Answer ... Non-resident corporate taxpayers with a permanent establishment in Portugal are subject to taxation on their taxable profits attributable to such permanent establishment. Non-resident corporate taxpayers without a permanent establishment in the Portuguese territory are subject to taxation only on income deemed to be obtained (sourced) in Portugal.
Answer ... Payments made by corporate taxpayers to non-resident entities related to dividends, interest, royalties, rental income and services are usually subject to withholding tax, normally at a corporate income tax (CIT) rate of 25%, which may be reduced to between 5% and 15% under the terms of an applicable double tax treaty as long as the following formalities are complied with at the date on which tax is due:
- presentation of the relevant tax form (Model 21-RFI), duly certified by the foreign tax authorities; and/or
- presentation of a certificate of residence issued by such foreign tax authorities with respect to a non-resident beneficiary of income paid by a Portuguese resident entity.
Dividends may not be subject to withholding tax in Portugal either due to the application of the participation exemption regime or because of the application of the EU Parent-Subsidiary Directive provisions transposed in the CIT Code, if the conditions set out under those regimes are met.
Interest and royalties may also be exempt from withholding tax under the terms of the EU Interest and Royalties Directive transposed in the CIT Code, as long as certain conditions are met.
An exemption applies to interest on bond issues (including public debt) held by non-residents and not attributable to a permanent establishment in Portugal, subject to controls as provided for in the relevant legislation.
An exemption applies in principle to interest on loans (not attributable to a permanent establishment in Portugal) from non-resident financial institutions to resident credit institutions, or to certain public bodies, and to gains on swap operations involving these entities.
Upon request, an exemption may apply to income (not attributable to a permanent establishment in Portugal) from loans or leasing operations between non-resident entities and certain public bodies.
Investment income paid to entities which are tax resident in backlisted countries or territories is subject to an increased withholding tax of 35%.
In general, when applied to income obtained by non-resident entities, such withholding tax is definitive and liberates such entities from the obligation to file a tax return in Portugal.
Answer ... According to the Portuguese Constitution, international law prevails over national law. As a result, double and multilateral tax treaties signed by Portugal prevail over the domestic tax rules as long as they remain in force.
Answer ... In the absence of treaties, the CIT Code foresees a unilateral tax credit for the purposes of eliminating double taxation, which must correspond to the lowest of the following amounts:
- income tax paid abroad with respect to relevant income that is also subject to tax in Portugal; or
- the CIT fraction assessed before the deduction, corresponding to the net income that may be taxed in the respective country.
Where a double tax treaty applies, the tax credit may not exceed the tax that should have been paid abroad according to the terms foreseen under the applicable double tax treaty.
Answer ... If a non-resident entity makes an inbound investment in the Portuguese territory by means of an asset acquisition (eg, a business unit acquisition), such operation may result in a step-up in the acquired asset basis for tax purposes (as it will be registered for accounting purposes taking into consideration its new acquisition value), thus allowing for a higher tax depreciation (which includes depreciation of the goodwill in a concentration of business activities), unless that entity opts for a tax neutrality regime.
On the other hand, in the case of the acquisition of a company (or shares in a company), there is no step-up in the tax basis of the assets of the company (and the goodwill concerning the shares is not tax deductible).
In the past, in times of high inflation, a step-up in the asset basis for tax purposes was recurrently provided for.
For companies under privatisation, a step-up in the asset basis for tax purposes has also been provided for.
More recently, an optional one-off step-up in the asset basis was provided for in exchange for a 14% tax on the increase in the tax basis (ie, pay tax now in exchange for a lower tax rate tomorrow – a synthetic loan in substance).
Answer ... The CIT Code foresees an exit tax regime applicable to tax resident companies (including Societas Europaea companies and European cooperative societies) that transfer their head office and effective management abroad. Under this regime, CIT will apply to the taxable gain or loss corresponding to the difference between the market value of the assets and their respective tax basis (even if they are not expressed in the company’s accounting records), as of the date on which the activity closes, except for assets and liabilities remaining in Portugal as part of a Portuguese permanent establishment of the transferring company if certain conditions are met. If residence is transferred to a member state of the European Union or (where there is administrative cooperation for tax purposes) the European Economic Area (EEA), the transferor may choose to pay the tax due according to one of the following methods:
- full payment in one immediate instalment upon the transfer of residence;
- payment in the year following the extinction, transmission or detachment from the entity’s activities of the relevant asset(s) or their transfer, in full or in part, to a territory outside the European Union or (if there is no mandatory administrative cooperation for tax purposes) the EEA, in which case payment is due in respect of the relevant asset(s); or
- payment in equal instalments over a five-year period.