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News & Knowledge

Portugal – A family and business friendly jurisdiction

1st September 2017
Carlos Santos, Dixcart Management (Madeira) Lda

Since 2009 over 5,000 high net worth individuals and their families have made Portugal their home, attracted by the lifestyle, the Non-Habitual Resident tax regime and the Golden Visa residency programme. MSI's specialist member Dixcart Management (Madeira) Lda provides an overview of the Portuguese business environment.

Background

Since 2009 over 5,000 high net worth individuals and their families have made Portugal their home, attracted by the lifestyle, the Non-Habitual Resident tax regime and the Golden Visa residency programme.

In 2014 the Portuguese Government made Portugal more attractive to companies by reforming its Corporate Tax Code to meet international standards. Since then Portuguese companies have enjoyed an internationally competitive tax framework that is also transparent, compliant and in-line with best international practice.

As an alternative to being registered on the mainland, Portuguese companies can, in the correct circumstances, be registered on the island of Madeira. The Madeira International Business Centre (MIBC) offers a number of attractive tax advantages.


Portugal Corporate Tax Structure

Overview

Portuguese companies are subject to tax on their worldwide income. Branches of non-resident companies are only taxed on Portuguese-source profits.

Corporate tax is charged on a company’s profit, although some exemptions may apply in relation to passive income, under the Participation Exemption Method (see full article for more details).

Participation Exemption

Under Portugal’s participation exemption regime, dividends received and capital gains realised by a Portuguese company from a domestic or foreign shareholding are exempt from tax, provided that:

  1. The shareholder is not considered to be a transparent entity; AND
  2. The shareholder has held, directly or indirectly, at least 10% of the capital or voting rights of the company for at least 12 months;
  3. the subsidiary must not be resident in a listed tax haven; AND
  4. the subsidiary must be subject to a corporate tax rate listed in the EU Parent-Subsidiary Directive or a tax rate that is at minimum 60% of the Portuguese corporate tax rate.

The Participation Exemption also applies to dividends distributed to a non-resident company if this entity holds 10% of the capital for at least 12 months, and is resident in the EU/European Economic Area (EEA) or in a tax treaty jurisdiction.

Madeira Free Trade Zone companies can also take advantage of the Participation Exemption benefit relating to dividends, as long as the shareholder is an individual and the other criteria, detailed above, are met.

In all other cases, the dividend is subject to withholding tax at 25% (35% if paid to a resident of a Portuguese listed tax haven). The 25% rate may be reduced by a tax treaty.

Portugal grants a tax credit up to the amount of Portuguese tax payable on foreign income, which is calculated net of expenses on a per-country basis.

Download the full article: Portugal – A family and business friendly jurisdiction

About Dixcart Management (Madeira) Lda - Madeira

Dixcart Management (Madeira) Lda is a company incorporated in Portugal and registered in Madeira under the provisions of the International Business Centre Legislation, which allow companies to undertake activities from Madeira whilst enjoying tax exemptions.

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