Answer ... As a rule, there is a single tax regime, with the following deviations:
- The two autonomous regions (the archipelagos of Madeira and Azores) may adapt taxes to regional specificities, which in practice has resulted in lower tax rates. However, taxes are still administered at a central level.
- For the purpose of allocating tax revenues to the archipelagos of Madeira and Azores, the taxable base of branches (permanent establishments) located therein must be calculated.
- Apart from other tax revenues earmarked for them (eg, real estate transfer tax), municipalities have the power to set the final rate of municipal property tax and a surcharge to corporate tax. Again, these taxes are otherwise administered at a central level.
Answer ... The normal corporate income tax (CIT) rate is 21% (for the mainland and the Autonomous Region of Madeira; the rate stands at 16.8% for the Autonomous Region of Azores). However, resident taxpayers certified as small or medium-sized companies may benefit from a reduced 17% rate (16% in the Autonomous Region of Madeira and 13.6% in the Autonomous Region of Azores) for the first €15,000 of taxable income. A municipal surcharge of up to 1.5% of taxable income also applies. A state surcharge further applies as follows:
- 3% for taxable profits from €1.5 million to €7.5 million;
- 5% for taxable profits from €7.5 million to €35 million; and
- 9% for taxable profits in excess of €35 million.
Autonomous taxation applies at different rates to certain expenses incurred by corporate taxpayers and deemed not to be totally or partially connected to their activity, or deemed to be an informal fringe benefit for employees.
Value added tax (VAT) is levied as follows:
- standard rate – 23% (22% in the Autonomous Region of Madeira and 18% in the Autonomous Region of Azores);
- intermediate rate – 13% (12% in the Autonomous Region of Madeira and 9% in the Autonomous Region of Azores); and
- reduced rate – 6% (5% in the Autonomous Region of Madeira and 4% in the Autonomous Region of Azores).
Answer ... Tax resident companies and permanent establishments of non-resident entities are subject to taxation on their annual profits, determined under the terms of the accounting standards (based on International Financial Reporting Standards) and subject to the corrections imposed by the CIT Code. Broadly, the principal determinant of the taxable base is the profits of the business, as computed according to the principles of commercial accountancy.
Answer ... As a rule, taxable income is subject to the regular 21% CIT rate.
Dividends paid to resident companies are subject to a 21% CIT rate, whereas dividends paid to non-resident companies are subject to withholding tax at a 25% rate or a reduced rate (of between 5% and 15%) foreseen under the terms of an applicable double tax treaty. Portugal has transposed the EU Parent-Subsidiary Directive, which results in a withholding tax exemption under the conditions set forth therein; and more recently a participation exemption regime was established which applies to dividends and capital gains, as long as the conditions set forth therein are met. Under this regime, dividends and capital gains are exempt if the Portuguese company is not tax transparent and holds, directly or indirectly, a minimum of 10% of the capital or voting rights of its subsidiary for a minimum period of one year. The participated company cannot be resident in a blacklisted jurisdiction and must be subject to and not exempt from CIT or, if EU resident, from a tax mentioned under Article 2 of Directive 2011/96/EU; or if resident outside the European Union, from a tax similar to the CIT, provided also that the rate applicable under such tax is not less than 60% of the Portuguese CIT rate.
In computing taxable capital gains, an inflation adjustment (broadly speaking) is applicable to the base cost.
Answer ... Portuguese tax resident taxpayers are subject to taxation on their worldwide income, whereas non-resident taxpayers without a permanent establishment in the Portuguese territory are subject to taxation only on income deemed to be obtained in Portugal.
Portuguese permanent establishments of non-resident entities are subject to taxation on the profits attributable to them.
Answer ... Tax losses incurred in 2018 can be carried forward for five years, or for 12 years in the case of losses incurred by small and medium-sized companies that pursue directly and mainly agricultural, commercial or industrial activities; however, the use of this mechanism is limited to 70% of the taxable profits assessed in any of the subsequent years.
In determining a tax group’s taxable profits (ie, a group comprised of resident companies), the individual tax losses of one company may be offset in the same year against the individual profits of the other companies and the part not used may be carried forward (subject to the 70% limit).
The losses of a foreign permanent establishment of a resident company may be offset against the broader taxable base of the resident company. However, resident corporate taxpayers may opt to exclude from taxation the profits and losses of a foreign permanent establishment (covering all permanent establishments located in the same jurisdiction), as long as:
- the profits attributable to such permanent establishment are subject to and not exempt from a tax foreseen in Article 2 of the EU Parent-Subsidiary Directive or a tax similar to Portuguese CIT where the legal rate is not less than 60% of the standard CIT rate (currently 21%); and
- the permanent establishment is not located in a blacklisted jurisdiction.
This regime does not apply to profits attributable to the foreign permanent establishment up to the amount of losses attributable to that permanent establishment which have been taken into account by the Portuguese resident company when computing the respective taxable income of the previous five tax years (12 in the case of small and medium-sized companies). This optional regime, if elected, must be maintained for a minimum three-year period.
Answer ... Although the Portuguese CIT Code does not foresee the concept of beneficial ownership of taxable income, there are rules which disregard the legal owner and tax the income obtained by the ultimate owner (the controlled foreign company rules).
In the context of a double tax treaty to which Portugal is a party, the concept of beneficial ownership may have practical implications (eg, if it is a prerequisite for the applicability of a limitation to the rate levied by the source country). The same applies in the context of the EU Interest and Royalties Directive.
Investment income earned by a non-resident without a permanent establishment in Portugal is subject to a higher tax rate of 35% unless the beneficial owner is disclosed.
Answer ... The rates may vary depending on the amount of taxable income. Although the normal CIT rate is 21% (for the mainland as well as the Autonomous Region of Madeira, but 16.8% in the Autonomous Region of Azores), resident taxpayers certified as small or medium-sized companies may benefit from a reduced 17% rate (16% in the Autonomous Region of Madeira and 13.6% in the Autonomous Region of Azores) for the first €15,000 of taxable income.
A state surcharge applies as follows:
- 3% for taxable profits from €1.5 million to €7.5 million;
- 5% for taxable profits from €7.5 million to €35 million); and
- 9% for taxable profits exceeding €35 million.
Answer ... In theory, any entity not incorporated whose income is not subject to taxation under the personal income tax or CIT regime (as income of a physical person or corporation) is subject to CIT. This definition may encompass an unincorporated investment fund as well as a trust operating/managed (hypothetically) from or in Portugal.
That said, the Portuguese CIT regime also foresees the concept of transparent entities. Transparent entities foreseen under the terms of the CIT Code correspond to the following:
- civil companies with commercial capacity;
- professional firms;
- asset management civil companies whose equity capital is controlled, directly or indirectly, for more than 183 days by a family group or a limited number of members, under certain conditions;
- complementary business groupings constituted and operating in accordance with the applicable law; and
- European economic interest groupings which are treated as residents.
Under the transparent entities regime, which aims to promote tax neutrality, although income/profit obtained by transparent entities is determined under the CIT Code rules, it is then directly imputed to the shareholders or participants, regardless of any income distribution, and taxed at the rates applicable to the latter (under personal income tax or CIT itself, as applicable).