PORTUGAL Law and Practice Contributed by: Francisco Cabral Matos, Rita Pereira de Abreu and Margarida Campelo, VdA
Additionally, distributions to a non-resident entity may also be exempt from WHT if similar participa - tion exemption requirements are met, provided that (iv) the recipient is resident in an EU member state, an EEA state with a tax co-operation agreement or a state with which Portugal has concluded a double tax treaty that provides for the exchange of information, (v) the recipient is subject to and not exempt from a tax similar to CIT, provided that, in the case of treaty states, the legal tax rate applicable is not less than 60% of the Portuguese CIT rate, and (vi) the recipient is the beneficial owner of the income and there are no tax-driven arrangements in the structure. The WHT exemption on dividends does not apply where there exists a construction or series of con - structions which, having been put in place with the principal purpose or one of the principal purposes of obtaining a tax advantage that frustrates the object and purpose of eliminating double taxation on such income, is not considered genuine having regard to all the facts and circumstances. Notwithstanding, if the participation exemption regime cannot be applied, the standard WHT rate of 25% may be reduced pursuant to the applicable double tax treaty. Interest and Royalties Interest and royalties paid between entities based in Portugal are subject to WHT at a rate of 25%. When payable to a non-resident, interest and royal - ties are also subject to WHT at a rate of 25%, which may be mitigated only under the Interest and Royalties Directive (IRD) or an applicable double tax treaty. If these types of income are paid to an EU-resident company that is an associated company and the ben - eficial owner, a WHT exemption is available provided that the following conditions are met: • the beneficial owner is subject to, and not exempt from, CIT; • the beneficial owner takes one of the legal forms listed in the annex to the IRD;
• the beneficial owner is resident for tax purposes in an EU member state and is not treated as tax resident outside the EU; • both the beneficial owner of the interest and the Portuguese entity are associated companies – namely, where the lender holds at least 25% of the share capital of the borrower; and • the minimum shareholding of 25% is maintained for a period of two years prior to the payment date. The exemption is also applicable to payments made to or by Swiss companies under equivalent arrange - ments. If the above-mentioned regime is not applicable, an exemption or reduction may be available under an applicable double tax treaty. In this regard, we note the Portuguese tax authorities have been taking an increasingly restrictive approach to the concept of the beneficial ownership of inter - est and dividends, following the rulings of the ECJ in joined cases C-115/16, C-118/16, C-119/16 and C-299/16 (collectively referred to as the “Danish Cas - es” or the “Beneficial Ownership Cases”). 4.2 Key Treaty Jurisdictions for Inbound Investment Countries such as Luxembourg, the Netherlands, France, Germany, the UK, Switzerland, Brazil and the USA are very commonly used within investment struc - tures in Portugal. As of January 2026, Hong Kong, Uruguay and Liechtenstein are no longer considered blacklisted jurisdictions, which may increase the investment routed through them in the future. Portugal has an extensive network of almost 80 dou - ble tax treaties. 4.3 Tax Authority Scrutiny of “Treaty Shopping” Practices The Portuguese tax authorities have maintained their emphasis on addressing cross-border tax abuses and controlling treaty shopping. They have, indeed, been challenging on place of effective management and beneficial owner matters (please see 4.1 Appli- cation of Withholding Taxes ). As an example, the
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