PORTUGAL Law and Practice Contributed by: Tânia de Almeida Ferreira, João Pedro Albuquerque, Filipe Gomes da Silva and Pedro Neves, CCA Law Firm
tracts that are routinely finalised without material mod - ification by the enterprise. Independent agents acting in the ordinary course of business remain excluded. Activities of a preparatory or auxiliary character are excluded from PE status. However, anti-fragmentation principles apply where closely related enterprises car - ry on complementary activities in Portugal. If a conflict occurs, the definition contained in the applicable DTT prevails to the extent that it is more restrictive than the domestic definition. Following the update to the Commentary on Article 5 of the OECD Model, clear guidance was provided as to when cross-border remote working arrange - ments may give rise to a PE. The update introduces additional guidance, including a two-step analytical system involving a temporal threshold and an assess - ment of whether the employee’s presence in the other jurisdiction is driven by a relevant business purpose. Under this approach, a PE is more likely to arise where a home office is used for substantive business pur - poses of the enterprise. By contrast, remote working arrangements implemented primarily for employee retention or cost-efficiency reasons are not, in them - selves, regarded as sufficient to satisfy the busi - ness-purpose criterion. This clarification is broadly consistent with the approach traditionally adopted in Portugal, which focuses on the availability of the location to the enterprise and the carrying on of busi - ness activities through it. 3. Taxation of Cross-Border Income 3.1 Income From Immovable Property Individuals Income from Portuguese immovable property (rental income) is taxed at a flat rate of 28%, or 25% in case of residential leases (reduced rates may apply to long- term residential lease agreements, depending on the duration of the contract). Whereas maintenance and repair costs, condominium fees, insurance, Municipal Property Tax and Stamp
Duty are tax deductible, capital improvements and mortgage interest are, generally, non-deductible. Portuguese and EU/EEE residents may opt to aggre - gate rental income, in which case income will be sub - ject to general progressive PIT rates, currently ranging from 12.5% to 48%. Legal Entities Rental income derived by legal entities is subject to Corporate Income Tax (CIT). For Portuguese-resident legal entities, rental income forms part of the company’s taxable profits and is taxed at the standard CIT rate of 19% (to which may be added a 1.5% Municipal Surtax and a State Surtax of up to 9%). Taxable income is determined on a net basis, mean - ing that expenses directly related to the property (eg, depreciation, maintenance, Municipal Property Tax, insurance, financing costs) are usually deductible under the general rules. Non-resident legal entities without a permanent establishment in Portugal are taxed solely on Portu - gal-sourced rental income, generally at a flat rate of 25%, with the deductions aligned with those applica - ble to individuals. 3.2 Business Profits Tax-resident legal entities are taxed on their worldwide income, while non-resident legal entities are taxed solely on Portugal-sourced income. Residents As a general rule, the tax period corresponds to the calendar year, although taxpayers may elect to adopt a different tax period. The standard CIT rate is 19% (set at 18% for 2027 and at 17% from 2028 onwards). Entities that carry out, directly and primarily, an activity with an economic, agricultural, commercial, or indus - trial nature, and qualify as small or medium-sized or small- or mid-cap companies (SME), benefit from a CIT rate of 15% on the first EUR50,000 of taxable profit, with the 19% standard rate applying to the sur - plus.
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