PORTUGAL Law and Practice Contributed by: Tânia de Almeida Ferreira, João Pedro Albuquerque, Filipe Gomes da Silva and Pedro Neves, CCA Law Firm
A Municipal Surtax of up to 1.5% (depending on the municipality in which the business is carried out and as determined by the relevant municipality on an annual basis) also tends to apply. A State Surtax may also apply, as follows.
Such profits are determined in accordance with the arm’s length principle and the applicable domestic CIT provisions (as detailed above), as if the PE were a separate and independent entity conducting the same or similar activities under comparable conditions. Portuguese-sourced business profits obtained by non-resident legal entities not attributable to a Portu - guese PE are subject to CIT at a rate of 25%. How - ever, under the applicable DTT, Portugal’s taxing rights may be eliminated. 3.3 Passive Income Dividends Dividends paid to resident individuals are subject to tax at a flat rate of 28%, unless the beneficiary opts for aggregation. In this case, only 50% of the dividends are included and taxed at the progressive PIT rates. Where the distributing entity is resident in Portugal, the payment is subject to withholding tax. Dividends received from non-resident legal entities may benefit from a foreign tax credit in respect of tax paid in the source state. Dividends paid to non-resident individuals are, as a rule, subject to withholding tax at a rate of 28%. This rate may be reduced under the applicable DTT, provided that Form 21-RFI and a valid tax residence certificate are submitted. Dividends paid to resident legal entities are subject to withholding tax at a rate of 25%, which operates as a payment on account of the final CIT liability where the shares have not been held for an uninterrupted period of at least one year and do not represent at least 10% of the share capital or voting rights of the distributing entity. Dividends are taxed at the standard CIT rate of 19% (with a 15% rate applying to the first EUR50,000 for SMEs), unless the participation exemption regime applies. In this case, dividends are exempt from CIT, provided that, inter alia, a minimum 10% sharehold - ing is held for at least one year (or the shareholder undertakes to hold it for such period). As a general rule, dividends paid to non-resident legal entities are subject to withholding tax at a domes - tic rate of 25%. A CIT exemption may apply to divi -
• Profits exceeding EUR1.5 million: 3%. • Profits exceeding EUR7.5 million: 5%. • Profits exceeding EUR35 million: 9%.
Certain expenses are subject to aggravated taxation through autonomous tax charges, with rates ranging from 5% to 35%, depending on their nature. These rates are increased by ten percentage points where the taxpayer reports a tax loss in the relevant period, except during the first and second years of activity. Taxable profit matches the net accounting profit (determined under Portuguese generally accepted accounting principles), as adjusted by the CIT provi - sions. As a general principal, all expenses are deductible to the extent that they are necessary for the purpose of generating taxable income and are properly docu - mented. Some listed exclusions apply; these include the CIT itself and any other taxes directly or indirect - ly levied on income; undocumented or unproperly documented expenses; penalties and charges; and expenses related to vehicles exceeding specific limits. Tax deductibility of net financial costs should be secured within existing interest barrier provisions, which cap the deduction at the highest of: (i) EUR1 million; or (ii) 30% EBITDA.Non-deductible net finan - cial costs, as well any unused portion of the 30% threshold, may be carried forward for five periods. Tax losses may be carried forward indefinitely, but for up to only 65% of taxable profit in the relevant tax period. Any unused portion remains available, how - ever. The carry-forward of tax losses does not impact Municipal and State Surtaxes. Non-Residents Non-residents operating in Portugal through a Por - tuguese PE will be subject to Portuguese CIT on the profits attributable to that permanent establishment.
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