Portugal Tax Alert - 16 November 2012
New austerity measures affect nonresidents
By Carlos Luís Loureiro, Paulo Rodrigues and Rafael Roque
Law 55-A/2012, published in Portugal's official gazette on 29 October 2012, includes various tax hikes and other measures that will affect nonresident investors. In particular, the tax rate on certain investment income is increased significantly. The law applies generally as from 30 October 2012, although as described below, some changes apply retroactively as from 1 January 2012.
Corporate income tax
The tax rate on investment income derived by nonresident entities that are subject to a privileged tax regime in their country of residence and included on Portugal's blacklist is increased from 30% to 35%. The same rate increase applies to investment income of nonresident entities that is paid or made available in bank accounts of one or more holders where the identity of the ultimate beneficial owner is undisclosed. (If the identity of the ultimate beneficial owner is disclosed, the general rules apply, i.e. the income will be taxed at a rate of 25%.)
Personal income tax
The withholding tax rate is increased from 25% to 26.5% on the following types of Portuguese-source income. The increase applies to income derived by both resident and nonresident individuals, unless otherwise indicated:
- Interest on bank deposits, and interest and similar income from shareholders' loans;
- Income from debt securities, repurchase ("repo") transactions and the assignment of loans;
- Liquidation proceeds and income derived from the amortization of shares without a capital reduction;
- Income from the redemption, advance or maturity of insurance and other transactions in the life assurance sector; and
- Investment income of nonresident individuals that is not specifically taxed at different tax rates.
The same rate increase applies to foreign-source income derived from securities obtained by a Portuguese resident paid through a Portuguese-domiciled paying agent, as well as foreign-source investment income not paid by a Portuguese-domiciled paying agent (the latter rate increase applies retroactively as from 1 January 2012).
As in the case of nonresident entities, the tax rate on investment income received from entities resident in jurisdictions subject to a privileged tax regime in their country of residence and included on Portugal's blacklist, and investment income made available in bank accounts of one or more holders for the benefit of unidentified third parties, is increased from 30% to 35%.
The tax rate applicable to the positive difference between capital gains and losses arising from the disposal of shares is increased from 25% to 26.5%, for resident and nonresident individuals, as from 1 January 2012 (subject to any limitations imposed by a tax treaty).
New stamp duty rates apply to the ownership, usufruct or surface rights to urban buildings whose value for municipal property tax purposes exceeds EUR 1 million. The rate is 1% for urban residential property and 7.5% for urban property owned by a company that is resident in a jurisdiction subject to a privileged tax regime and included on Portugal's blacklist. However, for calendar year 2012, the rate will be 0.5% or 0.8%, depending on whether the property has been valued under the annual municipal property tax code (if not owned by a blacklisted company, where the 7.5% rate prevails).The stamp duty must be paid by 20 December 2012.
General tax law
New rules are introduced for the assessment of taxable income for personal income tax purposes based on external indications of wealth. This method may be used when the income declared is at least 30% (previously 50%) below the "standard" income referred to in the general tax code (The legislation includes a table of deemed or standard income in the case of ownership of certain assets, such as high value property, cars, pleasure boats, private aircraft and shareholder loans). In addition, amounts transferred from or to deposits of securities accounts opened by a taxable person in financial institutions resident in jurisdictions with a privileged tax regime where the identity of the beneficial owner is not disclosed are now deemed to constitute a sign of wealth. For this purpose, the standard income is deemed to be the sum of all transfers effected. These rules apply retroactively as from 1 January 2012.
These changes reflect Portugal's need to maximize tax revenue for 2012 and take a stricter approach to the under-reporting of taxable income. They also comport with proposals in the draft budget law for 2013 to increase the tax on income, whether earned or unearned, of individuals. The draft budget law envisages further increases in the above withholding taxes and rates on all taxable income, along with a narrowing of the tax rate bands.