Corporate Income Tax

Corporate Income Tax

• 1. Taxable Entities

  CIT is levied on profits derived by both resident and non-resident entities. The mere holding of assets does not give rise to CIT taxation.
  
  Taxable resident entities are companies and other corporate bodies whose main activity is commercial, industrial or agricultural and with head office or effective place of management in Portuguese territory. Resident entities are generally subject to taxation on worldwide profits.
  
  Non-resident entities with a permanent establishment in Portugal are also subject to corporate tax on the profit attributable to those permanent establishments.
  
  In broad terms, a non-resident company is deemed to have a permanent establishment in Portugal if it holds a fixed place of business through which its activity is carried on. This may be the case when the non-residents have a local branch, office, building site or construction project or act through dependent agents.
  
  Non-resident entities (i.e. companies and other body corporates with no permanent establishment in Portugal) are only taxed on Portuguese-sourced income.

• 2. Rates

  Portuguese CIT is levied at a 20% rate to entities resident in mainland Portugal, to which may be added a municipal surtax (derrama municipal) up to 1.5% levied on taxable profits (depending on the municipality of the activities), as well as a state surtax (derrama estadual) of 3% on taxable profits exceeding € 1,500,000 up to € 7.5 million, 5% on taxable profits exceeding € 7,500,000 up to € 35 million and 9% on taxable profits exceeding € 35,000,000. This means that the nominal tax rate may reach up to 30.5% for large companies.
  
  A special reduced CIT rate is available for SME, i.e. companies with a turnover below € 50 million between other criteria as defined in the Decree-Law 372/2007 of 6 November. For these companies, taxable profits until € 50,000 are subject to a reduced rate of 16%. The remaining taxable profits above such an amount are subject to the standard CIT rate.
  
  Companies with head office or place of effective management in the Autonomous Region of Azores benefit from a reduced 14% CIT rate and 11,9% for the taxable profits earned until € 50.000 (only for SME). A regional surtax of 2,4% on taxable profits exceeding € 1,500,000 up to 7.5 million, 4% on taxable profits exceeding € 7,500,000 up to 35 million and 7,2% on taxable profits exceeding € 35,000,000.
  
  Companies with head office or place of effective management in the Autonomous Region of Madeira benefit from a reduced 14,7% CIT rate and 11,9% for the taxable profits earned until € 50.000 (only for SME). A regional surtax of 2,1% on taxable profits exceeding € 1,500,000 up to 7.5 million, 3,5% on taxable profits exceeding € 7,500,000 up to 35 million and 6,3% on taxable profits exceeding € 35,000,000.
  
  For companies with licence (attributed from 1st January 2015 until 31st December 2026) to operate in the Madeira International Business Centre it is applicable a reduced CIT rate of 5%, subject to requirements such as a threshold on taxable income or job creation/maintenance (see further information below).

• 3. Determination of taxable income

  3.1 General Rule
  
  Portuguese resident companies and local permanent establishments of foreign entities are taxable on their taxable income, determined in accordance with accounting standards and subject to the Portuguese CIT Code provisions.
  
  3.2 Expenses & Non-deductible items
  
  Expenses related to the business activity are generally deductible for CIT purposes, insofar such expenses are addressed to obtain or guarantee taxable income.
  
  There are some exceptions to the general rule, namely
  
  (i) interests paid in shareholder loans,
  
  (ii) expenses documented by invoices or other documents without a valid taxpayer number,
  
  (iii) penalties or fines paid,
  
  (iv) CIT and surtaxes,
  
  (v) depreciation of the acquisition cost of private vehicles and other luxury related expenses, regarding the fraction of the cost above the value defined by the responsible for finances within the Government
  
  (vi) whatever payments made to individuals and companies domiciled in listed low tax jurisdictions.
  
  3.3 Depreciation and amortization
  
  The acquisition or production cost of certain assets is tax deductible in accordance with their expected useful life. Depreciation is generally computed through the application of the straight line method, although taxpayers may elect to apply the declining-balance method. Declining-balance method cannot be applied to building properties, passenger vehicles for private use or furniture, amongst others.
  
  The depreciation rates are established by law and deductions above such rate are not recognized for tax purposes. Taxpayers may also opt to apply a depreciation rate representing 50% of the general rates. Below some examples of the maximum straight-line depreciation rates:
  
  

  Asset	Depreciation Rate (%)
  Commercial buildings	2
  Industrial buildings	5
  Office equipment	12.5 to 25
  Electronic equipment	20
  Computers and Software	33.33

  
  Goodwill related with some industrial property elements and with the concentration of business activities, may also be depreciated with some limitations as, for example, acquisitions made to companies domiciled in listed low tax jurisdictions and to related parties.
  
  3.4 Provisions
  
  As a general rule, provisions constituted by a Portuguese company are not tax deductible, unless they are related to, namely:
  
  (i) Pending judicial litigations, when concerning bad and doubtful debts;
  
  (ii) Warranties granted to clients foreseen in agreements for the supply of goods or services;
  
  (iii) Remedy of environmental damages.
  
  3.5 Interest barrier rule
  
  The Portuguese CIT Code foresees an interest barrier rule which limits the deductibility of net financial expenses to the higher of the following: (i) € 1,000,000; or (ii) 30% of EBITDA (operating profits before interests, taxes, depreciations and amortizations).
  
  This means that net financial expenses up to € 1,000,000 will be deductible in all cases. This is not an exempt amount, but a threshold which, once reached by net interest paid, will expose the entire net interest to the 30% deduction limitation.
  
  The limits apply to all financing costs regardless of the existence of special relations between the debtor and creditor, and the residence of the creditor. The interest barrier rule is also applicable to tax groups.
  
  Credit and financial institutions (including branches of foreign entities) under the supervision of Bank of Portugal and insurance companies under the supervision of the Autoridade de Supervisão de Seguros e Fundos de Pensões are excluded from the interest barrier rule.
  
  3.6 Bad Debts
  
  The costs with impairment losses derived from doubtful debts are tax deductible when an insolvency or recovery procedure has been submitted or when credits have been judicially claimed. Only impairment losses derived from debts outstanding for more than six months are qualified as tax deductible within the following limits on the amount in debt:
  
  (i) From 6 to 12 months: 25%;
  
  (ii) From 12 to 18 months: 50%;
  
  (iii) From 18 to 24 months: 75%; and
  
  (iv) More than 24 months: 100%.
  
  3.7 Autonomous taxation
  
  In addition to the general CIT rate, autonomous taxation is applied on certain expenses of CIT taxpayers.
  
  

  Expense Items	Rate
  Non-documented expenses	50% (or 70% if taxpayer is CIT exempt)
  Expenses with passenger vehicles (excluding electric vehicles) with an acquisition cost between an amount below € 25,000 and above € 35,000	8%, 25% or 32%
  Representation expenses	10%
  Payments made to individuals or corporate entities resident in blacklisted jurisdictions	35% (individuals) / 55% (corporate entities)
  Per diem and travel allowances	5%
  Dividends paid to partially or fully CIT exempt entities with shareholding less than one year	23%
  Expenses or charges related to indemnities, or any compensations or bonuses and other variable remuneration paid to managers, directors and managers (if the conditions are met, they may be excluded from autonomous taxation)	35%

  
  The rates are increased by 10 basis points if the taxpayer assesses tax losses in the year when expenses are incurred. Autonomous taxation is paid even if no CIT is due.

• 4. Tax Incentives

  The following outlines some of the major corporate tax benefits available to Portuguese entities:
  
  

  Name	How it operates	Main Requirements
  Tax Incentives System for Entrepreneurial Research & Development (SIFIDE II)[1]   [1] Valid until the last day of 2025	Under SIFIDE II a tax credit corresponding to the amount of expenses incurred with R&D activities is available limited to the following: (i) 32.5% of expenses borne during a tax year; (ii) 50% of the surplus of expenses borne in the tax year over the average of the two previous tax years, capped at €1,500,000. In case the credit may not be fully offset in a taxable year, a carry-forward is available for the following 8 years with certain limitations and for the following 12 years if the investments were made after January 1st 2024. The regime provides as a relevant application for this purpose the participation in the capital of research and development institutions and contributions to investment funds, public or private, which make equity and quasi-equity investments, in companies dedicated mainly to research and development, including the financing of the valorization of their results, whose suitability in terms of research and development is recognized by the Agência Nacional de Inovação, S.A.	- Expenses must have been incurred by Portuguese companies carrying out commercial, industrial or agricultural activities. - The expenses incurred cannot have been subject to non-refundable financial aid from the Portuguese State. - A request must be submitted until May of the year following the year of investment. - The application of SIFIDE II may be subject to technological audits by the Agência Nacional de Inovação, S.A. - Contributions to investment funds must be preserved for the minimum period of 5 years subject to a proportional reduction if surrender before that period, and the fund’s management entities must demonstrate the investments and the fulfilment of the legal conditions thereof.
  Patent Box	Partial exemption (85%) from CIT of the profits derived from both the licensing and sale for companies exploiting patented inventions and other innovations such as models and industrial designs protected by intellectual property (IP) rights.	- The IP must be effectively used for business activities. - If the licensee is a related entity, the IP cannot be used to create deductible expenses for the taxpayer. - The licensee cannot be resident of a blacklisted jurisdiction. - The taxpayer must have an accounting organization prepared to identify the income or losses incurred for the performance of research and development activities directly attributable to the right subject to assignment or temporary use.
  Tax Regime for Investment Support (RFAI)[1] [2]   [1] RFAI can only be applied until the last day of 2027. [2] If any other incentive is already being applied, regarding the same applications and of contractual nature, RFAI cannot be applied.	Under RFAI, investing companies may benefit from a tax credit against tax due (maximum 50% of tax assessed), corresponding to 30% of investments below EUR 15 million or 10% of investments above EUR 15 million. Exemptions of Real Estate Transfer Tax, Real Estate Tax (both depending on authorization of the corresponding municipality) and Stamp Tax on the acquisition of real estate may also be available.	- Investment must be made in certain activity sectors, namely manufacturing industry. - RFAI is applicable to relevant investments in certain tangible and intangible fixed assets.
  Contractual Tax Incentives[1]   [1] Valid until the last day of 2027.	Under contracts signed with the Portuguese State, a tax credit from 10% to 25% of the amount of the investment made may be available. In addition, reduced rates or exemptions of Real Estate Transfer Tax, Real Estate Tax and Stamp Tax may also apply.	Investment projects must be of a value equal to or greater than € 3,000,000. It is also required that they be relevant for the development of sectors considered to be of strategic interest to the national economy and for the reduction of regional asymmetries, that they induce the creation of jobs and that they contribute to boosting technological innovation and national scientific research, to improving the environment or to strengthening competitiveness and productive efficiency.
  Undertakings for collective investment (UCI)	Income from units of securities investment funds and shareholdings in securities investment companies obtained by non-resident entities are exempt. Income from units of venture capital funds is also exempt, unless the entities are resident in a tax haven or held in more than 25% by Portuguese entities – in these cases, 10% withholding tax is applied. This regime is based on the "exit" method of taxation, taxing the income paid to investors, in terms of Personal Income Tax (PIT) and CIT.	CIT of UCI’s is levied on their taxable profit, although certain income (and respective expenses) from capital, property and capital gains, as qualified for PIT purposes, are exempt. Income (including discounts) and expenses related to management fees and other fees that revert to the UCI’s, as well as non-deductible expenses under the terms of the CIT Code, are also not relevant. The general corporate income tax rate is applied to non-exempt income, and the general autonomous tax rates are also applicable with the necessary adaptations. The UCI’s are, however, exempt from municipal surcharge and state surcharge. Income earned by residents is generally taxed in its entirety at the rate of 25% or 28%, if the beneficiary is a legal person or a natural person, respectively. The participation exemption regime can be applied to qualifying holdings. Income obtained through units in open-ended collective investment undertakings may benefit from a partial exclusion from taxation, depending on the holding period of the assets (10% exclusion if held >2 and <5 years; 20% if ≥5 and <8 years). A withholding tax rate of 10% applies to income earned by non-residents (with some limitations).

• 5. Social security contributions

  The Portuguese social security system is financed by contributions of both employers and employees. Employers are required to contribute 23.75% for employment contracts. This contribution has no ceiling. Companies also must make contributions for the members of their corporate boards. The employer contribution is deductible for corporate tax purposes. The table identifies key situations (with potentially applicable exemptions or reductions in other situations).
  
  
  

  	Employee	Employer
  Employee under contract	11%	23,75%
  Board member	9.3%/11%[1]   [1] The 11% rate is applied when the board members take management and administration functions.	20.3%/23,75%[1]   [1] The 23,75% rate is applied when the board members take management and administration functions.
  Self-employed	21.4%/25.2%[1]   [1] 25,2% if for individual entrepreneurs (without a company) and for EIRL proprietors and their spouses.	7%/10%[1]   [1] If the economic dependency is between 50% and 80%, we apply the 7% rate; if it is higher than 80%, we apply the 10% one.

• 6. Tax losses

  Tax losses may be carried forward for a determined period as follow:
  
  

  Tax years	Years carry-forward	Limit to the deduction
  2014 to 2016	12	70% of taxable income
  As from 2017 (SME)	12	70% of taxable income
  As from 2017	5	70% of taxable income
  As from 2023	No time limit	65% of taxable income

• 7. Dividends and capital gains

  Resident companies are subject to corporate income tax on their worldwide income and capital gains.
  
  Domestic and foreign-source dividends derived by a resident company are exempt if the following conditions are met:
  
  (i) 10% minimum shareholding on the company distributing the dividends;
  
  (ii) one year holding period (may be satisfied after the income is derived);
  
  (iii) source of dividends is not geographically limited (except for dividends received from blacklisted jurisdictions);
  
  (iv) the company distributing the dividends is subject and not exempt to a tax comparable to the Portuguese CIT at a rate not below 60% of the Portuguese CIT rate (if this last condition is not met other alternative requirements may apply).
  
  A credit for the underlying tax will be available where one or more of the conditions for the participation exemption are not met.
  
  As a general rule, capital gains derived by Portuguese resident corporate entities are included in the taxable profits and subject to the general CIT rate. Likewise, capital losses may be deduced to the taxable profits.
  
  Under a reinvestment relief mechanism, 50% of the positive difference between capital gains and capital losses can be excluded from taxation provided the total amount of the sale’s proceeds is reinvested in the year prior to the disposal or before the end of the second following year (i.e. years N-1, N, N+1 and N+2) in the acquisition, manufacture or construction of tangible fixed assets, non-consumable biological assets or investment properties and used for the activity of the acquiring company (i.e. only assets and not shares).
  
  Capital gains and losses realized through the onerous transfer of shares held uninterruptedly for a period of not less than one year do not contribute to the determination of taxable income, provided that, among other requirements, the taxpayer holds, directly or indirectly, a participation of not less than 10% of the share capital or voting rights. However, there is an exception when the company's assets sold are more than 50% Portuguese real estate.
  
  Mergers, divisions, partial divisions, transfers of assets and exchanges of shares can benefit from a special regime of tax neutrality.

• 8. International doble taxation

  Portugal employs two methods to avoid double taxation of foreign-source income, i.e. the exemption and ordinary tax credit methods.
  
  When a resident company derives business profits through a permanent establishment abroad a Portuguese company may opt for exemption method under certain circumstances and only to permanent establishment in a country with a tax comparable to the Portuguese CIT at a rate not below 60% of the Portuguese CIT rate.

   

  Withholding taxes
  
  

  Income	Rate
  Dividends	0% / 25% (1)
  Interest	0% (2) / 25% (1)
  Royalties	0% (2) / 25% (1)
  Services and Commissions	0% / 25% (3)
  Rental income	25%

  
  (1) Subject to reduced rates or exemptions under tax treaties (as well as exemption under internal rule in the case of dividends).
  
  (2) Possibility of exemption from withholding tax, under Directive 2003/49/EC, of 3 June, for interest or royalties paid to companies resident in another European Union (EU) country, where there must be a minimum direct participation of 25%, held for at least 2 years (or in case the debtor and beneficiary of the income are held at least 25% by the same company, for at least 2 years).
  
  (3) Most tax treaties exempt these payments from taxation in Portugal.
   

  Domestic-source income derived by non-residents without a permanent establishment in Portugal is generally subject to a final withholding tax levied on the gross amount.
  
  Dividends paid by a Portuguese company to its resident or non-resident shareholders are subject to a 25% flat withholding tax rate, unless an exemption for dividends paid by Portuguese resident entities is also applicable.
  
  Profits and reserves made available to entities resident in the European Union (EU), the European Economic Area (EEA) or a State with which a double taxation treaty (DTC) with information exchange mechanisms has been concluded may benefit from exemption from withholding tax, subject to certain conditions, e.g., (i) the beneficiary must be an entity subject to and not exempt from a tax referred to in Article 2 of Directive 2011/96/ EU, of the Council, of 30 November, or of a tax of an identical or similar nature to CIT in which the legal rate is not less than 60% of the CIT rate; (ii) there must be a direct or indirect interest of not less than 10% of the capital stock or voting rights of the entity that distributes the profits or reserves; (iii) the interest shall be held uninterruptedly during the year prior to distribution.
  
  Capital income that is paid/made available in accounts opened in the name of one or more holders, but on behalf of unidentified third parties, is subject to withholding tax, on a definitive basis, at the rate of 35%. Capital income, as defined for PIT purposes, obtained by entities not resident in Portuguese territory, which are domiciled in a country, territory, or region subject to a clearly more favourable tax regime, included in a list approved by ordinance of the Minister of Finance, are also taxed at the rate of 35%.
  
  No withholding tax on interest paid to Portuguese banks or local branches of foreign banks subject to CIT in Portugal.
  
  Interest income and capital gains derived by qualifying non-residents from public or private debt securities and issued by Portuguese entities securitization notes are exempt from CIT. An exemption is also available for dividend income derived by Portuguese or EU/EEA pension funds, provided some requirements are met.
  
  Tax Treaties withholding tax rates
  
  

  Countries	Entry into force	Rates
  		Dividends	Interest	Royalties
  South Africa	22/10/2008	10/15 (a)	10	10
  Germany	08/10/1982	15	10/15 (g)	10
  Andorra	23/04/2017	5/15 (o)	10	5
  Angola	22/09/2019	8/15 (a)	10	8
  Saudi Arabia	01/09/2016	5/10 (o)	10	8
  Algeria	01/05/2006	10/15 (a)	15	10
  Austria	28/02/1972	15	10	5/10 (b)
  Barbados	07/10/2017	5/15 (a)	10	5
  Bahrein	01/11/2016	10/15 (a)	10	5
  Belgium	19/02/1971 - 05/04/2001	15	15	10
  Brazil	01/01/2000	10/15 (a)	15	15
  Bulgaria	18/07/1996	10/15 (a)	10	10
  Cape Verde	15/12/2000	10	10	10
  Canada	24/10/2001	10/15 (a)	10	10
  Chile	25/08/2008	10/15 (a)	5/10/15 (c)	5/10 (d)
  China	08/06/2000	10	10	10
  Cyprus	01/08/2013	10	10	10
  Colombia	30/01/2015	10	10	10
  South Korea	21/12/1997	10/15 (a)	15	10
  Ivory Coast	18/08/2017	10	10	5
  Croatia	28/02/2015	5/10 (a)	10	10
  Cuba	28/12/2005	5/10 (a)	10	5
  Denmark	01/01/2003	10	10	10
  United Arab Emirates	22/05/2012	5/15 (o)	10	5
  Slovakia	01/01/2005	10/15 (a)	10	10
  Slovenia	01/01/2005	5/15 (a)	10	5
  Spain	28/06/1995	10/15 (a)	15	5
  United States of America	01/01/1996	5/15 (a)	10	10
  East Timor	12/10/2022	5/10	10	10
  Estonia	01/01/2005	10	10	10
  Ethiopia	09-04-2017	5/10	10	5
  France	18/11/1972	15	10/12 (f)	5
  Georgia	18-04-2016	5/10 (a)	10	5
  Greece	01/01/2003	15	15	10
  Guinea-Bissau	05/07/2012	10	10	10
  Hong Kong	03/06/2012	5/10 (o)	10	5
  Hungary	08/05/2000	10/15 (a)	10	10
  India	05/04/2000	10/15 (a)	10	10
  Indonesia	11/05/2007	10	10	10
  Ireland	11/07/1994 – 18/12/2006	15	15	10
  Iceland	01/01/2003	10/15 (a)	10	10
  Israel	18/02/2008	5 (a) /10 (n)/15	10	10
  Italy	15/01/1983	15	15	12
  Japan	28/07/2013	5/10 (p)	5/10 (p)	5
  Kenya	(s)	7,5/10	10	10
  Kuwait	05/12/2013	5/10 (p)	10	10
  Latvia	07/03/2003	10	10	10
  Lithuania	26/02/2003	10	10	10
  Luxemburg	30/12/2000	15	10/15 (h)	10
  Macau	01/01/1999	10	10	10
  Malta	01/01/2003	10/15 (a)	10	10
  Morocco	27/06/2000	10/15 (a)	12	10
  México	09/01/2001	10	10	10
  Mozambique	01/01/1994 – 07/06/2008	10	10	10
  Moldavia	18/10/2010	5/10 (a)	10	8
  Montenegro	07-12-2017	5/10 (o)	10	5/10 (q)
  Netherlands	11/08/2000	10	10	10
  Norway	15/06/2012	5/15	10	10
  Panamá	10/06/2012	10/15 (o)	10	10
  Pakistan	04/06/2007	10/15 (a)	10	10
  Peru	12/04/2014	10/15	10/15	10/15
  Poland	04/02/1998	10/15 (a)	10	10
  Qatar	04/04/2014	5/10	10	10
  United Kingdom	20/01/1969	10/15 (a)	10	5
  Czech Republic	01/10/1997	10/15 (a)	10	10
  Romania	14/07/1999	10/15 (a)	10	10
  Russia	01/01/2003	10/15 (a)	10	10
  San Marino	03/12/2015	10/15 (a)	10	10
  São Tome e Príncipe	12/07/2017	10/15 (a)	10	10
  Senegal	20/03/2016	5/10 (a)	10	10
  Singapura	26/12/2013	10	10	10
  Switzerland	17/12/1975	5/15 (a)	10	5
  Oman	26/07/2016	5/10/15 (o)	10	8
  Tunisia	21/08/2000	15	15	10
  Turkey	18/12/2006	5/15 (a)	10/15 (i)	10
  Ukraine	01/01/2003	10/15 (a)	10	10
  Uruguay	13/09/2012	5/10 (a)	10	10
  Venezuela	08/01/1998	10/15 (a)	10	10
  Vietnam	09/11/2016	5/10/15 (o)	10	10/7,5

   

  (*) The reduced rates are applicable either by relief at source mechanism or refund reclaim provided the beneficiary presents the necessary forms (21-RFI to 24-RFI), duly completed (but no need to be authenticated by the respective tax authorities) and a tax residence certificate of the recipient of the income.
  
  (a) Reduced rate whenever the beneficiary is a company that holds at least 25% of the subsidiary’s share capital (two years holding period) and 15% in the remaining cases. In the case of Andorra and Saudi Arabia, the shareholder percentage criterion is limited to 10% of the capital of the company which pays the dividens. In the case of Chile, Cuba, Slovenia, Spain, Finland, Moldova, Norway, UK and Switzerland, there is no minimum holding period required. In the case of the UK, the shareholding percentage criterion is replaced by voting rights. In the case of Venezuela, there is no requirement on a minimal capital shareholding on the company of the other Contracting State. In the case of Barbados, Bahrein, Croatia, United Arab Emirates, Ethiopia, Georgia, Moldavia and Uruguay, there is no requirement on a minimum shareholding period. In the case of Angola, the minimum holding period is 365 days.
  
  (b) When the company holds more than 50% of the share capital.
  
  (c) 5% on bonds or securities that are regularly and substantially traded on a recognized securities market, 10% on loans granted by banks and insurance companies or on sale on credit and 15% on the remaining cases.
  
  (d) 5% on royalties for the use of, or the right to use, any industrial, commercial or scientific equipment. 10% on the remaining cases.
  
  (e) 10% whenever the parent company controls more than 50% of the subsidiary’s share capital. 5% on the remaining cases.
  
  (f) 10% for interest derived from bonds issued in France on or after 1/1/1965; 12% on the remaining cases.
  
  (g) 10% for interest on loans granted by a bank. When the interest is derived from Portugal, the 10% rate is only applicable if the operation for which such loans are granted is officially deemed to be of economic or social interest for Portugal.
  
  (h) 10% on interest paid by companies resident in a Contracting State, where interest paid is considered as a deductible cost, to a financial establishment resident in the other Contracting State. 15% on the remaining cases.
  
  (i) 10% for interest paid on a loan made for a period of more than two years.
  
  (j) 0% on interest on a long-term loan (5 or more years) granted by a bank or other financial institution that is a resident of the other Contracting State.
  
  (k) 10% for royalties concerning technical assistance.
  
  (l) Many treaties provide for specific withholding tax exemptions of on interest, namely when interest is paid by and to a State, local authority, central bank, or export credit institutions and when interest is pain in relation to sales on credit.
  
  (m) The treaty does not apply to exempt Luxembourg 1929 holding companies.
  
  (n) 10% whenever the beneficial owner is a company that holds directly at least 25% of the paying company’s capita. Furthermore, this company must be a resident of Israel and the dividends are paid deriving from Israeli-sourced taxable income subject to a lower rate when compared to the Israeli CIT tax rate.
  
  (o) If the beneficial owner is a company (unless it is a partnership) which holds directly at least 10% of the share capital of the entity paying dividends. In the case of Montenegro, the percentage is 5%. In the case of Vietnam, it is applicable a rate of 5% if the beneficial owner is a company which holds, directly, at least 70% of the capital of the entity paying the dividends.
  
  (p) 5% whenever the beneficial owner is a company (unless it is a partnership) which holds directly for an uninterrupted period of 12 months (i) 10% of shareholding with voting rights of the distributing company which is a resident of Japan, or (ii) 10% of the share capital of the company distributing dividends which is a resident of Portugal.
  
  (q) 5% for royalties related with any copyright of literary, artistic or scientific work and 10% for royalties related with patents, trade-marks, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience.
  
  (r) 10% for royalties and 7,5% for income generated from technical fees (managerial, technical or consultancy).
  
  (s) Not yet in force.
  
  Capital gains derived by non-residents
  
  Capital gains earned by non-residents, in Portuguese territory, arising from the onerous transfer of shares and other securities are subject to corporate income tax at the rate of 25%.
  
  Capital gains derived from the disposal of shares or other corporate rights and securities may benefit from a domestic tax exemption provided such gains are derived by a non-resident without a permanent establishment in Portugal, if the following requirements are met:
  
  - The seller is not owned, directly or indirectly in more than 25% by a Portuguese resident company/individual or the seller is not a resident in a blacklisted jurisdiction;
  
  - The non-resident without permanent establishment in Portugal is not residing in a blacklisted jurisdiction; and
  
  - The gains derived do note relate to shares or corporate rights in resident companies whose assets consist in more than 50% of Portuguese-situs immovable property or holding companies, whenever such companies are in a control relationship with resident companies whose assets consist in more than 50% of Portuguese-situs immovable property.
  
  Capital gains are also subject to taxation in case of disposal of capital or similar rights of a company when, in any given moment of the 365 days prior to the disposal, the value of that capital or rights resulted, directly or indirectly, in more than 50% from immovable property located in Portuguese territory, with the exception of immovable property used for an agricultural, industrial or commercial activity which does not consist in the acquisition and sale of immovable property.
  
  Group Taxation
  
  Resident companies may elect to be taxed within a tax group of companies. The Portuguese tax group does not work as a pure consolidation or fiscal unity system, but each entity must individually assess their taxable profits / losses.
  
  In order for a group of companies to be qualified as a tax group for Portuguese taxation purposes, the following requirements should be met:
  
  (i) the head of the tax group must be the direct or indirect holder of at least 75% of the subsidiaries’ share capital, provided such shareholding represents more than 50% of the voting rights,
  
  (ii) the share capital of head of the group cannot be held in 75% or more by another Portuguese entity,
  
  (iii) all companies within the tax group must have their head office or place of effective management in Portugal and be taxed at the higher CIT rate and
  
  (iv) the participation in the subsidiaries must be held for a minimum period of one year from the moment the tax group is created. Under certain circumstances the Portuguese group taxation regime also allows integration where lower tier Portuguese entities are held by a foreign entity held by a Portuguese entity. Foreign permanent establishments do not qualify to head a tax group.
  
  Under certain conditions, the dominant company may also opt for the application of the RETGS if it does not have its registered office or effective management in Portuguese territory, but is resident in a Member State of the EU or the EEA.
  
  For the purposes of calculating the holding periods referred to, when the shareholding has been acquired in the context of a merger, division or transfer of assets, the period in which the shareholdings have remained in the ownership of the merged companies, spun-off companies or the transferring company shall be considered.
  
  Under certain conditions, tax losses assessed by the individual companies prior to integration may be offset against the taxable profits of the tax group. The limitations referred above regarding the carry forward of tax losses are applicable to groups of companies.
  
  When the RETGS is applied, the surcharges are levied on the individual taxable income of each of the companies in the group.
  
  Transfer Pricing
  
  The Portuguese transfer pricing regime has come into force in the Portuguese tax legislation in 2002 and follows closely the OECD guidelines. Under this regime, transactions entered into between related entities should reflect the arm’s length principle, i.e. for tax purposes, the controlled transactions’ prices should be established as if the parties were not related, by reference to the conditions which would have been obtained between independent enterprises, in comparable transactions and comparable circumstances. Entities in a situation of special relationships are understood to be those that have the power to decisively influence the management decisions of another, and the following situations are usually covered: holding, or common holding, of at least 20% of the capital or voting rights, majority participation in the corporate bodies, subordination or joint group agreement, group relations (dominance), and economic dependence (know-how, supply, access to markets, use of brands, among others).
  
  The scope of the transfer pricing regime covers all taxpayers conducting cross-border as well as domestic controlled transactions, including transactions between permanent establishments and transactions entered into with unrelated entities resident in listed blacklisted jurisdictions.
  Taxpayers that in the previous fiscal year obtained over € 10,000,000 of net sales and other operating profits are required to organize, compile and keep contemporaneous transfer pricing documentation for a 10 year period.
  
  Liquidation and Exit Tax
  
  Proceeds received by shareholders derived from the liquidation of a Portuguese resident company are qualified as capital gains. The capital gains exemption for both resident and non-resident entities is applicable to liquidation proceeds.
  
  The transfer of the head office with corporate continuation or of the place of effective management (qualified as a cease of activity) of a company, without such company being liquidated, gives rise to a taxable gain or loss equal to the difference between the market value of the assets and their book value (at the general CIT rate).
  
  The exit tax rules applicable to transfers of residence of Portuguese companies to other EU/EEA countries provides the following options for the payment of CIT: (i) immediate payment of CIT upon exit, (ii) option for payment in five instalments and (iii) option for deferral until the year of effective disposal of the asset or transfer of residence to another jurisdiction.
  
  International Business Centre of Madeira (IBCM)
  
  Companies licensed to operate in IBCM until 31st December 2026, being that the incentives are applicable until the same day of 2028, are subject to a reduced 5% tax rate, subject to ceilings of taxable income, variable according to the number of jobs created.
  
  

  Taxable income ceilings
  Number of jobs created	Tax base ceiling (€M)
  1-2	2,73
  3-5	3,55
  6-30	21,87
  31-50	35,54
  51-100	54,68
  >100	205,5

   

  Entities licensed to operate in the IBCM are subject to one of the following benefit limits:
  
  a) 20,1% of the annual Gross Added Value; or
  
  b) 30,1% of the anual employment costs or
  
  c) 15,1%of the anual turnover.
  
  Entities that have been licensed under previous regimes (namely between 2007 and 2014) retain the right to the benefits within the terms and conditions defined at the time of their licensing, provided they meet the legally required requirements.
  
  Anti-Avoidance Rules
  
  Portugal tax law includes a general anti-abuse clause, which allows the Portuguese Tax Authority to disregard acts or legal transactions that have been carried out with abuse of legal forms, aiming at the reduction, elimination or deferral of taxes that would otherwise be due.
  
  In addition, there are specific anti-abuse rules, including special rules on restructuring and rules on payments made to privileged tax jurisdictions on the list approved by the Minister of Finance.
  
  Portugal has also implemented a mandatory disclosure regime for abusive tax planning, having also transposed the directive known as DAC 6. This regime requires the communication to the Tax Authority of certain cross-border tax planning schemes that have characteristics indicative of potential tax evasion or avoidance.
  
  In addition, the profits of a company resident in a jurisdiction with a clearly more favorable tax regime may be imputed to the partners who have a substantial interest and taxed there in proportion to their shareholdings, regardless of whether there is a distribution of profits (controlled foreign companies).