PORTUGAL Law and Practice Contributed by: Francisco Cabral Matos, Rita Pereira de Abreu and Margarida Campelo, VdA
1. Corporate Structures, Residence and Tax Treatment 1.1 Corporate Forms and Their Tax Treatment Corporate vehicles in Portugal are generally subject to taxation on their taxable profits (which include oper - ating income and capital gains) through corporate income tax (CIT) and Municipal and State Surtaxes. Their taxation is typically separate from their share - holders’ taxation. The corporate vehicles used in business structures are predominantly the limited liability company ( sociedade por quotas ) – with at least one quota holder and EUR1 of minimum share capital – or the stock company ( sociedade anónima ) – with at least five shareholders and EUR50,000 of minimum share capital. For intra- group structures, it is common to opt for sociedades por quotas , as such companies are simple to incor - porate and manage, and allow for lower compliance/ running costs. Sociedades anónimas are typically preferred for investment structures with a variety of shareholders and more complex governance rules. The share capital of sociedades anónimas is only represented by securities (shares) and so more easily tradable. The structuring of investment in Portugal has also led to an increase in the incorporation of Alternative Investment Funds, especially SICs (s ociedades de investimento coletivo ), which take the legal form of standard limited liability companies (by default, socie- dades anónimas ) but are regulated collective invest - ment vehicles for Portuguese legal purposes. Having these vehicles within the structure may require the coexistence of companies with an asset-holding pur - pose (typically SICs) and operating companies (either sociedades anónimas or sociedades por quotas ), but they may be attractive from a tax standpoint, as they are exempt from CIT on investment income, rental income and capital gains, thereby deferring taxation until exit/distribution to their shareholders (with a flat rate of 10% for non-resident shareholders, except those resident in a blacklisted jurisdiction).
1.2 Use and Taxation of Transparent Business Structures Portugal does not have general rules on tax trans - parency. Non-resident entities are by default deemed non-transparent/opaque. On the other hand, the Portuguese income tax codes provide specific rules on domestic entities that are deemed tax transparent. Structures such as civil partnerships, professional civil firms (eg, architects or lawyers), family groups and passive asset-holding corporations or those with few - er than five shareholders, as well as complementary business groupings and European Economic Interest Groupings, are deemed tax transparent in Portugal. Although the taxable profits of these entities are cal - culated in accordance with CIT rules, such profits are not subject to CIT at the entity level, instead being attributed directly to the respective shareholders, regardless of whether income is actually distributed. 1.3 Tests for Determining Tax Residence The Portuguese CIT Code foresees place of incorpo - ration and place of effective management as equally valid criteria by which to establish corporate tax resi - dence. Thus, in a dual-residence conflict, Portugal will always retain taxing rights under domestic law, unless a tie-breaker rule applies under an applicable double tax treaty. Moreover, Portuguese domestic law does not contain any rules, criteria or guidance on how to ascertain economic substance, nor the place of effective man - agement. As a result, this matter is typically analysed by reference to guidance in the commentaries to the OECD Model Tax Convention and to the limited range of court decisions on the matter. 1.4 Applicable Corporate and Individual Tax Rates From a CIT perspective, corporate vehicles resident in Portugal are subject to CIT at a standard rate of 19% on their taxable profits. A gradual reduction of the standard CIT rate has been approved, such that the rate will be reduced to 18% in 2027 and to 17% from 2028 onwards. If those vehicles engage in commer -
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