Following approval of the 2015 Government Budget in the Portuguese Assembly of the Republic at end 2014, along with other important tax legislation, such as Laws nos. 82-C/2014, 82-D/2014 and 82-E/2014, all of 31 December, several amendments were introduced into the Portuguese tax regime, some of them of great significance to the International Business Centre of Madeira (IBC).
Among these changes we highlight the stability of corporate taxation, thus staying the course with regard to the Corporate Income Tax reform that took place in the past year.
We therefore wish to disclose some of the more relevant changes.
CORPORATE INCOME TAX:
- The general corporate income tax rate has been reduced to 21% (the rule for Small and Medium Enterprises having been kept, in which the rate applicable to the first 15,000 euros of taxable income is 17%), while in terms of the companies licensed to operate within the scope of the IBC, the reduced rate of 5% continues to apply.
- For the tax exemption (withholding tax) to be applicable to the distribution of profits/reserves by a company residing in Portugal, it should be clarified that the benefiting entity (not residing in the EU, EEA or Switzerland) must reside in a State with which a double taxation agreement has been signed, is currently in force, and involves exchange of information. This wording amends the previous version which stated that the respective agreement provided for administrative cooperation in terms of taxation, equivalent to that which is established in the EU (the other conditions and requirements having remained the same);
- Express provision that exemption from taxation on the distribution of profits/reserves by a company residing in Portugal to a permanent establishment (PE) located in another EU Member State or member of the European Economic Area (EEA) depends on compliance with the regime applicable to the distribution of profits and reserves to commercial companies (thus adding the obligation of compliance with the requirement that shares must be held uninterruptedly for a period of 24 months before distribution);
- Companies that are required to take inventory must report to the Tax Authorities an inventory of stock quantities as they exist at 31 December. This information must be sent, in electronic format and via a file with pre-defined characteristics and structure, no later than 31 January or by the end of the first month that follows the date on which the taxation period ends, if different from the calendar year.
PERSONAL INCOME TAX:
- The concept of tax residence in Portuguese territory has been changed, the general criteria now being:
a) A period of residence that exceeds 183 consecutive or non-consecutive days within any 12-month period beginning or ending in the year in question;
b) In the case of a shorter period of residence, if, at any time during the period stipulated in the previous sub-paragraph, the person has housing at this location under conditions that indicate an intention to maintain it and occupy it as a habitual residence.
- There is express provision for tax representatives of non-residents to be able resign under the general terms, subject to written communication to the represented party, sent to the last known address of the latter, thereby becoming effective with regard to the Tax Authorities and Customs after they have been informed of the situation.
- The option to include any income subject to withholding tax or special taxes now determines the obligatory inclusion of all other income that is also subject to withholding or special taxes and which belongs to the same category, but not income belonging to different categories.
TAX COURTS AND OTHER
- For a taxpayer to have his or her tax situation settled, he/she:
a) Must not owe any taxes or any other type of contribution and respective interest;
b) Must be authorized to pay the debt in instalments, provided a guarantee is pledged in accordance with applicable legislation;
c) There is pending litigation involving the dispute of the legality of the outstanding debt and the tax execution procedure is backed by a pledged guarantee in accordance with applicable legislation;
d) Tax execution has been suspended and a guarantee has been pledged in accordance with applicable legislation.
- Taxpayers who have not settled their tax situation may not:
a) Sign supply contracts, public works contracts or procurement contracts for goods and services with the State, autonomous regions, public institutes, local municipalities and private charity institutions mostly funded by the Government Budget, nor may they renew existing contracts;
b) Bid for public service concessions;
c) List securities that represent their share capital on stock markets;
d) Launch public stock offerings for their capital or sell securities, bonds or shares via public subscription;
e) Benefit from the support of European Structural Funds and investment and public support funds;
f) Distribute yearly profits or make advances against profits over the course of the financial year.
- Entities that offer payment services (together with credit institutions and financial companies) have until the end of July of each year to report to the Taxation and Customs Authority the transfer and sending of funds to an entity located in a tax haven.
If you have any questions about the International Business Centre please do not hesitate to contact us.