Portugal

Market overview

The corporate tax reforms that have been taking place in Portugal over the past few years are viewed by advisers in the jurisdiction as largely positive. These tax reforms where tied into general reforms of Portugal's economy and sovereign debt structures after the sovereign debt crisis consumed the country in 2010. Designed to make the country more competitive, the reforms were an attempt to attract investors with a stable environment and ultimately boost tax revenue without stifling growth.

The reforms did not escape the influence of the BEPS Project, with Portugal's legislation made to be BEPS compliant before the report was released in full. This included provisions covering Action 2 on hybrid structures and Actions 4's stance on interest deductions.

Further changes to domestic law are expected to address the concepts of master file, and a new Portuguese law which appears to be based very closely on the recommendations of the OECD has introduced a country-by-country reporting (CbCR) obligation, this took effect on January 1 2016.

Further reforms to the tax system are set to be put on hold however as the political situation shifts in Portugal. November 2015 saw the Socialist party take power from the Social Democratic party which first introduced the reforms.

The new prime minister António Costa has pledged to reverse some of the more unpopular measures of the austerity and the fiscal reforms including the proposed corporate tax rate cut to 17%.


Tax authorities

Directorate General for Taxation
Rui da Prata 10 2nd Floor, 1149-027 Lisbon
Tel: +351 21 882 3093
Fax: +351 21 881 2938
Email: dsirs@at.gov.pt
Website: www.portaldasfinancas.gov.pt


Tax rates at a glance

(As of April 2016)

Corporate income tax 21% (a)
Municipal surcharge 1.5% (b)
Corporate income tax – state surcharge 3/5/7% (c)
Capital gains 0/21/25% (d)
Branch tax 21% (a) (b) (c)
 
Withholding tax
Dividends 0% to 35% (e)
Interest 0% to 35% (f)
Royalties from patents and licences 0% to 35% (g)
Branch remittance tax n.a.
 
Net operating losses (years)
Carryback 0
Carryforwards 12 (h)

  1. Corporate income tax (CIT) applies to resident companies and non-resident companies with permanent establishments in Portugal. Small and medium-sized companies can benefit from a 17% reduced rate for the first €15,000 ($20,000) of taxable profit.
  2. A municipal surcharge of up to 1.5% is generally imposed on the taxable profit determined for CIT purposes. Certain municipalities do not levy the surcharge.
  3. A state surcharge of 3% is imposed on the taxable profit determined for CIT purposes between €1.5 million and €7.5 million. If the taxable profit for CIT purposes is more than €7.5 million, the state surcharge is levied at a rate of 5% on the excess up to €35 million. If the taxable profit for CIT purposes is more than €35 million, the state surcharge is levied at a rate of 7% on the excess.
  4. Gains on the disposal of shares may be exempt from tax, provided certain requirements are met. Non-resident companies that do not have a head office, effective management control or a permanent establishment in Portugal are taxed at a 25% rate on taxable capital gains derived from disposals of real estate, shares and other securities. For this purpose, a tax return must be filed. A tax treaty and/or a domestic exemption may override this taxation.
  5. Dividends paid to non-resident companies are taxed at 25%. The rate of 35% applies if dividends are paid to a resident of a listed tax haven, or in cases where the beneficial owner of the income is not properly disclosed. The rate may be reduced under a tax treaty or exempt under the participation exemption regime (if the beneficiary is resident in EU/EEA, a tax treaty country and if certain other conditions are met).
  6. The rate for interest paid by companies is 25%. The rate of 35% applies if interest is paid to a listed tax haven or in cases where the beneficial owner of the income is not properly disclosed. The rate may be reduced under a tax treaty or exempt under the EU Interest & Royalties Directive.
  7. Royalties paid to a non-resident are taxed at 25%. The rate of 35% applies if royalties are paid to a listed tax haven or in cases where the beneficial owner of the income is not properly disclosed. The rate may be reduced under a tax treaty or exempt under the EU Interest & Royalties Directive.
  8. For tax losses computed before 2010, the prior six-year carry-forward period applies. For tax losses computed in 2010, a four-year carry – forward period applies. For tax losses computed in 2012 or 2013, a five-year carry-forward period applies. For tax losses used from January 1 2014, the amount deductible each year is capped by 70% of the taxable profit for the year.

Source: EY and Garrigues, Taxand Portugal