PORTUGAL Law and Practice Contributed by: Manuel Requicha Ferreira and Diana Avillez Caldeira, Cuatrecasas
4. Tax 4.1 Withholding Tax
tion of ESG covenants into the legal documentation (please see 1.6 ESG/Sustainability-Linked Lending ). 3.10 Usury Laws In addition to the criminal framework, the Portuguese Civil Code (CC) stipulates that any loan agreement with an annual interest rate higher than the legal interest rate (currently 4% and 9.15% for civil and commercial contracts, respectively), plus 3% or 5% (depending on whether or not there is an in rem guar- antee), is considered a usurious agreement. Addition- ally, whenever the interest rate exceeds this threshold, it is reduced to that level. The CC also establishes a generic prohibition against usury, whereby an agreement is void as a result of usury when someone, exploiting a situation of need, inexperience, dependency, compromised mental state or weakness of character of others, obtains a promise or grant of excessive or unjustified benefits. Regarding consumer credit agreements, Decree Law No 133/2009 considers, among other circumstances, an agreement to be usurious whenever the overall effective annual rate ( taxa anual de encargos efeti- va global TAEG) at the time of the conclusion of the agreement: • exceeds, by 25%, the average TAEG applied by credit institutions in the previous quarter for each type of credit agreement for the consumer; or • exceeds, by 50%, the average TAEG for consumer credit agreements entered into in the previous quarter. Any interest rate above the legal thresholds is auto- matically reduced to half the maximum limit, without prejudice to criminal or administrative liability. Finally, it is worth noting that Decree Law No 58/2013 limits the default interest rate to be applied by credit institutions and entities licensed for credit activity to 3%. 3.11 Disclosure Requirements There are no disclosure requirements for financial con- tracts in Portugal, except in case of an offer of bonds to the public or in the context of a public takeover bid.
In accordance with Portuguese corporate income tax (CIT) rules, interest owed by Portuguese residents to non-resident entities is subject to a final withholding tax at the domestic rate of 25% over the interest gross amount. The domestic withholding tax rate may, however, be reduced pursuant to the provisions of a double-taxa- tion agreement concluded between Portugal and the country of residence of the lender, typically to 10% or 15%. Notwithstanding this, interest derived from loans granted by non-resident financial institutions to resident credit institutions is exempt from withholding tax to the extent that the interest is not allocated to a local permanent establishment of the non-resident creditor. This exemption is not applicable if: • the recipient of the interest is resident in a “tax- blacklisted jurisdiction”; or • the recipient of the interest, without a permanent establishment in Portugal, is held, directly or indi- rectly, in a shareholding exceeding 25% by resi- dent entities, except when the entity is resident in another EU country, in a European Economic Area (EEA) country bound by fiscal co-operation identi- cal to the one established within the EU or in a country that has concluded a double tax treaty with Portugal providing for the exchange of information. Non-residents may also benefit from an exemption from withholding tax on interest derived from listed bonds, as provided in Decree Law No 193/2005 (which also allows for an exemption from capital gains upon disposal of the bonds). See 4.2 Other Taxes, Duties, Charges or Tax Considerations regarding stamp duty on issues of bonds. In summary, and to the extent that the necessary requirements regarding the beneficiaries (ie, bond- holders) are met, no withholding tax applies over the interest provided the necessary formalities are com- pleted, namely that proof of the beneficiaries’ non- residence status and information about the debt secu- rities and beneficiaries are provided.
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