Background
Portugal is a member of the EU and offers an internationally competitive tax framework that is both transparent and compliant.
The corporate tax rate is 21% of net profit, but tax incentives apply to certain types of business and the participation-exemption regime allows for a credit in relation to foreign tax.
Key Advantages Available Through the Portuguese Tax Regime
Capital Gains
Capital gains are generally included in taxable profit.
A 50% relief can however be enjoyed where the total amount of the capital gain is re-invested in tangible fixed assets (shares and investment property are excluded), during the previous financial year, or up until the end of the second subsequent financial year.
Patent Box Regime
There is a 50% exemption to tax on income generated by intellectual property. This is applicable to the income generated by the assignment or sub-licensing of patents, models and industrial designs protected by intellectual property and which have been subject to registration.
The acquisition costs of certain intangible assets, with unlimited durability, and goodwill are deductible on an annual basis of 5% for a period of 20 years. In addition, all costs associated with the development of the intellectual property are tax deductible.
Investment Incentives
Several tax incentives are available to Portuguese businesses undertaking investments. If you would like more information, please contact us: advice.portugal@dixcart.com
Special Rates for SMEs
A corporate tax rate of 17% is levied on the first €25,000 profit of an SME, with profits exceeding this rate then taxed at the standard rate of 21%. An SME is defined as a business having a turnover of less than €50million.
This initial 'low' corporate tax rate falls to 12.5% in some low population density and interior regions of Portugal.
The Portuguese Corporate Tax Structure
Portuguese companies are subject to tax on their worldwide income. However, branches of non-resident companies are only taxed on Portuguese-source profits.
Corporate tax is charged at a rate of 21% on a company's profit, although some exemptions may apply in relation to passive income, under the participation exemption method.
Worldwide Participation Exemption Regime: Applicable to Capital Gains and Dividend Payments Inbound and Outbound
Under Portugal's participation exemption regime, dividends received and capital gains received and distributed by a Portuguese resident company from a domestic or foreign shareholding are exempt from tax, provided that the shareholder holds, directly or indirectly, at least 10% of the capital or voting rights of the other company for 12 months.
The subsidiary may not be resident in a listed tax haven and must be subject to, and not exempt from, income tax at a rate which is equivalent to at least 60% of the Portuguese corporate tax rate (currently 21%).
A tax credit may be applicable, when the conditions for the application of the participation exemption regime are not fully met, with an option for an underlying tax credit for dividends on foreign shareholdings held for 12 months, of at least 10%.
In terms of capital gains, the participation exemption method applies to gains on the disposal of shares.
Advantages for Portuguese Companies Registered in Madeira
A number of extremely attractive corporate tax incentives are available to companies licensed in the International Business Centre of Madeira (IBCM). Please see our Dixcart Article: A Madeira (Portugal) Company – An Attractive Way to Establish a Company in the EU.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
