PORTUGAL Law and Practice Contributed by: Tânia de Almeida Ferreira, João Pedro Albuquerque, Filipe Gomes da Silva and Pedro Neves, CCA Law Firm
2.5 Tax Residence of Legal Entities A company is deemed to be tax resident in Portugal when its legal seat or place of effective management is located there. Residence disputes may arise within international group structures, particularly where management functions are exercised across multiple jurisdictions or where there is a divergence between the legal seat and the place of effective management. DTTs’ tie - breaker rules may become relevant in dual-residence scenarios, allowing for residence allocation for tax purposes. 2.6 Definition of Permanent Establishment Domestic law defines a permanent establishment or PE as a fixed place of business through which a com - mercial, industrial or agricultural activity is wholly or partly carried out. The definition includes the usual examples such as a place of management, branch, office, factory, workshop or place of extraction of natural resources. In addition to the standard “fixed place” concept, Por - tuguese domestic law expressly includes: • construction, installation or assembly sites existing for more than six months (including related super - visory activities); • platforms, vessels or installations used in the exploration of natural resources where activities exceed 90 days; and • the provision of services (including consultancy services) performed in Portugal for more than 183 days within any relevant 12-month period. The service PE provision and the six-month threshold applicable to construction projects depart from the traditional wording of the OECD Model, which gener - ally adopts a 12-month threshold and does not con - tain a standalone service PE provision. As a result, domestic law may create PE exposure in situations where no PE would arise under the OECD standard. Agency PE provisions have also been aligned with post-base erosion and profit shifting (BEPS) develop - ments. A PE may arise where a person habitually plays the principal role leading to the conclusion of con -
Special deductions and reliefs are available, oper - ating both at income determination level (income category assessment) and as taxable income direct deductions, being relief from double taxation avail - able through DTT mechanisms or domestic foreign tax credit provisions. Special tax regimes applicable to Non-Habitual Resi - dents (NHR) are available, resulting in 20% flat rates for domestic income, and a full exemption for foreign- sourced income. Accordingly, the effective taxation therefore depends on the residence status, the type of income, the appli - cable exemptions and reliefs and on the interaction with cross-border relief provisions. 2.4 Taxation of Non-Resident Individuals Non-resident individuals’ liability to tax is limited to income source in Portugal. Employment and business income relating to work performed in Portugal is generally taxed at a flat rate of 25%. Dividends sourced in Portugal, interest, royalties and other capital income are typically subject to with - holding tax at a domestic rate of 28%, subject to any reduction available under an applicable DTT or pursu - ant to EU law. Capital gains derived by non-residents from Portu - gal-sourced assets, including immovable property or certain shareholdings, are also subject to tax. As a general rule, only 50% of immovable property gains are taxed (at the applicable progressive PIT rates, currently reaching a top marginal rate of 48%), while gains on shares may be exempt unless the assets derive more than 50% of their value from Portuguese immovable property. Domestic provisions applicable to non-residents are frequently overridden by the applicable DTT, which may reduce domestic withholding tax rates and, in some cases, provide full relief. Access to DTTs’ ben - efits depends on proper and timely submission of the requisite documentation.
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