The State Budget for 2016, which has just been published in the Official Gazette, introduces several changes to the Portuguese tax system, some of which are relevant to the International Business Centre of Madeira (IBCM).
We would like to emphasise the following most relevant changes.
- Legislative Authorisation/Regime for Non-Habitual Residents – In an effort to simplify the system, legislative authorisation has been attributed to the government to change the way that taxable persons register as non-habitual residents, implementing an electronic process for this purpose.
- Participation exemption system – increase from 5% to 10% of the percentage of required participation for the purposes of applying regimes for the elimination of double taxation for distributed profits and for the exclusion from taxation of capital gains for the onerous transfer of equity instruments, offset by a reduction in the minimum period of shareholding from 24 months to one year.
- Exemption from corporation tax on the distribution of profits and reserves – the minimum shareholding percentage was also increased to 10% and the minimum period for holding these was reduced to 12 months for the purposes of applying the exemption on profits and reserves distributed to partners resident in another member state of the European Union or the European Economic Area or a state with which an agreement to avoid double taxation has been signed. It should be noted that, in the case of companies licensed to operate in the IBCM from 1st January 2015, the exemption applies both to corporate partners and individual persons, independently of the percentage and period of holding the respective shares, provided that these people are not residents in Portugal or in tax havens.
- Tax losses – the reporting period for tax losses has been reduced from 12 years to 5 years, except for companies certified as Small to Medium Sized, in which case the 12-year period will still apply. This new period of 5 years will be applicable to tax losses ascertained in taxation periods that begin on or after 1st January 2017.
- “Exit Tax” – in the event of transfers from a company with its headquarters or effective management on Portuguese soil to another member state of the European Union or the European Economic Area that is bound to administrative cooperation in the area of taxation, equivalent to that established within the scope of the European Union, capital gains and losses ascertained for the purpose of this transfer are not subject to taxation if the requirements for the applicability of the participation exemption regime are fulfilled.
- Transfer prices/Financial and tax information on multinational groups – a new declaration of financial and tax information by country or tax jurisdiction has been introduced, which is applicable to companies operating as part of a group with companies that have a tax residence or permanent establishment in distinct countries or jurisdictions (country-by-country reporting), thus complying with the guidelines of the OECD within the scope of the BEPS project (Base Erosion and Profit Shifting).
- Legislative authorisation / Patent box – legislative authorisation has been granted to the government to make changes to the partial exemption regime for income from patents and other intellectual property rights, in order to guarantee that the benefits granted only cover income relating to activities of research and development of the benefiting taxable person in question.
- Profits of permanent establishments not on Portuguese soil – relative to the possibility of exclusion from taxation on profits and losses for permanent establishments not on Portuguese soil, the period of applicability has been reduced for the regulations for the recapture of benefits granted from 12 to 5 taxation periods, which limits the amount from which tax losses or taxable profits of these permanent establishments can or cannot contribute to the formation of taxable profit. This change is also only applicable to taxation periods that start on or after 1 January 2017.
- Supplies – exemption from stamp duty on loans with supply features will now only be applicable in cases where supplies are provided by shareholders to companies in which they have a direct shareholding of no less than 10% and provided that ownership has been maintained for one full year, or since the formation of this company, provided, in this case, that the shareholding was maintained during this period.
- Capital gains made by non-residents – the exemption from income tax and corporation tax applicable to capital gains made with the onerous transfer of shares and other securities issued by companies resident on Portuguese soil, by non-resident entities or individual persons without a permanent establishment in Portugal to which they are attributable, will now apply even if more than 25% of such entities is directly or indirectly held by resident entities, provided that the transferor meets the following conditions (cumulatively):
- They are resident in another member state of the European Union or the European Economic Area, which is bound to administrative cooperation in the area of taxation, equivalent to that which is established in the European Union, or they are resident in a state with which Portugal has a valid agreement to avoid double taxation that foresees the exchange of information;
- They are subject to and not exempt from a tax referred to in article 2 of Directive 2011/96/EU, or from tax of an identical or similar nature to corporation tax, and provided that the applicable rate for this company is no less than 60% of the normal rate of corporation tax;
- They have a direct or indirect shareholding of no less than 10% in the share capital or voting rights of the company subject to divestment;
- The shareholding in question has been held, uninterrupted, for the year before divestment;
- It is not part of a construction, or series of constructions, artificial or artificial, having as main objective or as one of the main purposes, that of obtaining a tax advantage.
If you are interested in finding out more about the International Business Centre of Madeira or the impact of any of these measures on the IBCM’s tax regime, or if you wish to discuss any particular structure, please do not hesitate to contact us.