PORTUGAL LAW AND PRACTICE Contributed by: Joana Torres Fernandes, José Manuel Pereira da Costa, Danielle Avidago, Javier Mateo, António Pratas Nunes, Joana Loureiro Veríssimo, Madalena Mourão and David Serras Pereira, LVP Advogados
VAT VAT applies to the supply of goods and services in Portugal. The standard rate is 23% in mainland Portu - gal, with a reduced rate of 13% and a super-reduced rate of 6% applying to certain goods and services. Lower rates apply in the Autonomous Regions of Madeira and the Azores. Withholding Tax on Dividends and Interest Withholding tax treatment depends on the nature and residence of the beneficiary. Where the beneficiary is an individual resident in Portugal, dividends and inter - est are generally subject to a 28% withholding tax. For corporate beneficiaries resident in Portugal, the appli - cable rate is 25%, although distributions may be fully exempt under the participation exemption regime, provided the following conditions are met: • the entity is subject to and not exempt from a tax similar to CIT at a legal rate not lower than 60% of the CIT rate currently in force in Portugal; • the entity holds at least 10% of the capital or vot - ing rights of the Portuguese entity; • the entity holds this participation uninterruptedly for the year prior to the distribution; and • the entity is not resident or domiciled in a country, territory or region subject to a clearly more favour - able tax regime, as identified under the list of tax havens approved by Portuguese legislation. For non-resident beneficiaries, whether individuals or companies, the domestic withholding tax rate is 25%, rising to 35% where the beneficiary is resident in a jurisdiction listed as a tax haven under Portuguese law. These rates may be reduced under an applicable dou - ble tax treaty. Interest paid to non-residents is equally subject to a 25% withholding tax as a general rule, again subject to potential reduction under a double tax treaty or exemption under the EU Interest and Royalties Directive, provided the applicable conditions regarding ownership threshold and holding period are satisfied. Real Estate Acquisition Taxes Companies acquiring real estate in Portugal are sub - ject to two transfer taxes. Municipal Property Transfer
Tax (IMT) applies at progressive rates ranging from 0% to 7.5%, calculated on the higher of the purchase price or the tax registration value of the property. Stamp Duty applies at a flat rate of 0.8% on the same basis. Both taxes are due prior to completion of the transaction. Pillar Two Portugal transposed the EU Minimum Tax Directive into domestic law in 2024, implementing the OECD’s Pillar Two framework for large multinational and domestic groups with annual consolidated revenues exceeding EUR750 million. The legislation introduced three rules: • the Income Inclusion Rule (IIR), under which the parent company of a group calculates and pays its share of the top-up tax in respect of low-taxed group entities; • the Undertaxed Profits Rule (UTPR), a backstop mechanism applicable where the IIR is not applied by the parent’s jurisdiction, allocating top-up tax liability to other group entities; and • a Qualified Domestic Minimum Top-Up Tax (QDMTT), which ensures that any top-up tax owed in respect of Portuguese low-taxed entities is collected domestically, preserving Portugal’s tax revenue and preventing reallocation to other juris - dictions. The Portuguese QDMTT has been granted safe har - bour status on the OECD’s central record. 5.3 Available Tax Credits/Incentives IFICI regime (Tax Incentive for Scientific Research and Innovation) The IFICI regime grants a flat 20% personal income tax rate on qualifying Portuguese-source income derived from eligible activities and exempts from Portuguese taxation certain categories of foreign-source income. The regime is available for a period of ten consecutive years from the year of registration and is not compat - ible with other tax benefits, including the former Non- Habitual Resident (NHR) regime, the Young Personal Income Tax (IRS) regime and the Returning Residents regime ( programa regressar ).
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