PORTUGAL Law and Practice Contributed by: Francisco Cabral Matos, Rita Pereira de Abreu and Margarida Campelo, VdA
goods, alcohol, tobacco, vehicles, clothing, chemicals and cosmetics, etc. Social Security Employers must make monthly Social Security contri - butions, calculated at the standard rate of 23.75% of each employee’s gross monthly salary. For CIT pur - poses, these Social Security contributions are treated as deductible expenses. 3. Corporations and Non-Corporate Businesses 3.1 Form of Closely Held Local Businesses Portuguese local businesses typically operate under a corporate form. 3.2 Individual and Corporate Rates Please refer to 1.2 Use and Taxation of Transparent Business Structures regarding transparent entities. In cases in which transparency is mandatory (eg, profes - sionals such as lawyers or architects), taxable income is assessed under the rules set forth in the CIT Code, while net income is attributed to the shareholders, at the progressive PIT rates. Individuals who are not subject to this transparency regime may choose to incorporate a single-member limited liability company ( sociedade unipessoal por quotas ), which is subject to CIT at the standard rate on its taxable profit. When the company distributes dividends to its sole shareholder, they will be taxable at a PIT level (28% WHT or progressive tax rates). 3.3 Restrictions on Retention of Earnings by Closely Held Corporations The Portuguese legislature has not enacted any rules to prevent the accumulation of earnings. However, such accumulated earnings may trigger the CFC rules if the closely held corporation is resident in a black - listed jurisdiction or subject to a more favourable tax regime. 3.4 Taxation of Individuals on Shares in Closely Held Corporations Dividends paid by Portuguese entities to individuals are typically subject to a final WHT of 28%. For divi -
dends paid by non-resident companies to individuals resident in Portugal, the same 28% flat WHT rate will apply, though with possible mitigation under inter - national double taxation rules (applicable double tax treaties). Dividends from blacklisted jurisdictions may be taxed at an aggravated rate of 35%. Resident shareholders can opt to include dividends from Portuguese or EU/EEA companies in their annu - al income, benefiting from a 50% exemption. The remaining amount is taxed at progressive PIT rates, which may reach up to 48% (plus any applicable soli - darity surtax). Capital gains deriving from the sale of shares are also taxed at a flat rate of 28%, unless the taxpayer opts to aggregate the gain and apply the progressive tax rates, up to 48% (plus solidarity surtax, if applicable). Gains from shares in SMEs or EU/EEA companies receive a 50% relief, lowering the effective tax rate to 14%. 3.5 Taxation of Individuals on Shares in Public Corporations The tax treatment of dividends and gains from sales of shares in publicly traded corporations remains con - sistent with that described in 3.4 Taxation of Individu- als on Shares in Closely Held Companies . 4. Taxation of Inbound Investments 4.1 Application of Withholding Taxes As a general rule, dividends, interest and royalties paid by Portuguese corporate entities are subject to Por - tuguese WHT at a rate of 25% (35% if the recipient is undisclosed or located in a blacklisted jurisdiction). Dividends Distributions of dividends between two entities based in Portugal may be exempt from WHT, provided that the domestic participation exemption requirements are met, such as (i) the holding entity owns at least 10% of the distributing entity for at least one year prior to the distribution, (ii) the holding entity is not subject to the tax transparency regime, and (iii) the holding entity is effectively subject to CIT in Portugal.
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