are noted.
Social contributions: an employer is required to contribute 23.75% of the uncapped monthly gross salary of its employees, including board members. The contribution is deductible for corporate tax purpose
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