CORPORATE TAX: GOOD NEWS FROM PORTUGAL (III)

We conclude our three-part series on the corporate tax reform in Portugal with other relevant issues that round-off a compelling effort. If there is one fault to be signaled is that the reform didn't go as far as the initial white paper had foreseen. Nevertheless, its effects are hoped to be far-reaching and turn Portugal into a tax-friendly destination for international investors.

5.- Capital gains: also exempt if the participations meet the same conditions as per inbound dividends (see our last post);

6.- Tax deduction when reinvesting profits: smes that reinvest their profits will qualify for a 10% deduction.

7.- Patent box: only 50% of income derived from licensing patents or industrial designs will be taxed as long as four conditions are met:

1. IP rights must be the result of R&D activities executed by or contracted by the company;
2. The licensee uses the IP rights in a commercial, industrial or agricultural activity;
3. The results of use of IP rights by the licensee must not materialize in the delivery of goods or rendering of services which may be tax-deductible for the licensor;
4. The licensee is not resident in a tax haven or offshore territory.

8.- Income from permanent establishments: Portuguese companies with permanent establishments may choose not to include said income as long as:

1. The permanent establishment is subject to corporate tax akin to Portuguese IRC. When it is domiciled in a territory with a DTT the local corporate tax rate should be at least 60% of the 23% rate;
2. The permanent establishment is not resident in a tax haven or offshore territory.

9.- Less red tape: the number of procedures associated nowadays with preparing, reporting and filing corporate tax is 68. The reform will cut over 20 procedures.

CORPORATE TAX: GOOD NEWS FROM PORTUGAL (II)

For our second post on the recent reform on corporate tax in Portugal we take a look at inbound and outbound dividends. This is undoubtedly one of the key aspects of the reform and repositions Portugal as a great investment hub.

4.- Participation exemption: all inbound and outbound dividends will be tax exempt provided that the following conditions are met:

For inbound dividends:

1. A minimum participation of 5% is required;
2. The participation must be held uninterruptedly for 24 months prior to distribution of dividends;
3. The parent company must not be subject to tax transparency regime;
4. The subsidiary must be subject to corporate tax as per Directive 2011/96/UE, of November 30, or to tax akin to Portuguese IRC* provided that the rate is at least 60% of the 23% rate;
5. The subsidiary must not be domiciled in a tax haven or offshore territory as defined by the Portuguese Government.

For outbound dividends:

1. The parent company must be domiciled in an EU/ EEA country or one that has a DTT with Portugal;
2. The parent company must be subject to corporate tax akin to Portuguese IRC. When the parent company is domiciled in a territory with a DTT the local corporate tax rate should be at least 60% of the 23% rate;
3. The parent company must hold at least a participation of 5%;
4. The participation must be held uninterruptedly for a period of 24 months prior to distribution.

Dividends paid from resident entities to branches in the EU/ EEA will also benefit from this regime as long as conditions a) to c) are met. 

*IRC or Imposto sobre o Rendimento das Pessoas Colectivas, Portuguese Corporate Tax. 

CORPORATE TAX: GOOD NEWS FROM PORTUGAL (I)

While Portugal has never been in the tax-friendly group of countries this might change drastically thanks to the reform of its corporate tax legislation which was recently passed. Portugal now seeks to become a hub for international companies, specially those with strong ties with Portuguese-speaking countries on the rise such as Brazil, Angola or Mozambique. In this next series of posts we’ll take a brief look on what all the good news is about.

1.- Corporate tax rate: the general rate now stands at 25% but it has been lowered to 23% in 2014, and is expected to be cut even further: an extra 2% in 2015 and another 2% to 4% in 2016. So at the end of the line the rate could be 17%. 

2.- Intermediate rate for smes: from this year small and medium enterprises will benefit from a special intermediate rate of 17% for the first taxable € 15,000. 

3.- Tax loss carryforwards: tax losses can be set-off for a 12-year period. However, compensation for each period can only go as far as 70% of taxable profits.

COMPANY INCORPORATION IN PORTUGAL (III)

We conclude our brief series on the setting up of companies in Portugal with a few ideas on the necessary formalities investors have to go through. Fortunately, the days of endless red tape are well behind us and lawyers can now incorporate companies on-line, swiftly and with less expense.

When the company has been duly registered with the Companies House, it will then have to be registered with some other institutions as well, namely the Revenue Service, Social Security and Labour Inspection. It is worth noting that the opening of a bank account is a must, as the company will only be registered with the Revenue Service if it has one.

When these main formalities are behind us, the fun begins and we can start working with our brand new Portuguese company. As always, we're happy to hear your comments and requests.