Portugal: Tax changes for 2018
The State Budget for 2018, approved via Law no. 114/2017 of 29 December, has brought some changes to taxation that have led to a degree of stability in the Portuguese tax system, a characteristic which is essential to attracting foreign investment. Below, we highlight the changes that may have an impact on the companies of the International Business Centre of Madeira (IBCM):
Corporate Income Tax:
- Gains resulting from the onerous transfer of shareholdings or similar rights in companies or other entities (not residing in Portugal) are now considered to have been obtained on Portuguese territory when, at any time during the preceding 365 days, the amount of these shareholdings or rights originates, directly or indirectly and by a proportion of more than 50%, from real estate or real rights over real estate property located on Portuguese territory, with the exception of real estate property allocated to an agricultural, industrial or commercial activity that does not consist of buying or selling real estate;
- Regional Surtax is the tax applicable to taxable profit that exceeds €35M and it is now 9%; in this regard, we would point out that the companies established at the IBCM as of 2015 will benefit from an 80 % reduction with respect to Regional Surtax in terms of income obtained within the scope of the IBCM and taxed at a rate of 5% (corporate income tax); with this change the respective rate at the IBCM has gone up from 1.4% to 1.8%;
- Following the previous change, Additional Payments on Account, which are obligatory whenever taxable profit for the previous taxation period exceeds €1.5M, have increased from 6.5% to 8.5% in cases of taxable profit that exceeds €35M; with this change the respective rate at the IBCM has gone up from 1.3% to 1.7%;
- If no income tax return is submitted (Mod. 22 form), payment shall be made no later than 30 November of the year that follows the year it pertains to or by the end of the sixth month that follows the end of the time period for submitting said return, based on the largest of the following amounts:
- The taxable amount that is determined on the basis of the information held by the tax authorities, in accordance with the rules of the simplified framework and applying a coefficient of 0.75;
- The total taxable amount for the closest taxation period that has been determined;
- The annual amount of minimum monthly remuneration;
- For the purpose of determining taxable profit attributable to each stable establishment located outside of Portuguese territory for a taxpayer with head office or permanent administration located on Portuguese territory, the taxpayer must adopt proportional calculation criteria that are suitable and duly justified in order to distribute costs, losses or negative changes in assets that are related to taxable operations or assets allocated to a stable establishment or related to other operations or assets of the taxpayer;
- Agreed remuneration from shareholder capital: When determining taxable profit, an amount corresponding to the agreed remuneration from shareholder capital may be deducted, calculated by applying the rate of 7%, limited to each financial year, to the amount of entries made up to a ceiling of €2M, not only through deposits of cash, conversion of shareholder advances or loans, but now also by converting credits or using profits from the year, when establishing the company (subject to certain requisites being fulfilled);
- Should the company be dissolved, it must submit two tax returns (Mod. 22 form), one no later than the last day of the 5th month following that of the dissolution and pertaining to the period from the beginning of the taxation period during which the dissolution took place up to the date of the dissolution; and another return no later than the last day of the fifth month following the date of the end of the taxation period, relative to the period from the day after the dissolution up to the end of the taxation period in which the dissolution took place (period when the liquidation took place);
Personal Income Tax:
- Capital gains resulting from onerous transfers of shareholdings or similar rights in companies or other entities are now considered to have been obtained on Portuguese territory when, at any time during the preceding 365 days, the amount of these shareholdings or rights originates, directly or indirectly and by a proportion of more than 50%, from real estate or real rights over real estate located on Portuguese territory (with the exception of real estate allocated to an agricultural, industrial or commercial activity that does not consist of buying or selling real estate);
- The amount of the meal allowance exempt from personal income tax has been increased to €4.77;
- Guaranteed Minimum Monthly Income: The amount of the Guaranteed Minimum Monthly Income in 2018 in the Autonomous Region of Madeira will be €592;
- Termination of the temporary framework for payment of holiday and Christmas bonuses in monthly instalments;
- A Tax Representative may, under generally applicable terms, resign their position, subject to sending written communication to the represented party at the latter’s last known address, and notifying the Tax Authorities in order for the resignation to be considered effective.
Taxpayers may now recover VAT when insolvency proceedings have ended due to lack of assets or after final distribution resulting in non-payment of credits; this possibility is also provided for when there is a delay in the ruling for the approval of the insolvency or recovery plan that provides for non-payment of credits;
- It is now possible to be compensated for taxes paid in situations of cancelation of operations or reduction of the taxable amount (except lessors and sub-lessors); the compensation ceases to obligatorily refer to the same amount of the General Table and can relate to any subsequent tax payment; the compensation time period has also been extended;
- Taxpayers are now obliged to submit a monthly statement itemized according to each applicable amount of the General Table, no later than the 20th day of the month that follows the one in which the tax obligation was created.
NEWCO is entirely at your disposal to answer any questions regarding these developments or to enlighten you regarding the impact that these changes may have on the companies of the International Business Centre of Madeira.