Operational tax news - Portugal update - 24 March 2011
Budget Law for 2011 in effect
The participation exemption available for entities that hold less than 10 % of the shares of a dividend paying company has been abolished. Previously, the exemption applied if the acquisition price of the shares for such shareholdings was EUR 20 million or more. Additionally, the partial participation exemption under which 50 % of dividends were exempt if the recipient did not qualify for the full exemption has been eliminated, so that dividends from shareholdings of less than 10 % of the share capital are now fully taxable at the general corporate tax rate (generally between 25 % and 29 %).
Dividends paid to EU/EEA resident entities
The withholding exemption for dividends paid by a Portuguese resident company to a parent company resident in an EU/EEA Member State that satisfy the conditions in article 2 of the EU Parent-Subsidiary Directive applies only where the recipient company holds at least 10 % of the share capital of the payer company (i.e. the acquisition cost of the participation is no longer relevant for purposes of this exemption).
Separately, tax withheld on dividends paid by a Portugal resident company (that is subject to, and not exempt from, corporate income tax) to a company resident in an EU/EEA Member State (with the condition for EEA countries that an administrative and tax cooperation obligation apply) may be refunded if the amount of tax withheld and paid to the Portuguese Treasury exceeds the tax that would have been incurred by a Portuguese resident corporate recipient. The refund request must be submitted to the Portuguese tax authorities within two years following the end of the year the taxable event took place.
Capital gains derived by nonresidents
The corporate and personal tax exemptions applicable to capital gains derived by a nonresident without a PE in Portugal no longer apply if the recipient is resident in a jurisdiction that does not have a tax treaty or information exchange agreement with Portugal.
Impact on Luxembourgish funds SICAVs
If a Luxembourg fund (SICAV) holds less than 10 % of a Portuguese company, the dividends received will be subject to a withholding tax in Portugal. The withholding tax rate applicable would be 21,5 %. A reduced withholding tax of 15 % will apply (only to Luxembourg SICAVs) under double tax treaty (DTT) between Portugal and Luxembourg. The reduced rate applicable is 15 % according to DTT.
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