2010
International Tax and Business Guide connecting you to worldwide information
Portugal
A publication of Deloitte Touche Tohmatsu
= Portugal International Tax and Business Guide
Tax professionals of the member firms of Deloitte Touche Tohmatsu have created the Deloitte International Tax and Business Guides, an online series that provides information on investment conditions, tax regimes and regulatory requirements, along with information for executives working abroad. The Guides are supplemented by the Highlights series, an at-a-glance summary of basic information, including tax rates, for over 120 jurisdictions.
Contents 1.0 The investment climate 1.1 Economic structure 1.2 Banking and financing 1.3 Foreign trade
2.0 Business regulations
2.1 Registration and licensing 2.2 Price controls 2.3 Monopolies and restraint of trade 2.4 Intellectual property 2.5 Mergers and acquisitions
3.0 Foreign investment
3.1 Foreign investment incentives and restrictions 3.2 Exchange controls
4.0 Choice of business entity
4.1 Principal forms of doing business 4.2 Establishing a branch 4.3 Setting up a company
5.0 Business taxation
5.1 Overview 5.2 Taxable income and rates 5.3 Capital gains taxation 5.4 Withholding tax 5.5 Foreign income and tax treaties 5.6 Transactions between related parties 5.7 Turnover and other indirect taxes and duties 5.8 Other taxes 5.9 Tax compliance and administration
6.0 Personal taxation
6.1 Residency 6.2 Taxable income and rates 6.3 Special expatriate tax regime 6.4 Capital taxes
7.0 Labour environment
7.1 Employees’ rights and remuneration 7.2 Wages and benefits 7.3 Termination of employment 7.4 Labour-management relations 7.5 Employment of foreigners
8.0 Office locations
1.0 The investment climate Portugal is a parliamentary republic. 1.1 Economic Structure Portugal has developed an increasingly service-based economy. Growth has been particularly strong in the construction, financial, retail and telecommunications sectors. Tourism also is important. 1.2 Banking and financing Portugal’s banking sector, although relatively small in size, is one of the most productive in the EU, with high capital adequacy ratios and high profitability. It also is increasingly well regulated by the Bank of Portugal (the central bank), which oversees the entire financial services sector. Banks remain the main source of both short- and long-term funds. The bond market is small, and most issues are made through private placements. Sophisticated techniques, such as assetbacked offerings and non-recourse project finance, have become more common in recent years. 1.3 Foreign trade Portugal’s trade policy is similar to that of other EU member states. Principal exports are transport goods, clothing, and machinery and equipment. The EU absorbs the majority of these exports. One of the most significant trends in the past few years has been the rapid growth in trade links with emerging economies such as Angola, China and India.
2.0 Business regulations 2.1 Registration and licensing Industrial companies must obtain an operating licence. Depending on business activity, an environmental-impact statement or assessment also may be needed. Several other registrations and permits, such as a building permit from the local municipality, may be required. Commercial establishments require an operating licence issued by the local authorities. Large retail operations need a special permit issued by the Ministry of the Economy. Tourism facilities also require a specific licence. Licensing agreements should be drawn up in accordance with the EU regulation on the transfer of technology, which applies to agreements on the licensing of patents, know-how and software copyrights, as well as agreements combining any of these elements. EU rules on horizontal and vertical restraints and tie-in clauses also apply. There are no special controls on agreements between a Portuguese company and its foreign parent. Royalty contracts tend to follow international standards of a maximum of 5% of sales and a limit of five to 10 years. The royalty may be higher for the technology sector. 2.2 Price controls In theory, Portugal’s price-control legislation allows the Ministry of the Economy to monitor or set price or profit caps on a wide range of products. In practice, the government leaves pricing to market forces, with only a few exceptions. Price controls remain in special sectors where the government finds price regulation necessary (such as water, pharmaceutical products, school books and taxis). Many foodstuffs and some basic services are subject to price monitoring. 2.3 Monopolies and restraint of trade Portuguese competition law is based on EU legislation, which bans the restraints of trade and the abuse of a dominant position, except in certain well-defined circumstances. The Competition Authority is an independent institution with power to regulate competition in all sectors. The law prohibits agreements that “appreciably” prevent, distort or restrict competition in the whole or part of the national market. Particular types of agreements identified by the legislation 1
are price-fixing, market-sharing, artificial price or production restraints and discriminatory pricing. An exception to the rules on price-fixing and market-sharing can be made if the agreement contributes to an improvement in production or distribution, or promotes technical or economic development. EU regulations on horizontal and vertical restraints and on technology transfer agreements provide guidance on what is permissible and when clearance should be sought. The legislation does not prohibit monopolies per se, but bans the abuse of a dominant position and, therefore, any practices designed specifically to squeeze out competitors. Specific potential abuses include refusal to provide access to essential infrastructure when the network or infrastructure would be too expensive for new entrants to replicate at their expense, such as power grids and gas-transmission networks. It is also illegal to exploit the economic dependence of a supplier or customer. 2.4 Intellectual property The National Institute of Industrial Property handles intellectual property rights. Industrial property law governs the legal protection of inventions, creations and trademarks. Copyright law protects literary intellectual creations. The Industrial Property Code governs the legal protection of rights relating to trademarks and patents. Patent protection can also be obtained as part of an application for a patent for several European countries via the European Patent Office in Munich, or as part of an application for a patent in a number of countries worldwide through the World Intellectual Property Organisation (WIPO) Patent Co-operation Treaty. Trademark and design protection for Portugal can be obtained nationally as part of an application for EU-wide trademark or design through the Office for the Harmonisation of the Internal Market in Alicante, Spain. Portugal can also be designated as one of the countries in which protection is sought in an application under the WIPO Madrid Protocol. EU law also provides protection for unregistered designs. Copyright legislation is modelled on international and EU agreements. 2.5 Mergers and acquisitions Portugal’s merger and acquisitions (M&A) law is based on EU provisions. The Competition Authority must be given advance notification of an M&A event in the following cases: •
A merger or acquisition will create or reinforce a national market share of 30% for a specific good or service; or
•
In the last financial year, the companies participating in the merger or acquisition had a total turnover in Portugal greater than EUR 150 million (net of directly related taxes) and the individual turnover in Portugal of at least two of these companies was greater than EUR 2 million.
The Competition Authority must make a decision on a merger or acquisition within 30 working days from the date of notification. If the authority decides to open an in-depth investigation, the time limit for the final decision is extended for an additional 90 days. The European Commission has the sole right to review M&As when: •
The combined aggregate worldwide turnover of all the undertakings concerned is more than EUR 5 billion; and
•
The aggregate EU-wide turnover of each of at least two of the undertakings concerned is more than EUR 250 million, unless each of the undertakings concerned achieves more than two-thirds of its aggregate Community-wide turnover within one member state.
Where the above does not apply, the Commission still has jurisdiction if: •
The combined aggregate worldwide turnover of all the undertakings concerned is more than EUR 2.5 billion;
•
In each of at least three member states, the combined aggregate turnover of all the undertakings concerned is more than EUR 100 million; 2
•
The aggregate turnover of each of at least two of the undertakings concerned is more than EUR 25 million in each of at least three member states in the bullet point above; and
•
The aggregate EU-wide turnover of each of at least two of the undertakings concerned is more than EUR 100 million, unless each of the undertakings concerned achieves more than two-thirds of its aggregate EU-wide turnover within one member state.
3.0 Foreign investment 3.1 Foreign investment incentives and restrictions Portugal welcomes foreign investment. Many Portuguese companies are eager to form joint ventures with foreign companies that are willing to provide technical expertise, modern management methods and access to new markets. There are no distinctions between domestic and foreign investment and no sectors are barred from foreign investment. However, companies may operate in certain sectors, such as postal services and treatment and distribution of water, only through the concession of a management contract. Foreign investors should contact the AICEP (Agência para o Investimento e Comércio Externo de Portugal), which provides assistance and support to international investment that is likely to strengthen the Portuguese economy. Incentives offered to investors depend on factors such as the size of the investment and the creation of jobs. Portugal also has free trade zones in Madeira and the Azores that offer tax benefits. 3.2 Exchange controls There are no exchange controls in Portugal. Portugal does not restrict currency holdings by residents or nonresidents, nor does it limit the foreign exchange supply. Residents and nonresidents are free to hold deposits in any currency with Portuguese banks. There are no official guarantees against inconvertibility. Reporting requirements apply to banks and other financial institutions—such institutions must provide a wide range of information to regulatory institutions. Transactions of less than EUR 10,000 are exempt from the notification requirement. Any party that transfers an amount larger than this outside Portugal in foreign banknotes, gold, travellers’ cheques or bearer securities must declare it to the Portuguese customs authority. Money laundering rules are being tightened in accordance with the worldwide trend. Full information about clients of banks, notaries, art dealers and any other entities are required when transactions of more than EUR 12,500 are undertaken. Suspicious transactions must be reported.
4.0 Choice of business entity 4.1 Principal forms of doing business The Commercial Companies Code provides the legal framework for corporations. Three organisational forms are of particular interest to foreigners seeking to establish a company in Portugal: (1) the private limited liability or “quota” company (sociedade por quotas de responsabilidade limitada), the SA corporation (sociedade anonima) and the Societas Europaea (the SE, a company form designed for large European companies operating in several countries). Companies operating as an SA or a “quota” company may choose to adopt the legal status of a Portuguese “pure” holding company (SGPS). Only an SA may be a publicly traded company. Requirements of a corporation and a quota company Capital. SA: Minimum share capital is EUR 50,000. All shares must have the same nominal value, which may not be less than EUR 0.01. Bearer shares are allowed, but the capital of bearer shares must be fully paid up. Cash subscriptions may be deferred only up to 70% of the 3
nominal capital. Subscription of share capital may not be deferred for more than five years. Share capital may be in the form of properly audited assets, but in that case must be paid up in full. For the SE, the minimum share capital is EUR 120,000. Quota company: Minimum capital is EUR 5,000; the minimum value of each quota is EUR 100. Contributions may be in cash or assets. Where contributions are in cash, 50% may be deferred, and where in assets (which must be audited), the full amount must be paid up. Where contributions are a combination of the two, the assets must be paid up immediately and must not be less than the statutory capital. A total of 50% of the cash payment may be deferred. Founders, shareholders. SA: A minimum of five, or two if one of the shareholders is the Portuguese state. There are no restrictions on nationality or residence. Quota company: A minimum of two (although there is a separate company form for single-shareholder companies). There are no restrictions on nationality or residence. Board of directors. SA: The rules depend on whether the company opts for a single- or dualboard structure. In a single-board structure, companies with share capital of less than EUR 200,000 may have a single director. The only other requirement is that the number of directors cannot be an even number, so the minimum in that case is automatically three. There are no restrictions on nationality or residence. In a dual-board structure, management powers can be shared between a single director (if the share capital is less than EUR 200,000) and a board of up to five directors. There is also a Supervisory Board of up to 15 members. Quota company: Not required, although a managing director responsible to quota holders must be appointed. If the managing director is a legal entity, the entity must name one person as its representative. Disclosure. SA: Balance sheet and profit-and-loss statements must be approved annually within three months of the end of the financial year. Companies publishing consolidated accounts have five months. Quota company: Publication of accounts is required. Taxes and fees. A stamp tax of 0.4% is levied on the initial contribution of capital (an SGPS is exempt), and on share capital increases not made in cash there are notary and registration fees. The fees are set by statute, but vary depending on initial capital, the complexity of the articles of incorporation and the amount of work done. Control. SA: In a single-board structure, the single director or board of directors is either nominated in the articles of incorporation or chosen by the shareholders at a general meeting of shareholders. The board has power to make all key financial decisions. An SA with a singleboard structure can choose between appointing an audit committee or an external auditor. In a dual-board structure, the procedures for nominating the board are the same. The supervisory board is also nominated in the articles of incorporation. Decisions on changes to share capital may be taken only by the supervisory board. Other financial decisions are matters for the board of directors. In a dual-board structure, the appointment of an external auditor is compulsory. Quota company: The director only makes day-to-day decisions. A general meeting is required for all other decisions. Auditing is optional. 4.2 Establishing a branch Foreign companies are free to set up branches, agencies and representative offices. There is no minimum capital requirement for a branch. Apart from the differences in internal structure and organisation, a branch operates much like a corporation in its dealings with third parties. The activities of certain types of branches, in particular banks and other financial institutions, are subject to specific regulations. The creation of the SE company form is specifically designed to make it easier for large EU companies to operate across the EU via a branch structure. 4.3 Setting up a company Companies registering as corporations or limited companies do so through a Business Formalities Centre (CFE). These exist in major cities throughout Portugal. The following steps are required to set up a company: •
Request a Validation Certificate for the official signature or collective denomination of the company and a Collective Persons Provisional Identity Card (from the National Registry of Collective Persons); 4
•
Sign the deed of incorporation at the notary located at the CFE;
•
Obtain a Start of Activity Declaration from the Directorate General of Taxation;
•
Register with the Company Registry, post official notices on the public website and register with the National Registry of Collective Persons at the Company Registry support office located at the centre. This office will send all the documentation to the branch of the Company Register where the company has its registered office and will request payment of the fees for the publication of the required official notices; and
•
Obtain social security registration.
5.0 Business taxation 5.1 Overview Companies doing business in Portugal are subject to a number of taxes, including corporate income tax, municipal tax, various withholding taxes, value added tax (VAT), social security contributions, stamp tax and real estate tax. 5.2 Taxable income and rates The standard corporate tax rate in 2010 is 25%; the rate of 12.5% is imposed on the first EUR 12,500. In addition, a municipal surcharge is a local tax that is charged up to 1.5% of taxable profits, giving rise to a maximum possible effective tax rate of 26.5%. Corporate tax applies to companies and other corporate entities, including public enterprises, co-operatives and nonprofit organisations. Branches of foreign companies in Portugal are subject to the same tax regime as resident entities. Companies with registered or effective headquarters or permanent establishments in the semiautonomous regions of the Azores and Madeira benefit from tax reductions. Taxable income defined Corporate income tax is imposed on the worldwide profits of resident entities and Portugalsource income of nonresident entities. Under Portugal’s participation exemption, dividends received by a resident company from an EU resident are exempt from tax provided the recipient is not considered a transparent entity and has held directly at least 10% of the capital of the payor company (or the acquisition value of the participation is at least EUR 20 million) during one year before the distribution, which can be completed after dividends are distributed. Deductions A wide range of business expenses may be deducted in calculating the profits of a business. However, to be deductible, the expenses must be necessary for the purpose of producing taxable income and must be substantiated. Examples of deductible expenses are as follows: •
Expenses related to the production or purchase of goods or services, such as materials, labour, energy and other manufacturing, conservation and repair costs;
•
Financial expenses, such as loan interest, discounts given, brokers’ fees, differences in exchange rates, etc.;
•
Taxes (except for the corporate income tax and municipal surcharge) and social security contributions;
•
Amortisation and depreciation allowances;
•
Inventory adjustments, impairment of assets and provisions; and
•
Capital losses.
Companies investing in research and development (R&D) can deduct from their taxable base an amount corresponding to 32.5% of the expenses incurred during the taxable period. This 5
percentage is increased to 50% of the expenses exceeding the average investment amount in the previous two taxable periods, but limited to EUR 1.5 million. Examples of non-deductible expenses include: •
Corporate income tax, including any withholding tax and municipal surcharges;
•
Fines and penalties for non-contractual infringements;
•
Unsubstantiated allowances and expenses relating to employees’ travel when using their own vehicles for the employer’s account and not invoiced to clients; and
•
Expenses paid to residents of low-tax jurisdictions, unless the taxpayer can prove that the payment represents a genuine transaction, is not abnormal and is not excessive.
Depreciation Depreciation generally is calculated using the straight-line method, based on the historical cost of acquisition or approved revaluation amounts and the useful life of the asset. However, the declining-balance method may be used for new tangible assets, other than buildings, private passenger vehicles (unless they are used for public transport or rental activities) and office furniture. Under the declining-balance method, annual depreciation is calculated with the straight-linemethod rates, increased by 50% if the useful life of the asset is less than five years, 100% if the useful life is five to six years or 150% if the useful life is more than six years. Other depreciation methods may be used if they are justified, the same applicable minimum and maximum useful lives of the assets are used and permission is obtained from the tax authorities. Depreciation rates are fixed by a regulatory decree for various types of assets in several sectors, including: agriculture; fisheries; mining; manufacturing; construction and public works; electricity, gas and water utilities; transport; communications; and services. For assets in other sectors, the following annual rates apply: buildings for commercial use, 2%; buildings for industrial use, 5%; light construction, 10%; machines, equipment and tools, 12.5%–25%; computers, 33.33%; transport equipment, 4%–25%; computer software, 33.33%; and expenses for setting up a company, 33.33%. Patents can be depreciated under the straight-line method over their period of exclusivity. When a company has two eight-hour work shifts daily, depreciation rates on plant and machinery may be increased by up to 25% (up to 50% if the company has more than two shifts). In other special cases, increased depreciation rates may be used with the specific permission of the tax authorities. The government may periodically provide for the revaluation of assets, allowing companies to increase the depreciable base of their assets. Tangible fixed assets may be revalued according to a set of published coefficients. Only 60% of the revaluation gain may be depreciated for tax purposes. Inventory is valued at the lower of cost or market value using the average method or other methods commonly accepted in industry—for instance, first-in, first-out (FIFO). Losses Losses generally may be carried forward for up to six years; loss carryback is not permitted. 5.3 Capital gains taxation Capital gains derived by resident companies are usually added to regular income and taxed at the standard corporate income tax rate. There is a general exemption for 50% of the gains derived from the disposal of tangible fixed assets and financial assets held for at least one year provided the total proceeds arising from the disposal are reinvested within a prescribed period. This regime also applies to gains on the disposal of shares representing at least 10% of the company's capital (or an acquisition value of EUR 20 million) if the acquisition and disposal did not involve related parties or residents of listed tax havens.
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In case of a capital loss on the sale of shares, only 50% of the amount is tax deductible. However, if the shares have been held for less than three years and the transaction involves another entity of which the company is a related party, a party located in a tax haven or in the Free Zones of Azores or Madeira, the losses are not deductible. Capital gains on the disposal of shares derived by the SGPS generally are exempt provided that shares have been held for at least one year. 5.4 Withholding tax Dividends Dividends paid to a nonresident company are subject to a 20% withholding tax unless reduced under an applicable tax treaty or if the dividends qualify for an exemption under the EC ParentSubsidiary Directive (the holding of at least 10% of the company's capital or an acquisition value of EUR 20 million for at least one year is required). Branches are not subject to withholding tax on profits remitted abroad. Interest Interest paid to nonresidents is subject to a 20% withholding tax unless the rate is reduced under an applicable tax treaty. Under a transitional regime in the EC Interest and Royalties Directive, Portugal is authorised not to apply the exemption from withholding tax until 30 June 2013. During this transitional period, the Portuguese withholding tax on interest payments made to an associated company of another member state or its PE situated in another member state could not exceed 10% until 30 June 2009. For the following years until 30 June 2013, a 5% withholding tax applies. Royalties and fees Royalties paid to nonresidents are subject to a 15% withholding tax unless the rate is reduced under an applicable tax treaty. Under a transitional regime in the EC Interest and Royalties Directive, Portugal is authorised not to apply the exemption from withholding tax until 30 June 2013. During this transitional period, the Portuguese withholding tax on royalties made to an associated company of another member state or to its PE situated in another member state could not exceed 10% until 30 June 2009 and is 5% for the following years until 30 June 2013. 5.5. Foreign income and tax treaties Portugal has increasingly expanded its tax treaty network. In the cases of agreements with the EU, however, the rates may be overridden by EC directives. The table below contains the withholding tax rates that apply to dividend, interest and royalty payments by Portuguese companies to nonresidents under Portugal’s tax treaties. Domestic rates apply if they are lower than the treaty rate. Withholding tax rates under Portugal’s tax treaties Treaty Partner
Dividends
Interest
Royalties
Algeria
10/15
15
10
Austria
15
10
5/10
Belgium
15
15
10
Brazil
10/15
15
15
Bulgaria
10/15
10
10
Canada
10/15
10
10
7
Withholding tax rates under Portugal’s tax treaties Treaty Partner
Dividends
Interest
Royalties
10
10
10
Chile
10/15
5/10/15
5/10
China
10
10
10
Cuba
5/10
10
5
Czech Republic
10/15
10
10
Denmark
10
10
10
Estonia
10
10
10
Finland
10/15
15
10
France
15
10/12
5
Germany
15
10/15
10
Greece
15
15
10
Hungary
10/15
10
10
Iceland
10/15
10
10
India
10/15
10
10
Indonesia
10
10
10
Ireland
15
15
10
Israel
5/10/15
10
10
Italy
15
15
12
10/15
15
10
Latvia
10
10
10
Lithuania
10
10
10
Luxembourg
15
10/15
10
Macao
10
10
10
Malta
10/15
10
10
Mexico
10
10
10
Morocco
10/15
12
10
Cape Verde
Korea (R.O.K.)
8
Withholding tax rates under Portugal’s tax treaties Treaty Partner
Dividends
Interest
Royalties
Mozambique
10
10
10
Netherlands
10
10
10
Norway
10/15
15
10
Pakistan
10/15
10
10
Poland
10/15
10
10
Romania
10/15
10
10
Russia
10/15
10
10
Singapore
10
10
10
Slovakia
10/15
10
10
Slovenia
5/15
10
5
South Africa
10/15
10
10
Spain
10/15
15
5
Sweden
10
10
10
10/15
10
5
Tunisia
15
15
10
Turkey
5/15
10/15
10
Ukraine
10/15
10
10
United Kingdom
10/15
10
5
United States
5/15
10
10
Venezuela
10
10
10/12
Switzerland
5.6 Transactions between related parties Transfer pricing Portugal’s transfer pricing rules impose substantial filing and documentation requirements on domestic companies with annual total revenues of EUR 3 million or more in the previous fiscal year. The Portuguese regime generally follows OECD’s transfer pricing guidelines and thus the arm’s length principle must be applied to transactions between related parties. The definition of related parties is quite extensive and includes entities related through at least 10% participation (capital or voting) or entities with common management members; entities will be considered related if they are otherwise dependent by virtue of commercial, financial, professional or legal ties. 9
In documenting their transfer pricing practices, taxpayers must adopt the most suitable transfer pricing method(s) to ensure the highest degree of comparability with substantially similar transactions carried out between unrelated parties, taking into account all relevant factors in the context of the functional analysis. The preferred transfer pricing methods are the comparable uncontrolled price method, the resale price method and the cost-plus method. Where such methods cannot be applied reliably, the profit-split method, the transactional net margin method or other justified method may be used. Advance pricing agreements were introduced in the Portuguese regime in 2008. Taxpayers may conclude unilateral advance pricing agreements with the tax authorities for domestic transactions. For transactions involving nonresidents, a bilateral or multilateral advance pricing agreement is available when the related counterparts of the Portuguese taxpayer are residents of countries that have concluded an effective tax treaty with Portugal. Thin capitalisation Under Portugal’s thin capitalisation rules, companies are considered to be related whenever one company is in a position to have a significant direct or indirect influence on the other company’s management. The thin capitalisation provisions are not applicable to EU resident entities. The portion of the total debt (including any loans, guarantees and trade-related credits more than six months overdue) that exceeds twice the amount of the holding of the lender in the total capital of the company is considered to be excessive. Interest paid on excessive debt generally may not be deducted unless the taxpayer shows that the loan conditions and level of indebtedness would be similar if agreed with an unrelated party. Controlled foreign companies A Portuguese resident shareholder owning, directly or indirectly, at least 25% of a controlled foreign company (CFC) is subject to tax on its allocable share of the CFC’s net income. However, if at least 50% of the CFC’s shares are owned, directly or indirectly, by Portuguese residents, the minimum required shareholding is reduced to 10%. Consolidated returns A group of companies may file a consolidated tax return when the dominant company holds, directly or indirectly, at least 90% of the share capital of other companies and the participation grants the dominant company more than 50% of the voting rights. Companies may opt to file a consolidated return when: •
All members of the group have their seat or place of effective management in Portugal and are subject to taxation on their worldwide income;
•
The dominant company holds the participation in the group companies for more than one year;
•
The dominant company is not considered controlled by other companies; and
•
The dominant company has not renounced the consolidated regime in the three previous years.
Each company in the group must complete its own tax return, and the dominant company submits a consolidated tax return on behalf of the group. Tax losses can be used to offset profits between companies in the consolidated group. 5.7 Turnover and other indirect taxes and duties VAT is levied on the supply of goods and services in Portugal and on imports. There are three VAT rates: a standard rate of 20%, an intermediate rate of 12% and a reduced rate of 5%. The VAT rates in Madeira and the Azores are 14%, 8% and 4%. Excise and other special taxes apply to motor vehicles, petrol, gambling, transport services and mining production, among others. Consumption taxes are levied on tobacco, alcohol, other drinks and petrol.
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5.8 Other taxes There is a municipal tax on property sales and transfers. A single rate of 6.5% applies to sales or transfers of urban property not for residential purposes. The rate for rural property is 5%. Taxes on the sale or transfer of urban buildings or apartments exclusively for residential purposes vary depending on the taxable value of the property with the limit of 6%. The tax is 8% if the purchaser is resident or headquartered in a low-tax jurisdiction. In addition, annual municipal property tax is levied on the taxable value of urban and rural property. Stamp duty is applied on documents required for certain business operations (document duty) and the operations themselves (operation duty). 5.9 Tax compliance and administration The tax year is generally the calendar year. Taxpayers must file their corporate tax returns for a tax year by the last day of May of the following year and a supporting accounting and tax report (including statutory accounts and information related to payments to nonresidents, employees and independent professionals) by 15 July of the following year. If the financial and tax year do not correspond to the calendar year, a company must file its final return by the end of the fifth (tax return) month and the supporting accounting and tax report by the 15th of the seventh month following the end of the tax period. Electronic filing is mandatory. Taxpayers are required to have at least one bank account through which the main payments and receivables related to their economic activities are recorded. This bank account should record any shareholder loan payments or payments from or to the entity by the shareholders. Any outstanding tax liability must be paid at the time the annual return is filed and any excess tax must be refunded within three months of the deadline for filing the annual return (unless a taxpayer elects to set the refundable amount off against its future corporate income tax liability). Companies must retain their statutory accounts and related documents for 10 years. After three years and upon a request to the tax authorities, supporting documentation and accounting records may be maintained in digital format.
6.0 Personal taxation 6.1 Residency Individuals resident in Portugal are subject to tax on their worldwide income. An individual is resident if he/she spends 183 days or more in a calendar year (either continuously or interrupted) in Portugal or if on 31 December of a calendar year he/she has a residential accommodation that is a permanent residence. Nonresidents are taxable only on Portuguesesource income (subject to relief under an applicable tax treaty). 6.2 Taxable income and rates Portugal has a pay-as-you-earn (PAYE) system of income tax under which employee tax is withheld at source by the employer. Portugal imposes progressive rates, ranging from 10.5% to 42%, depending on income; exemptions are granted to taxpayers with specific types of income. A number of deductions (up to specified amounts) are available, including education expenses, life insurance premiums, pension plan contributions and union fees. There are also personal tax credits that depend on marital status, the number of children and income. Determination of taxable income The tax code defines six categories of income that are subject to personal income tax: wages, business and professional income, capital income, rental income, net worth increases and pensions. Wage income is defined as income received from work for a third party. Business and professional income includes income from the provision of all services, as well as income from independent work. Capital income is any kind of economic benefit, in cash or kind and of 11
whatever nature, that arises directly or indirectly from the ownership of movable property, assets, rights to or other legal powers over financial securities and the modification, transfer or termination of the same with the exception of income taxed under other categories. Capital gains on the sale of shares are taxable at 10% if the shares were held for less than 12 months; otherwise, they are tax free (however, if a company is not a corporation or if more than 50% of the total assets of the company are in the form of Portuguese real estate, the exemption does not apply). Capital gains are net of capital losses. Income from dividends or holdings in “quota” companies is taxed at the personal income tax rate applicable to the individual but the taxable amount may be reduced by 50%. Tax on interest or yield from bonds, debt certificates or mutual funds is levied via a final withholding tax, although the taxpayer has the option to include such income in the remaining taxable income (in this case, the withholding tax paid may be credited against the final tax to be paid). Gains from the sale of a private residence are not subject to tax if the proceeds are totally reinvested in the acquisition of another residence. Residents are liable to tax on capital gains derived from the sale of intellectual or industrial property (taxed at 50% of the increase in net worth, similar to the taxation of capital gains arising from other types of transactions). For nonresidents, such gains are taxable only if the relevant property is registered in Portugal. There are two regimes applicable to self-employed professionals: a simplified regime (applicable under the fulfilment of certain conditions) and the organised accounting regime. Taxpayers resident in the semi-autonomous regions of the Azores and Madeira benefit from tax reductions. 6.3 Special expatriate tax regime Nonresident employees are subject to withholding tax on Portuguese-source income at a flat rate of 20%. A special expatriate tax regime (the non-habitual residents regime) applies with respect to inward expatriates who arrived in Portugal on or after 1 January 2009. Under the new regime, income related to work or services rendered in Portugal is subject to a flat 20% rate (the activities covered by this regime are not yet determined). Other Portuguese-source income is subject to the same taxation as income derived by Portuguese residents. Foreign-source income is exempt in Portugal if, generally speaking, it is taxed or may be taxed in the country of source. An expatriate, however, may elect to renounce the exemption (credit for foreign taxes will be given instead). The regime will be applied for 10 consecutive years to individuals who have not qualified as Portuguese residents in the five preceding tax years. 6.4 Capital taxes There are no capital taxes in Portugal except for annual municipal property tax levied at rates from 0.2% to 0.8% of the registered value of the property, depending on its classification as urban or rural and the municipality in which it is situated.
7.0 Labour environment The Labour Code was substantially revised with effect as from 1 January 2009, with a view to strengthen employee protection and improve the labour environment. 7.1 Employees’ rights and remuneration The Labour Code includes rules on employee rights, the bargaining power of trade unions, working hours and the use of fixed-term contracts (with the term up to three years, which can be renewed up to three times) and strike regulations. 12
Working hours The working week is usually 40 hours, although this is flexible. Overtime is limited to two hours a day up to 150 hours per year in medium-sized and large enterprises and 175 hours in microand small enterprises (EU definitions of micro-, small, medium-sized and large enterprises apply). Working hour limits and overtime requirements do not apply to managerial staff. The non-working day is Sunday. There are 13 public holidays, and paid absence is allowed in certain circumstances, including marriage, illness and the death of close relatives. Shift timetables for continuous factory functioning must comply with established norms. Most collective agreements provide for shift work and stipulate the respective pay premiums. 7.2 Wages and benefits A statutory monthly minimum wage (EUR 450 in 2009) is set annually by the Ministry of Employment. The first hour of overtime during the normal working week is remunerated at 150% of the basic wage; subsequent hours are remunerated at 175%. Weekend work or overtime on any other official rest day or holiday is paid at 200% of the weekly wage. Workers may agree to be provided with paid time off in lieu of overtime pay. An employer is required to make contributions to social security. The employer’s contribution is 23.75% of the salary, and the employee’s contribution is 11%. The base for the social security contributions will be significantly extended as of 2011 to include items other than salary with full effect from 2013, preceded by a transitional period of two years. From 2011, the employee’s contribution will be 22.75% and 26.75% for fixed-term contracts. The social security system covers pensions, unemployment and care insurance. Pensions Decree Law No. 187/2007 establishes the legal rules of the general social security regime concerning retirement and disability. The retirement benefit of workers who entered the social security system before 2001 is calculated on the basis of a proportionate formula weighing the 10 best years of earnings from the last 15 years of a worker’s career and taking into account lifetime contributions. The retirement benefit of those who entered the system after 2001 will be based on lifetime contributions. Although the official retirement age is 65, an increase in the average life expectancy from current levels will trigger a reduction in payments. The reduction can be offset through higher initial contributions or by remaining employed beyond 65 years of age. Social insurance The social security system funds unemployment pay, pensions, cash benefits for sickness, occupational injury, disability and maternity leave. There is a national health system and the state pays family benefits and guarantees a minimum income for those without employment who are not entitled to unemployment pay. There are contractual and voluntary systems in place to supplement these arrangements. In the case of corporate restructurings, there are restrictions on the number of employees in each company who are entitled to unemployment benefits. In addition, unemployment benefits recipients are required to accept an employment offer for a lower-paying position. The duration of unemployment benefits, which was previously solely dependent on age, also takes employee contributions into account. Other benefits All workers are entitled to paid annual vacation of 22 working days after one year of continuous employment, and to two days per month worked for any period less than a year. To combat absenteeism, employees are eligible for a maximum of three extra days if they do not have more than one full day or two half-days of unjustified absences. Employees can receive cash in lieu of time off for any holiday entitlement above 20 days. Fixed-term contract workers have the same entitlements. If their contract is for six months or less, they are entitled to two days’ vacation for every month of service.
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The labour law merely sets the minimum requirement; the actual length of the vacation is usually set by collective labour agreements, which cover an estimated 80% of blue collar workers and 50% of white collar employees. Bonuses are usually paid to management, supervisory and highly qualified personnel—the amount depends on rank and performance. Such bonuses, often paid in cash, cars, petrol and credit cards, are in addition to the summer and Christmas bonuses. Large companies provide group pensions and health insurance. Parental leave is up to 150 uninterrupted days, which may be enjoyed by one of the parents. In the event of multiple births, the maternity leave entitlement is increased by 30 days for each additional child. The father is entitled to 10 days off within 30 days following the birth and is able to increase this period if he shares the 150 days period granted to the mother. In addition, the mother is entitled to benefit from a reduced work schedule during the period of one year. 7.3 Termination of employment Employers may only dismiss employees for just cause, although collective dismissals are permitted on economic grounds. Redundancy payments are mandatory. An employee and employer may jointly terminate a contract. The number of days of notice required for an employee to rescind an employment contract depends on how long the worker has been employed. To rescind an employment contract without notice, an employer must have just cause on disciplinary grounds. Reasons include unjustified disobedience; violation of the rights and guarantees of other workers; repeated neglect of professional duties; and damaging the general interests of the company. Dismissal for just cause must be part of a formal disciplinary process. Employees who believe they have just cause for renouncing a contract because, for example, they have not been paid or the employer has not provided adequate health and safety protection, may leave without giving notice and are entitled to compensation based on length of service. Another justification for dismissal is the inability of an employee to adapt to new technology or manufacturing processes. To invoke this justification, an employer must show that: (1) new technologies or processes have been introduced for the job in question during the previous six months; and (2) the worker has failed to meet agreed objectives after a sufficient period of adaptation and adequate retraining. The permission of the Labour Inspectorate will be needed. Collective redundancies are subject to strict consultation procedures set out in the Labour Code (as are transfers to a new employer as the result of a takeover or merger). Collective redundancies are possible if it can be proven that the company is facing unfavourable market forces or needs to restructure either financially or technologically. Redundancy becomes collective as soon as two or five employees are laid off within a period of three months. The threshold depends on whether the company is a micro- or small company under EU definitions, or is considered medium-sized or large. Workers being made redundant must be given 15-75 days’ notice depending on the length of employment, or pay in lieu. They are also entitled to one month’s pay for each year of service, with a minimum of three months pay. Some collective agreements provide for more generous levels of compensation. Temporary lay-offs are permissible—normally for a period of six months, but may be extended for up to a year in exceptional circumstances. The worker must receive at least the minimum wage during that period or no less than two-thirds of their normal pay, whichever is higher. The employer provides 30% of such pay; the remainder is provided by the government. Employers are expected to provide training to laid off workers so that they are employable after a technological restructuring. If this training plan is approved by the authorities, the employer’s contribution to wages during this period drops to 15%. A company may not pay dividends during a period when it has laid off workers. 7.4 Labour-management relations The Labour Code protects trade union rights. Union membership is voluntary. There are regular tripartite discussions between the government, employers and unions to set the broad framework for negotiations on wages and conditions. Companies must make provisions for worker consultation. Each company must have a workers’ committee, and where the workplaces 14
are dispersed there should be one sub-commission per workplace. Companies with more than 1,000 employees across the EU and more than 150 in each of more than two EU member states must set up a European Works Council. Every employee must have a contract, but pay and working conditions can be agreed by individual contract or by workplace, company or sectoral collective agreements. Sectoral agreements (which are binding) are common in “old” industry sectors, such as textiles or metalworking. They must include terms at least as favourable as those in the basic labour laws, and they take effect only after publication in the bulletin of the Ministry of Employment. When an employer and its workers disagree over a collective accord, an attempt at conciliation is made. If this fails, a three-member arbitration committee is formed. Each of the two parties appoints one member of the committee; the two members choose the third. The Labour Code guarantees workers the right to strike and to picket peacefully, and prohibits employer lock-outs. Strikes may be declared either by unions or, in non-unionised plants, by workers’ meetings (if the lesser of 200 or 20% of the firm’s workers are present). Worker representatives must give five days’ notice of a strike to the Ministry of Employment (to obtain approval) and to management. The workforce must put forward a plan for essential maintenance during the strike as part of the notice to strike. In certain industries, such as utilities and networked industries, there is also a minimum service requirement. 7.5 Employment of foreigners A work permit is not required for nationals of the EU and certain other European countries. Individuals from all other countries must apply for a work visa at a diplomatic mission or Portuguese office abroad. No permit is needed for a business trip of up to three months. An individual seeking to work in Portugal must have an employment contract before arrival, and this must have been authorised by the General Labour Inspectorate and approved by the Institute for Employment and Vocational Training. The authorities will expect to see proof that an adequate salary will be paid and that the person has found or will find adequate accommodation. Qualifying individuals will be provided a 60-day entry permit and will be required to apply for a permit-to-stay upon arrival. This is normally granted for two years renewable and is job-specific. A permanent permit-to-stay may be granted after five years. There is also a recognised category for highly qualified employees. An executive of a multinational, or an employee with a particular scientific or technological skills set, can obtain a work permit on these grounds if the local authorities in the area where the company is situated certify that a local employee with the same qualifications is not available. Short-term employment in the tourism industry is covered by special, more relaxed, provisions.
8.0 Office locations To find out how our professionals can help you in your part of the world, please contact us at the headquarters office listed below or through the “contact us” button on http://www.deloitte.com/tax. Lisbon
Porto
Edifício Atrium Saldanha
Bom Sucesso Trade Centre
Praça Duque de Saldanha, 1 - 6º
Praça do Bom Sucesso, 61 - 13º
1050-094 Lisboa
4150-146 Porto
Tel: + (351) 210 427 500
Tel: + (351) 225 439 200
Fax: + (351) 210 427 950
Fax: + (351) 225 439 650
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