Portugal Country Profile EU Tax Centre March 2012
Key factors for efficient cross-border tax planning involving Portugal EU Member State
Yes
Double Tax Treaties
With: Algeria
Estonia
(d)
Panamá(e)
UK
Austria
Finland
Kuwait
Poland
Ukraine
Barbados(a)
France
Latvia
Romania
US
Belgium
Germany
Lithuania
Russia
UAE(g)
Brazil
Greece
Luxembourg
San Marino(f)
Uruguay(h)
Bulgaria
Guinea-Bissau(c)
Macau
Singapore
Venezuela
Canada
Hong Kong(i)
Malta
Slovakia
Cape Verde
Hungary
Mexico
Slovenia
Chile
Iceland
Moldova
South Africa
China
India
Morocco
Spain
Colombia
Indonesia
Mozambique
Sweden
Cuba
Rep. of Ireland
Netherlands
Switzerland
Czech Rep.
Israel
Norway
Tunisia
Denmark
Italy
Pakistan
Turkey
(b)
Note:
Residence
Rep. of Korea
(a)
Treaty signed on October 22, 2010, but not yet in force.
(b)
Treaty signed on August 30, 2010, but not yet in force.
(c)
Treaty signed on October 17, 2008, but not yet in force.
(d)
Treaty signed on February 23, 2010, but not yet in force.
(e)
Treaty signed on August 27, 2010, but not yet in force.
(f)
Treaty signed on November 19, 2010, but not yet in force.
(g)
Effective June 21, 2012.
(h)
Treaty signed on November 30, 2009, but not yet in force.
(i)
Effective as of January 1, 2013.
Companies are deemed resident in Portugal for tax purposes if the head office or “place of effective management” (regardless of the head office’s jurisdiction) is located there. These two requirements often occur simultaneously, providing consistency within tax law. Nonetheless, where this is not the case, the “place of effective management” is the decisive argument 1
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in the equation. According to Portuguese case law, the “place of effective management” can be defined as the place where the management decision-making is located, and where adequate substance (in the form of both people and buildings) exist. Resident companies are taxed on their worldwide income. Non-resident companies are taxed on their Portuguese source income only, as explicitly provided in law. Tax rate
Standard corporate income tax (“CIT”) rate: 25 percent, plus a municipal surcharge levied at a rate of up to 1.5 percent of the taxable profit and an additional state surcharge of 3% levied on the taxable profit between EUR 1,500,000 and EUR 10,000,000, and 5% levied on the taxable profit exceeding EUR 10,000,000.
Withholding tax rates
On dividends paid to non-resident companies 25 percent, unless the EU Parent-Subsidiary Directive applies. On interest paid to non-resident companies 25 percent, unless the EU Interest and Royalties Directive applies, in which case Portugal has a transitional regime: 5 percent from June 30, 2009 until June 30, 2013, and exempt thereafter. On patent royalties and certain copyright royalties paid to non-resident companies 15 percent, unless the EU Interest and Royalties Directive applies (see above).
Holding rules
Dividend distribution by resident/non-resident subsidiaries In case of a dividend distribution by EU subsidiaries, the exemption method can be applied if the following requirements are met: ■ participation requirement: 10 percent; ■ minimum holding period: 1 year or commitment. Capital gains The capital gains arising from the disposal of capital participations are exempt for holding companies (SGPS) that hold the capital participations for more than one year. Deductibility of costs All costs indispensable to obtaining taxable income and maintaining the productive source are deductible for tax purposes.
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■ Interest costs: Holding companies (SGPS) cannot deduct interest on ■ ■
financing obtained for the acquisition of participations; Acquisition costs: All costs indispensable to obtaining taxable income and maintaining the productive source are deductible; Costs on disposal: The costs arising on the disposal of capital participations are non-deductible for tax purposes for holding companies (SGPS) that hold the capital participations for more than one year.
Tax losses
Losses may be carried forward for 6 years until 2010, 4 years in 2010 and 2011, and 5 years for the tax losses assessed in 2012 and onward. However, the deduction of tax losses assessed in prior years cannot exceed 75% of the taxable profit of the year. Losses carried forward may be lost if, between the tax year in which the losses were suffered and the year they are used, there is a change in social purpose or the activity effectively performed by the company or 50 percent (or more) of its share capital has been transferred to different shareholders.
Tax consolidation rules
The parent must hold, directly or indirectly, for a minimum one year period, at least 90 percent of the subsidiaries’ share capital and 50 percent of the voting rights. All companies must be tax resident in Portugal and subject to Portuguese CIT on their worldwide income at the standard CIT rate. Entities with tax losses in the previous three years are not eligible for this regime, except if their share capital has been held by the parent for more than two years.
Registration duties
N/A.
Transfer duties
On the transfer of shares In principle, the transfer of shares is not subject to Municipal Property Transfer Tax. However, the acquisition of “quotas” in certain types of companies holding real estate may trigger Municipal Property Transfer Tax if: i) the acquirer ends up owning at least 75 percent of the share capital or ownership of such companies; or, ii) when the ownership is limited to two people – husband and wife married under the community of goods regime. The rate applicable to the transfer of urban property (not exclusively for residential purposes and other similar acquisitions) is 6.5 percent, levied on the higher of the purchase price or the Patrimonial Value. The transfer of nonurban property is subject to a rate of 5 percent. If the acquirer is resident in an offshore territory the applicable rate is 10 percent. On the transfer of land and buildings The Municipal Property Transfer Tax is due on the transfer of ownership rights or equivalent rights held in respect to real estate located in Portugal. As
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regards the applicable rates, please see section “On the transfer of shares” above. Controlled Foreign Company rules
Profits or other income derived by non-residents in Portuguese territory and subject to a more favorable tax regime can be attributed to the Portuguese resident shareholders who hold, directly or indirectly, even if through an authorized representative, a trustee or any intermediary with whom the taxpayer has “special relations”, at least 25% of the share capital, voting rights or equity rights of these entities (or 10 percent when more than 50 percent of the share capital of the non-resident company is held, directly or indirectly, by Portuguese-resident shareholders).
Transfer pricing rules
General transfer pricing rules Portuguese transfer pricing legislation generally follows the methodologies and principles of the OECD Transfer Pricing Guidelines. Nevertheless, specific rules are provided for in Article 63º of the CIT Code and in Ministerial Order nº 1446-C/2001, of December 21 (which provides detailed documentation rules)Portuguese transfer pricing rules apply to domestic and cross-border transactions undertaken by a Portuguese entity subject to CIT and other entities with a “special relationship” regarding the former. For these purposes, a “special relationship” is considered to exist between two entities when one entity has or may have, directly or indirectly, a significant influence in the management of the other entity. This concept captures not only legal relationships (direct or indirect shareholdings in excess of 10 percent) but also situations of economic dependency. Besides reflecting transactions on an arm’s length basis, taxpayers with annual net sales and other income equal to or greater than EUR 3,000,000 in the fiscal year prior to the year under consideration, need to prepare and maintain, for a period of 10 years, updated transfer pricing documentation. Documentation requirement? The taxpayer is required to have all the necessary documentation to prove that the transactions are at arm’s length. That documentation should be kept for a period of 10 years.
Thin capitalization rules
Interest related to the indebtedness of a resident entity to a non-EU-resident related party is non-deductible for tax purposes to the extent that it exceeds a debt-to-equity ratio of 2:1. Unless the lender is resident in a tax haven, these rules do not apply if the taxpayer provides evidence that the excess ratio is consistent with their business activities, the operation’s risk, and market practice.
General AntiAvoidance rules (GAAR)
The arm’s length principle.
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Specific AntiAvoidance rules/Anti Treaty Shopping Provisions
There are non anti-treaty shopping rules.
Ruling system
Yes.
IP / R&D incentives
Tax credit of 32.5 percent of total R&D expenses. In addition, 50 percent of the increase in R&D expenses relative to the average of the two preceding years is also deductible, up to EUR 1,500,000. From 2010, this percentage may be increased to 70 percent for expenses incurred in hiring researchers with a doctoral degree for the development of R&D activities, with the limit increased to EUR 1,800,000. According to the State Budget 2012, administrative expenses, capped at 55 percent of the costs for personnel directly involved in R&D activities, also qualify as R&D expenses for this regime. Additionally, these expenses are only deductible up to 90 percent of value for companies that are not considered small or medium-sized businesses.
VAT
The standard rate is 23 percent, and the reduced rate is 6 percent.
Hybrid Instruments
N/A.
Hybrid Entities
N/A.
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Source:
Portuguese tax law and local tax administration guidelines, updated 2012.
Contact us António Américo Coelho KPMG in Portugal T +351 210 110 919 E
antoniocoelho@kpmg.com
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