Since 2009 over 5,000 high net worth individuals and their families have made Portugal their home, attracted by the lifestyle, the Non-Habitual Resident tax regime and the Golden Visa residency programme. The article below explores important aspects of moving to Portugal.
In 2014 the Portuguese Government made Portugal more attractive to companies by reforming its Corporate Tax Code to meet international standards. Since then Portuguese companies have enjoyed an internationally competitive tax framework that is also transparent, compliant and in-line with best international practice.
As an alternative to being registered on the mainland, Portuguese companies can, in the correct circumstances, be registered on the island of Madeira. The Madeira International Business Centre (MIBC) offers a number of attractive tax advantages.
Portugal Corporate Tax Structure
Portuguese companies are subject to tax on their worldwide income. Branches of non-resident companies are only taxed on Portuguese-source profits.
Corporate tax is charged on a company’s profit, although some exemptions may apply in relation to passive income, under the Participation Exemption Method (details overleaf).
|Entities||Portugal mainland||Madeira||Madeira Free Trade Zone||Azores|
|Resident entities and permanent establishments of non-resident entities||21%||21%||5%||16.8%|
|Resident entities and permanent establishments of non-resident entities, certified as small or medium companies||17% (first €15,000 of taxable income)|
21% (for the remaining taxable income)
|17% (first €15,000 of taxable income)|
21% (for the remaining taxable income)
|5%||13.6% (first €15,000 of taxable income)|
16.8% (for the remaining taxable income)
- Participation Exemption
Under Portugal’s participation exemption regime, dividends received and capital gains realised by a Portuguese company from a domestic or foreign shareholding are exempt from tax, provided that:
- The shareholder is not considered to be a transparent entity; AND
- The shareholder has held, directly or indirectly, at least 10% of the capital or voting rights of the company for at least 12 months;
- the subsidiary must not be resident in a listed tax haven; AND
- the subsidiary must be subject to a corporate tax rate listed in the EU Parent-Subsidiary Directive or a tax rate that is at minimum 60% of the Portuguese corporate tax rate.
The Participation Exemption also applies to dividends distributed to a non-resident company if this entity holds 10% of the capital for at least 12 months, and is resident in the EU/European Economic Area (EEA) or in a tax treaty jurisdiction.
Madeira Free Trade Zone companies can also take advantage of the Participation Exemption benefit relating to dividends, as long as the shareholder is an individual and the other criteria, detailed above, are met.
In all other cases, the dividend is subject to withholding tax at 25% (35% if paid to a resident of a Portuguese listed tax haven). The 25% rate may be reduced by a tax treaty.
Portugal grants a tax credit up to the amount of Portuguese tax payable on foreign income, which is calculated net of expenses on a per-country basis.
- Interest and Royalties
Under the EU Interest and Royalties Directive, payments to qualifying EU recipients are exempt.
Interest and royalties paid to a non-resident company are subject to withholding tax at 25% (35% if paid to a resident of a Portuguese listed tax haven), unless reduced under a tax treaty or the payment is to a qualifying EU recipient.
The current Portuguese R&D benefit package is valid until 2020.
A tax credit is available, under certain conditions, for R&D expenses:
- A corporate tax credit of 32.5% of qualifying R&D expenses is available in the relevant tax year and may be carried forward for eight years;
- 50% of the surplus of expenses suffered in the tax year over and above the average two previous tax years, capped at €1,500,000.
Up to a maximum 50% of the revenue earned from the licensing of patents, designs and industrial models is exempt from taxation.
Other Tax Benefits
Portuguese companies registered in the Madeira Free Trade Zone and known as MIBCs enjoy a number of tax benefits, in particular a reduced rate of corporate tax:
- Corporate tax: 5%
- The total tax benefit available to MIBC entities is capped at the highest of:
- 20.1% of annual gross added value OR
- 30.1% of annual staff costs OR
- 15.1% of annual turnover
- Exemption from taxation on dividends received and capital gains under the Participation Exemption Regime (shareholder must own at least 10% of the shares which they must have held for a minimum of 12 months);
- Exemption from withholding tax on dividend distributions and capital gains;
- Exemption from withholding tax on interest, service fees and royalties paid to non-resident shareholders;
- Exemption from stamp duty, property tax, property transfer tax, and regional and municipal surcharges (up to a maximum 80% per tax transaction, or per tax period);
Portuguese Start-ups – the “Semente” Programme:
- A tax benefit, is applicable to individual entrepreneurs; 25% of the eligible investment can be deducted from the entrepreneur’s individual income tax payment.
- Capital gains arising from the sale of shares are not taxable, as long as the investment is held for at least 48 months and the monies are reinvested that year or the year following the transaction.
Additional Relevant Tax Feature
Tax losses generated from 1 January 2017 onward can be carried forward for up to a maximum 5 year period.
Moving to Portugal – how can Dixcart help?
In addition to assisting families and entrepreneurs to select the most appropriate legal route for a move to Portugal and a consideration as to how wealth and commercial interests may need to be restructured, Dixcart also provides;
- Assistance to entrepreneurs and their families in relocating to Portugal and in obtaining the necessary residence permits.
- A complete range of services related to the incorporation of a company and its day-to-day obligations; from bookkeeping through to tax compliance.
Portugal’s Double Taxation Treaties
|Belgium (Additional convention)||15||15||10|
|East Timor *||10/5||10||10|
|Ireland (Protocol revising the Convention)||15||15||10|
|Kingdom of Bahrain *||15/10||10||5|
|Luxembourg (Additional convention)||15||15/10||10|
|Mozambique (Protocol revising the Convention)||10||10||10|
|Republic of San Marino||15/10||10||10|
|Republic of Senegal||10/5||10||10|
|São Tomé and Príncipe *||15/10||10||10|
|Singapore (Protocol revising the Convention)||10||10||10|
|Sultanate of Oman *||15/10/5||10||8|
|Switzerland (Protocol revising the Convention)||15/5||10||5|
|United Arab Emirates||15/5||10||5|
|United States of America||15/5||10||10|
|Vietnam *||15/10/5||10||10 / 7.5|
*Not yet enacted.
Portuguese list of countries regarded as Tax Havens
|Countries, Territories and Regions|
|Antigua and Barbuda||Mauritius|
|Barbados||Northern Mariana Islands|
|British Virgin Islands||Palau Islands|
|Cayman Islands||Pitcairn Island|
|Channel Islands||Porto Rico|
|Cocos (Keeling)||Queshm Island|
|Cook Islands||Saint Helena|
|Costa Rica||Saint Kitts and Nevis|
|Dominica||Saint Pierre and Miquelon|
|Falkland Islands or Malvinas||Samoa|
|Fiji Islands||San Marino|
|Gibraltar||St Vicente and the Grenadines|
|Grenada||Sultanate of Oman|
|Hong Kong||Trinidad and Tobago|
|Jamaica||Tristan da Cunha|
|Jordan||Turks and Caicos Islands|
|Kingdom of Tonga||Tuvalu|
|Kiribati||United Arab Emirates|
|Kuwait||United States Virgin Islands|
|Lebanon||Yemen Arab Republic|
Find out more about living in Portugal.