PORTUGAL Law and Practice Contributed by: Marta Pontes, Hélder Frias and José António Reymão Nogueira, Uría Menéndez
• interest payable by Portuguese credit insti- tutions to a foreign lender qualifying as a financial institution; • interest payable by Portuguese banks or branches of foreign banks on term deposits by foreign credit institutions; • interest on bonds issued by a Portuguese borrower and payable to a foreign lender, provided the lender has no permanent estab- lishment in Portugal and is not tax-resident in a tax haven (unless this tax haven has an agreement for exchanging information on tax matters in force with Portugal), and as long as the bonds are integrated in a central securi- ties depositary ( sistema centralizado ) man - aged by a Portuguese resident entity or by a managing entity of international securities settlement systems established in another member state of the EU or in another member state of the European Economic Area which has agreed to administrative co-operation on taxation matters equivalent to those estab- lished by the EU are exempt from withhold- ing tax under Decree-Law No 193/2005 of 7 November 2005, as amended; and • interest payable by a Portuguese borrower (issuer) to non-residents on securitised bonds or units, provided that the non-resident ben- eficiary is not held in more than 25% by Por- tuguese resident entities and is not resident in a tax haven. The interest payments made through Interbolsa to non-resident investors regarding bonds and securitisation transactions (when integrated in Interbolsa, Clearstream or Euroclear) are exempt from withholding tax under Decree-Law No 193/2005 of 7 November 2005, as amended. The concept of “qualifying lender” is usually con- tractually construed on the basis of the above-
mentioned reductions of withholding tax rate/ exemptions, which are relatively limited. Currently, the most common solution used in the Portuguese market to try to avoid the withhold- ing tax issue is the bond-loan structure, whereby the loan is granted through a bond issuance sub- scribed by the original lenders. Instead of using the terms and conditions common in capital markets transactions, the terms and conditions of these bonds will typically include provisions that are akin to standard loans, particularly those concerning covenants and events of default. Nonetheless, adaptations are required to the language used in various provisions. There are certain limitations as to how far it is possible to emulate in a bond issuance the terms and condi- tions applicable to standard loans, in view of the fundamental conceptual differences between contracts and securities. Moreover, using a bond loan structure gives rise to certain additional transactional costs, such as the fees charged by the clearing system and by the paying agent appointed by the borrower. Fees As a general rule, fees paid by Portuguese resi- dent companies for services rendered by non- resident companies are subject to Portuguese withholding tax at 25%. However, whenever the beneficiary of the income is resident in a country with a DTT with Portugal, no Portuguese withholding tax should be due if, prior to the date on which the relevant fees are paid, the services’ supplier provides the paying company with a specific form (Form 21 RFI), duly signed by the paying company, along with a tax residence certificate issued by the tax authorities of their country of residence.
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