CIT

Subject entities and taxable income

The following entities are subject to CIT on their taxable income:

Rates

^{(1)  A Municipal Surcharge may also apply.
(2) Additionally, a State Surcharge may also apply.
(3) In the case of micro, small or medium-sized enterprises, which carry out their activity and have effective management in inland areas (according to the delimitation to be established by decree), the rate applicable to the first € 15,000 of taxable income may be reduced to 12.5%}

Autonomous taxation

Certain incurred expenses incurred or supported by entities subject to CIT are subject to autonomous taxation ⁽¹⁾⁽²⁾ at the rates provided below.

^{(1) Autonomous taxation rates are increased by 10 percentage points whentaxpayers computetax losses in the tax period in which the referred facts have occurred.
(2) The application of these rates may be waived in certain situations and / or provide that some requirements are met.}

Municipal Surcharge

In addition to corporate income tax, municipalities may levy a Municipal Surcharge (“Derrama”). The rate of the Municipal Surcharge may go up to 1.5% - reduced rates may apply to companies with a turnover of less than € 150,000, with reference to the previous tax year. An exemption may also apply to companies that carry out a specific activity or that have been recently incorporated and create new jobs.

Under the Special Regime of Group Taxation, the Municipal Surcharge is levied on the taxable income assessed by each company part of the group.

The Municipal Surcharge is levied on the taxable profit of the year, before the deduction of tax losses.

For collection in 2017 with reference to the fiscal year of 2016, the Municipal Surcharge rates are the following:

• Municipal Surcharge

State Surcharge

State Surcharge is due by Portuguese resident entities and by Portuguese permanent establishments of non-resident entities, which carry out commercial, industrial or agricultural activities as their main business.

The applicable rates are the following:

The State Surcharge is paid upon filing the CIT return. The payment corresponds to the difference between the State Surcharge assessed and the amount of the three additional payments on accounts made in July, September and until the 15th day of December of the previous year (7th and 9th months and until the 15th day of the 12th month of the tax year, if different from the calendar year). A refund arises in case the additional payments on account exceed the amount of the State Surcharge that would be due.

Withholding tax (1)

^{(1) Exemption or reduction of the withholding tax rate could be possible by applying the domestic Law, a Double Tax Treaty (DTT) or other applicable international legislation, provided the respective conditions are met.
(2) Payment on account of the final tax due, with exception of capital income paid or made available in accounts opened on the name of one or more owners but on behalf of third parties not identified.
(3) Withholding at a flat rate, except when referring to rental income.
(4) Exemption available under the Decree-Law 193/2005, of 7 November, which provides for the Special Regime for the Taxation of Income from Debt Securities.
(5) Withholding tax at 10% if the beneficiary of the income is held, directly or indirectly in more than 25% by resident entities or individuals.
(6) Taxation at the rate of 35% if the beneficiary of the income is an entity resident for tax purposes in jurisdiction subject to a more favorable tax regime included in the list approved by the government.}

Withholding tax exemption

Withholding taxes may be waived in the following cases:

Payments on account

Payments on account are due by Portuguese resident entities and by Portuguese permanent establishments of non-resident entities, which main business consists of carrying out commercial, industrial or agricultural activities.

Payments on account are due in July, September and 15th day of December of the respective tax year (otherwise on the 7th, 9th and until the 15th day of the 12th month of the tax year adopted, if different from the calendar year).

Payments on account are computed based on the CIT assessed in the previous tax year, net of withholding taxes incurred that cannot be either offset or refunded.

Regarding the tax year that begins on 1 January 2018, the due amount of payment on account  shall be determined as follows:

If the amount of the payments on account exceeds the CIT due, the taxpayer is entitled to a refund corresponding to that difference.

In case the taxpayer determines that the two first payments on account already made are equal or higher than the final CIT that will be due in that tax year, the taxpayer may decide to limit or not to make the third payment on account.

Where upon filing the CIT return it is determined that, as a result from the lack of the third payment on account, the taxpayer failed to make payments on account corresponding to more than 20% of the total amount that should have been paid, compensatory interest arises, computed between the deadline established for the third installment of the payment on account and the deadline for the filing of the CIT return (or the payment of the CIT due, if prior).

Special payment on account

Entities that carry out commercial, industrial or agricultural activities, as well as non-resident entities with a permanent establishment in the Portuguese territory can be liable to the special payment on account (PEC – “Pagamento Especial por Conta”) regime, which in practice results in a minimum tax burden, computed as follows.

Payments are due in March each year (or in two installments in March and October or in the 3^rd and the 10^th month, if different from the calendar year):

PEC = [(1% turnover of previous tax year ⁽¹⁾ - payments on account of previous year) - € 100] x 87.5%

⁽¹⁾ Capped at:
Minimum € 850
Maximum € 850 + 20% of the surplus, capped at € 70,000

This payment is deductible to the CIT assessed in the respective year or, in case the CIT assessed is not sufficient, it can be deductible in the following six tax years. Any part that cannot be deducted (within the six tax years) due to the insufficiency of tax assessed will only be refunded upon request.

PEC is not applicable in the first and second years of activity

Under the Special Regime of Group Taxation, a PEC is due for each company part of the tax group, after the payments on account deduction that were due by each of those companies in the event such regime was not applicable.

Additional payments on account

Additional payments on account (“Pagamento Adicional por Conta”) are due by entities subject to the regime of both payments on account and special payments on account that have reported, in the previous tax year, a taxable profit exceeding € 1,500,000.

Additional payments on account are computed as follows:

The additional payments on account are due in three installments in July, September and until the 15th day of December (or in 7th, 9th and until the 15th day of 12th month of the tax year, if different from the calendar year).

If the amount of the additional payments on account exceeds the State Surcharge due, the taxpayer is entitled to a refund corresponding to that difference.

Tax deductible impairment losses

The following impairment losses are accepted as tax deductible:

a) relating to bad debts duly accounted for as such in the books of the company, when the risk of non-recovery  is considered to be justified;

According to the tax law, the recovery risk is justified whenever there is a:

• company insolvency and recovery proceeding and enforcement procedure;
• law court or arbitration court claimed debt;
• overdue debt.

b) relating to outstanding receipts that are accepted by insurance companies;
c) recognized for specific credit risk, securities and other instruments, by entities subject to the supervision of the Bank of Portugal and Portuguese branches of credit institutions and other financial institutions resident in another member State of the European Union or in the European Economic Area;
d) relating to exceptional devaluation of tangible fixed assets, intangible assets, biological and non-consumable assets and investment property;
e) relating to inventories when the respective net realisable value may be evaluated by an independent entity.

Tax deductible provisions

The following provisions are accepted as tax deductible:

a) the ones related to contingencies and liabilities resulting from lawsuits for facts that would determine their inclusion as costs deductible for tax purposes;
b) the ones related to  contingencies resulting from after-sales services and guarantees established in the agreement with the acquirer of the goods/services;
c) the technical provisions imposed by instructions and rules issued by the Portuguese Insurance Institute, by insurance companies that are subject to its supervision and by branches in Portugal of insurance companies established in another member State of the European Union;
d) the ones related to costs of restoration of environmental damage, whenever required by law.

Depreciation and amortisation rates for tax purposes

Depreciation rates are generally calculated under the straight-line method, according to the minimum and maximum period of useful life of the assets and with reference to the sector concerned and the terms of its utilization.

The taxpayer may also elect to calculate depreciation under the declining-balance method in case of tangible fixed assets acquired as new, except furniture, social equipment, buildings and light or mixed-use passenger cars, the latter when allocated to an activity of public transportation or leased in the course of the taxpayer’s normal activity.

Upon request, other methods of depreciation and amortisation than the straight-line and the declining-balance ones may be used by the taxpayers, to the extent that prior approval is granted by the Portuguese tax authorities (PTA), unless the application of suchmethod  results in an annual rate higher than that which would be applied by following the  the methods expressly established in the tax law.

The acquisition or production cost of fixed assets subject to depreciation with a value not exceeding € 1,000 may be deducted in one fiscal year, except when such assets represent a part of a set of assets that should be depreciated as a whole.

Depreciation of light passenger or mixed-use vehicles is not deductible on the part of the acquisition or revaluation cost that exceeds the following amounts:

• € 29,927.87 regarding vehicles acquired before 1 January 2010;
• € 40,000 regarding vehicles acquired during 2010;
• € 30,000 regarding vehicles acquired during 2011 (a limit of € 45,000 applies to electric vehicles);
• € 25,000 regarding vehicles acquired in tax periods starting as of 1 January 2012 (a limit of € 50,000 applies to electric vehicles).

Regarding  vehicles acquired in periods starting as of 1 January 2015, the following limits should be considered:

• € 62,500, in case of vehicles powered exclusively by electric power;
• € 50,000, in case of plug-in hybrid vehicles;
• € 37,500, in case of VNG or LPG powered vehicles.

Depreciation of yachts and airplanes and all expenses related thereto are also not allowed as a cost for tax purposes, provided that such assets are neither used for the purpose of public transportation nor to be leased under the normal  business activity of the taxpayer.

As of 1 January 2012, the depreciation of non-consumable biological assets is allowed as deductible for tax purposes.

As regards investment properties, corresponding improvements and non-consumable biological assets subsequently booked at fair value, their acquisition cost is acceptable as tax deductible over the period resulting from the application of the minimum tax depreciation rate of the assets, as if they were  maintained at their acquisition cost.

According to Decree nr. 25/2009, of 14 September, some of the maximum straight-line depreciation rates are as follows:

^{(1) It is not accepted as fiscal cost, the acquisitions of intangible assets from entities subject to a more favourable tax regime.}

Limitation to the deductibility of financing expenses

Tax deductibility rule

Net financing expenses are only deductible up to the higher of the following limits:

• € 1,000,000; or
• 30% of earnings before depreciations, net financing expenses and taxes.

Any exceeding financing expenses of a given tax year may be deductible on the following 5 tax years, after deducting the financing expenses of each year, provided that the above-mentioned limits are not exceeded.

Whenever net financing expenses do not exceed 30% of earnings before depreciations, net financing expenses and taxes, the unused part increases the maximum deductible amount, until the following 5th tax year.

For the identification of the non-deductible net financing expenses and the unused limit that could increase the amount deductible in the following periods, should be considered the net financing expenses and the part of the unused limit computed firstly.

The carry forward of the amounts mentioned above can be limited in case the ownership of the share capital or the voting rights of the tax payer change in at least 50%.

Definition of net financing expenses

Expenses connected with the remuneration of debt, deducted from income of the same nature, such as:

• interest on bank overdrafts;
• interest on short-term and long-term borrowings;
• interest from bonds and similar financial products;
• amortization of discounts or premiums related to borrowings;
• amortization of ancillary costs incurred in connection with the arrangement of borrowings;
• financial charges in respect of finance leases; and
• exchange differences arising from foreign currency borrowings.

Definition of earnings before depreciations, net financing expenses and taxes

Refers to the earnings before depreciations, amortizations, net financing expenses and taxes registered in the accounts, adjusted by:

• gains and losses in consequence of the fair value variations that should not be considered in the taxable income computation;
• impairment losses and reversions in non-depreciable or non-amortizable investments;
• gains and losses from the application of the equity method or, in case of joint ventures which are CIT taxpayers, from the application of the proportional consolidation method;
• gains and losses related to equity investments that have benefited from the participation exemption regime;
• gains and losses of foreign permanent establishments if the special regime mentioned in n.º 1 of article 54.º-A is adopted;
• the energy sector extraordinary contribution;
• the pharmaceutical industry extraordinary contribution.

Entities out of the scope

• Entities subject to the supervision of the Portuguese Central Bank (Banco de Portugal) and of the Portuguese Insurance and Pension Fund Supervisory Authority (Autoridade de Supervisão de Seguros e Fundos de Pensões; and
• Portuguese branches of credit institutions, other financial entities or insurance companies and credit securitization companies incorporated under the Decree-Law n.º 453/99 of 5 November 1999.

Group taxation

In case of group taxation, the dominant company may opt to apply the limitation mentioned above taking in consideration the following:

• the group’s net financial expenses tax deductibility will be limited to € 1,000,000, regardless the number of companies within the tax group or, if higher, to the percentage limit based on the algebraic sum of earnings before depreciations, net financing expenses and taxes of all companies included in the tax group;
• the net financing expenses non-deducted by the companies included in the tax group before it has been created and that have not been deducted can only be considered up to the limits applicable to the companies considered individually that generated them;
• the unused limit that had not been used by the companies before the application of the tax group regime can only increase the maximum amount of the financial net expenses of each company, computed individually;
• the net financing expenses and the unused limit computed within the tax group can only be used by the tax group, regardless the leave of one or more companies from the group.

The option should be maintained for a minimum 3 year period from the date of application, which shall be automatically renewed year by year, except in the case of waiver, and must be reported to the tax authorities up to the end of the third month of the tax period in which it is intended to apply or waive the option.

Transitional period

The transitional period introduced in the 2013 State Budget is maintained. As such, between 2014 and 2017, the applicable percentage rates limiting the tax deductibility of the net financing expense will be:

• 2014 – 60% of earnings before depreciations, net financing expenses and taxes;
• 2015 – 50% of earnings before depreciations, net financing expenses and taxes;
• 2016 – 40% of earnings before depreciations, net financing expenses and taxes;
• 2017 – 30% of earnings before depreciations, net financing expenses and taxes.

Imputation of profits obtained by non-resident entities subject to a clearly more favorable tax regime (CFC rules)

Profits or income obtained by non-resident entities that are clearly subject to a more favorable tax regime, are imputed to the Portuguese resident taxpayers subject to Corporate Income Tax (CIT) that hold either direct or indirectly, even if through a representative, fiduciary or intermediary, at least 25% of their share capital, voting rights or attribution rights over the income or the assets of those non-resident entities.

Whenever at least 50% of the non-resident entity’s share capital, of voting rights or of other rights over income or assets, are held, directly or indirectly, even through a third party, by entities subject to Portuguese PIT or CIT, the mentioned percentage is 10%.

For the determination of the holding percentages above referred, both the shareholdings, as well as the rights held, either direct or indirectly, by entities with which the taxpayer has special relations with, will be taken into consideration.

The imputation of profits or income obtained by the non-resident entities subject to a clearly more favorable tax regime is determined accordingly to the shareholding percentage or according to the attribution rights over income or assets directly or indirectly held by the Portuguese resident taxpayer.

An entity is considered as being subject to a clearly more favorable tax regime when:

• it is resident in a territory included in the Portuguese black list of tax havens;
• it is exempt or not subject to tax on income similar to Portuguese corporate income tax;
• the tax rate applicable is less than 60% of the tax rate that would be applicable if the entity was resident in Portugal.

Upon the distribution of profits or income by a non-resident entity subject to a clearly more favorable regime to a Portuguese resident taxpayer, the amounts that the Portuguese entity proves that have already been imputed in previous tax years should be deducted to the taxable income of the year in which the distribution takes place, up to the amount of the taxable income assessed. Should it be the case, a tax credit relating to the corporate income tax paid in the country of residence of the non-resident entity will apply.

This regime does not apply to non-resident entities that simultaneously meet the following conditions:

• 75% of profits or income is derived from an agricultural or industrial activity or from a commercial or rendering of services activity that are not mainly targeted to the Portuguese market;
• the main activity of the non-resident entity does not consist of:
• banking or insurance operations,
• operations related to shareholdings that represent at least  5% of the share capital or of the voting rights, or shareholdings in companies resident in countries with more favorable tax regimes (so considered by the Portuguese legislation) or other securities, intellectual or industrial property, or information concerning industrial, commercial or scientific experience or technical assistance services, or
• leasing of assets except when related to real estate located in the territory of residence of the non-resident entity.

The regime is also not applicable when the non-resident entity is resident or established in another member State of the European Union or in another member State of the European Economic Area bound to administrative cooperation on tax matters equivalent to the cooperation established within the European Union and the Portuguese resident entity proves that the incorporation and functioning of the company rely on valid commercial reasons and that such entity carries out a business activity (either commercial – including the rendering of services industrial or agricultural activities).

Capital gains

Only realised capital gains and realised capital losses are relevant for the purposes of determining the taxable profits of an entity. Any latent or unrealised capital gains or capital losses, even if accounted for in the books of the entity, will not be relevant for the purposes of determining its taxable profits.

Any gains and losses arising from (i) the onerous transfer, (ii) insurance claims and (iii) the permanent allocation to other activities than the one effectively developed by a given entity in regards with tangible fixed assets, intangible assets, non-consumable biological assets and investment properties, even in case any of those assets are reclassified to non-current assets held for sale, as well as financial instruments, except those that are recognised at fair value, unless such recognition occurs at fair value through profit and loss and the respective adjustments are relevant for the determination of the taxable profits of the entity, are considered as realised capital gains or capital losses for tax purposes.

In case of a merger with no attribution of shares to the shareholder of the merged company, the positive or negative difference between the market value and the acquisition cost of the shares of the merged company within this operation is considered a capital gain or loss.

Capital gains and capital losses determined for tax purposes are usually different from capital gains and capital losses determined for accounting purposes and are quantified as follows:

Capital Gains/Capital Losses for tax purposes = Sales proceeds – (Acquisition Value - Accumulated depreciations - Impairment Losses) x inflation index

The following are also considered as onerous transfers :

• The promise agreement of purchasing and sale after the asset’s tradition;
• The changing of the valuation model relevant for tax purposes, namely those resulting from accounting reclassification of financial instruments that are recognized at fair value through profit and loss and the respective adjustments were not included in the determination of the taxable profits of the entity;
• The transfer of assets in the case of a merger, division or capital contribution;
• The extinction of a participation held by a company in a merged or divided company;
• The extinction and amortization of shareholdings with reduction of share capital;
• The participation extinction through reduction of share capital with the purpose of covering  losses of a company when the respective shareholder, after the extinction, is no longer a shareholder of such company.
• The asset allocation by a resident company  to a permanent establishment located abroad, when the company  apply for the special regime that foresees the non taxation in Portugal of the income imputable to the permanent establishment.

In the transfer of shareholdings of the same nature, are considered transferred the shares acquired firstly (First In First Out method).

The entity that is subject to tax can opt by the weighted average cost to determine the cost of acquisition. In this case, the computation should take into consideration all the shares that belong to the same portfolio and the option should be maintained for a minimum period of 3 years. If the weighted average cost is used, the monetary devaluation coefficients is not  applicable.

Transfer of shareholdings – Participation exemption regime

Capital gains obtained on the disposal of shareholdings are not subject to taxation  if the shares have been held, uninterruptedly, for a period of 12 months,  and represent 10% or more of the share capital or of the voting rights.

The changes introduced to the Participation Exemption regime are applicable to participations held at the time the 2016 State Budget enters in force (31^st March 2016), being the new detention period counted as from the acquisition date of the percentage of 10% or more of the share capital or voting rights.

The regime is also applicable to:

• capital gains obtained with the transfer of other equity instruments related to the shareholdings transferred;
• the capital gains obtained with the transfer of shares and other equity instruments in case of merger, division, capital contribution in which the tax neutrality regime is not applicable;
• the positive difference between the capital gains and losses realized before 1^st January 2001 that have not yet been included in the taxable income, when the reinvestment has been realized in the acquisition of shares under the legal terms;

Capital gains obtained on the disposal of shareholdings in which the value of real estate, directly or indirectly held, represents more than 50% of the assets (except immovable property allocated to an agricultural, industrial or commercial activity) are excluded from the participation exemption regime.

Capital gains obtained on the disposal of shareholdings acquired before 1 January of 1989 are not subject to taxation..

Reinvestment of the sales proceeds

The positive difference between the capital gains and losses obtained in an onerous transfer of tangible fixed assets, intangible assets and non-consumable biological assets, held for a period of at least one year, can be considered only in 50% of the respective amount if the sales proceeds are reinvestment on the acquisition, production or construction of tangible fixed assets, intangible assets or non-consumable biological assets. For this purpose the reinvestment must take place in the previous tax year, in the tax year in which the transfer occurs, or in the two tax years following the transfer.

The reinvestment in second-hand assets acquired from related entities or held for a period less than one year are not considered for the reinvestment regime. This regime is not also applicable to capital gains obtained by merged or divided companies in a merger or division operation and to capital gains obtained in the sale of assets not related to the company’s activity or obtained by companies in liquidation.

In case of partial reinvestment, a partial relief (proportional to the investment made) will apply.

In case the reinvestment is not fully accomplished during the reinvestment period, the difference (or the proportional difference) will be considered as taxable income of the second year following the disposal, increased in 15%.

Investment properties do not benefit from this regime, albeit recognized in the accounting as tangible fixed assets.

Official monetary devaluation indexes

The Ministerial Order nr. 326/2017, from 30 October, provides the official monetary devaluation indexes applicable to certain assets and rights sold within 2017, as follows:

Transfer pricing

Concept

Commercial transactions between associated enterprises should be subject to identical terms and conditions to those that would be accepted and agreed between independent entities (arm’s length principle).

Transfer Pricing Documentation

Companies with net sales and other income of € 3,000,000 or more (with reference to the previous fiscal year) should prepare, on a contemporaneous basis, transfer pricing documentation, which must be organized by the 15^th day of the 7^th month after the closing of the fiscal year to which the transactions concern and delivered with the tax authorities upon their request.

According to Decree Ruling 1446-C/2001, dated 21 December, this documentation should be prepared in the Portuguese language. However, the Portuguese Tax Authorities may relieve the translation to Portuguese language if the content of the documentation in the original language is perceptible.

Filing obligations

Simplified Business Information/Annual Statement

Specific information on transfer pricing, including the nature of transactions, amounts and transfer pricing methods applied must be disclosed on the designated appendixes of the Simplified Business Information/Annual Statement, specifically on Table 10 of Appendix A⁽¹⁾ (for domestic controlled transactions) and Table 3 of Appendix H (for controlled transactions with non-resident entities).

^{(1) Or Appendix B for financial entities.}

Country-by-Country Report (CbC Report)

The ultimate parent entity of a multinational group of companies with a total amount of consolidated turnover equal or higher than € 750,000,000 in the previous fiscal year is required to file the Country-by-Country Report (CbC Report) referent to each fiscal year containing financial and tax information by country or jurisdiction.

Notwithstanding, an entity resident in Portugal for tax purposes which is not the ultimate parent of the group (substitute ultimate parent entity) may be liable to fulfill this obligation in the following circumstances: (i) when is directly or indirectly owned by a non-resident entity which is not subject to the CbC Report obligation; (ii) there is not a qualified agreement in force concluded by the relevant authorities within the deadline stipulated for the communication of the CbC reporting entity; or (iii) when there is a systemic failure in the ultimate owner entity’s jurisdiction designated as reporting entity to the Tax Authorities.

The CbC Report obligation must be fulfilled until the end of the 12^th month after the closing of the fiscal year, through the submission of Form 55.

The entities that fail to submit the CbC Report may be subjected to a tax penalty similar to the applicable regarding transfer pricing documentation (between € 1,000 and € 10,000).

Communication of the reporting entity of the group (Form 54)

Each entity, resident or with a permanent establishment in Portuguese territory, that integrates a multinational group of companies, subject to the CbC Report obligation must communicate to the Portuguese Tax Authorities by electronic means the reporting entity of the group, the respective tax jurisdiction, its tax identification number and address, through the submission of Form 54.

Form 54 must be submitted until the last day of May, or for taxpayers that adopt a fiscal year different from civil year, until the last day of the 5^th month after the end of that fiscal year, regardless of being or not a working day.

Advance pricing agreements

It is possible to conclude unilateral, bilateral or multilateral advance pricing agreements with the tax authorities, with the aim of defining the terms and conditions of commercial and financial transactions with associated enterprises, for a given time period.

The requirements and conditions for the conclusion of advance pricing agreements are regulated in Decree-Ruling 620-A/2008, dated 16 July, and the steps mentioned below must be followed:

1. Preliminary stage (request for assessment)
2. Filling the proposal for agreement
3. Assessment of the proposal
4. Negotiation with the competent authorities of other Member States
5. Conclusion of the agreement.

The conclusion of an advance pricing agreement implies the payment of a fee to Portuguese Tax Authorities, calculated according to the taxpayer turnover.

Group taxation

Portuguese resident companies which are members of an economic group may opt to be taxed under the special tax regime of group taxation (RETGS – “Regime Especial de Tributação de Grupos de Sociedades”).

Option for the Group taxation regime is available when:

• a company (parent) holds, directly or indirectly, including through a company resident for tax purposes in a European Union country or in a country within the European Economic Area (in the latter case, only when an administrative cooperation agreement applies), at least 75% of the share capital of other companies (controlled entities), and more than 50% of the voting rights;
• all group companies are resident for tax purposes in Portugal and are subject to the CIT general regime at the higher CIT rate;
• the parent company has held the relevant shareholding for more than 1 year (or from the date of its incorporation);
• the parent company is not controlled by any other company resident in Portugal;
• the parent company has not renounced the application of the regime in the three previous years;
• in case the holding participation had been acquired through a merger, demerger or asset contribution operation, the holding period above mentioned is computed considering the holding period of such participation by the merged, demerged or contributing company.

A parent company resident for tax purposes in the European Union or in the European Economic Area (in the latter case, only when an administrative cooperation agreement applies), may also apply for the tax unit regime.

In this case, this option would imply the application of this regime to all the qualifying companies, resident for tax purposes in Portugal, being necessary to appoint one of those controlled companies as the responsible for the accomplishment of all the obligations arising from this tax regime.

Such option should be made:

• until the 3rd month of the tax year in which the regime shall apply;
• through a proper form, submitted by electronic means, using the tax authorities’ website.

Any change on the tax group should be reported:

• until the end of the 3rd month of the fiscal year in which the integration of new companies should be completed;
• until the end of the 3rd month of the fiscal year following the one in which a company leaves the group as a result of the disposal of the shareholding or by the non-compliance with other requirements, or other changes in the group composition namely as a result of mergers and demergers operations.

If the change results from the closing of the activity of a company part of the group, the change should be reported to the tax authorities within 30 days from the closing of the activity, unless when the closing is subject to registry in the commercial registry office, in which case no communication would be needed.

Group’s taxable profit = Σ individual taxable profits + Σ individual taxable losses

Companies are not eligible to be a part of the tax group if they:

• are inactive for over a 1 year or have been dissolved;
• are under a special procedure of company's recovery or bankruptcy;
• registered tax losses in the previous three tax years (unless companies have been held by the parent company for more than 2 years);
• are subject to a tax rate lower than the standard CIT rate and did not waive the application of the lower rate, bearing in mind that this waiver should be kept for a minimum time period of at least 3 years;
• adopt a tax year different to that of the parent company;
• are not incorporated as limited liability company (Sociedade por Quotas.- Lda.), joint stock company (Sociedade Anónima - S.A.), ordinary limited partnership or publicly owned undertakings.

Taxable regime for consolidated profits

It should be considered, for the group taxable income the amount regarding the first tax period that has begun as of January 1, 2018, a quarter of the internal results which had been eliminated through the application of the previous tax regime of consolidated profits (Law 30-G/200, December 29) and that are still pending to be subject to taxation by the end of the taxable period that had begun on January 1, 2017, namely because this results are considered as being not realized in the group profits until that date, so the transitional regime should be kept as being applicable regarding the remaining amount of such results/profits of the group.

Additionally, it is also due an autonomous payment on account during July 2018 or, in case the entity has a different tax period from the calendar year, on the 7th month of the first taxable period which has begun on January 1, 2018, which should be computed bearing in mind the amount correspondent to the application of the CIT rate of 21% on the internal results included on the taxable profit of the group and should be deductible to the taxable amount payable on the CIT settlement regarding the first tax period that began in or after January 1, 2018.

In case of cessation or renunciation to the special tax regime of group taxation, the amount of internal results, should be included, in its totality, in the last taxable period in which the regime is applicable. 

Additionally, the taxpayer should dispose of information and documentation in relation to the results accrued, which shall integrate the tax documentation, under the provisions of the article 130 of the CIT Code. 

Simplified regime

Resident taxpayers that are not exempt or subject to a special taxation system, engaged primarily in a commercial, industrial or agricultural activity, may opt by assessing their taxable income according to a simplified regime, if the following conditions are met:

• The gross annual income obtained in the immediate preceding tax period did not exceed € 200,000;
• The total assets in the immediate preceding tax period did not exceed € 500,000;
• The entities are not required to be subject to a legal statutory audit;
• Their share capital is not held in more than 20%, directly or indirectly, by entities that do not fulfill any of the conditions foreseen in the previous paragraphs (except if the shareholders are venture capital companies or venture capital investors);
• Preparation of accounts in accordance to the micro-entities GAAP, approved by the Decree-Law nr. 36-A/2011 of 9 March;
• The entities did not renounce to the regime in the three previous years, counted as of the application of the regime.

In the simplified regime, the taxable income is obtained by applying the following percentages to the income obtained:

^{(1) These percentages and the limit referred in the following paragraph are reduced in 50% and 25%, respectively, in the first and second years of activity.}

The taxable due determined as set out above cannot be lower than 60% of the annual amount of the monthly minimum guaranteed remuneration (Monthly minimum guaranteed remuneration fixed for 2018: € 580).

The option for the simplified regime must be formalized in the beginning of activity return or in the modifications return due by the end of the 2nd month of the tax period in which the company wishes to start the application of the regime.

Tax Benefits: Companies resident for tax purposes in Portugal

Some of the main tax benefits applicable to CIT taxable persons are, summarily, described below:

Withholding tax exemption

It is possible to apply a withholding tax exemption on the profits and shares placed on disposal by a company considered as being resident, for tax purposes, in Portugal and subject without the possibility of being exempt of Corporate Income Tax (CIT) and also not taxed under the fiscal transparency regime, to another entity resident, for tax purposes, on the European Union, EEE or other Contract State with whom Portugal has already signed a Double Tax Treaty (DTT), since the following conditions are duly met:

• Owns (direct or indirect) a share participation of at least 10% on the share capital or vote rights of the entity to whom the profits or shares are distributed;
• Owns the share participation above mentioned for a minimum period of at least 1 year in a continuous basis on the previous year before the distribution occurs.

Participation Exemption Regime: Capital gains and losses arising from the equity capital transfer

It is not considered for the taxable income computation of entities resident for tax purposes in Portugal, the capital gains and losses arising from the capital equity transfer, whatever ground this transaction is performed and which one is the transmitted percentage regarding shares that are own in a continuous basis of at least 1 year, once in the transmission date the requirements of the minimum percentage and time hold are duly verified, and also that the entity is not a taxable entity under the fiscal transparency regime nor resident in a territory considered as a tax heaven.

This rule will not be applicable in case there is a capital gain or loss on the transmission of shares, namely supplementary capital contributions, when the amount of the immovable property or the real state rights connected with the immovable property located in Portugal, with the exemption of the immovable properties that are affected to one specific activity that has a commercial, agricultural or industrial nature and that is not the purchase and sale of this immovable properties, does not represent more than 50% of the assets.

In this regard, please note also that the above mentioned tax regime as well as the necessary requirements are applicable to the shareholdings owned at the time of March 31, 2016. The time lapse must be counted from the owning date since the shareholding acquisition of at least 10% of the share capital or vote rights.

Tax deductible impairment losses and other adjustments on the price of shares or other equity instruments shall be considered positive components of the taxable income in the tax period in which the respective transfer occurs, provided that the participation exemption regime applies (as per art. 51.º-C of the Corporate Income Tax Code).

Contractual regime benefits for investment projects

A Corporate Income Tax (CIT) credit between 10% and 25% of the relevant applications to the CIT assessed and reductions or exemptions from Property Transfer Tax, Property Tax and Stamp Duty may be granted to eligible investment projects (amounting to or exceeding € 3,000,000), set up until 31 December 2020, since they provide job creation or maintenance, it is proved their technical, economic and financial viability, and:

• they are regarded as relevant for the strategic development of the national economy; or
• they contribute for the reduction of regional asymmetries; or
• they contribute for the enhancement of technological and national scientific research, for environment improvement or for improving competitiveness and production efficiency.

Regarding the CIT benefit, in the case of projects in existing companies, the maximum annual deduction may not exceed the greatest of 25% of the total granted tax benefit or 50% of the CIT assessed in each tax period.

The mentioned tax benefits should respect the limits applicable to regional aid in force in which the investment is made.

The contractual tax benefits cannot be combined with any tax benefits of the same nature in respect of such relevant applications, except for the tax benefit for the reinvestment of retained earnings, provided that the applicable limits are not exceeded.

Municipal tax benefits

It is foreseen a tax exemption of Municipal Property Tax and Property Transfer Tax (besides the other ones applicable concerning the Municipal Property Tax and Property Transfer Tax) to support the investment performed on the county area and in accordance with the accomplishment of certain requirements and limitations granted by the Municipalities.

R&D – Incentive regime for research and development (SIFIDE II)

SIFIDE II will be in force until 2020.
A tax credit is available, under certain conditions, for R&D expenses, in the following percentages:

• 32.5% of expenses borne during the tax year;
• 50% of the surplus of expenses borne in the tax year over the average of the two previous tax years, capped at € 1,500,000.
• The percentage referred in (i) above is increased by 15% in case of micro, small and medium companies that do not benefit from the 50% surplus mentioned in (ii) above, due to not having completed two years of activity yet.

Companies should obtain a statement proving the expenses incurred, issued by the entity appointed by the member of Government responsible for the economy area.

Expenses related to products’ eco-design projects are now increased by 10%. This increase is dependent upon submission and approval of the project by the National Innovation Agency (NIA, S.A). From January 1, 2018, the applications should be submitted until the last day of May of the period’s subsequent year.

Expenses related to products’ eco-design projects may be increased by 10%. This increase is dependent upon submission of the project to the National Innovation Agency (NIA, S.A.), whom can nonetheless consult the Portuguese Environment Agency (APA, I.P) and the National Energy and Geology Laboratory (NEGL, I.P).

The act of recognition of good repute in relation to projects’ investigation and development belongs to the National Innovation Agency (NIA, S.A.).

Special Tax Regime to Support Investments (RFAI)

RFAI applies to relevant investments made on fixed tangible and intangible assets.
A CIT credit is granted according to the eligible region in which investments are made, as follows:

in the case of investments made in the North, Centre and Alentejo regions and in the Autonomous Regions of the Azores and Madeira:

• for investments up to € 10,000,000, a deduction of 25% of the relevant applications is granted;
• for investments exceeding € 10,000,000 (in the exceeding part of that amount), a 10% deduction of relevant applications is granted.
• in the case of investments in the eligible regions of Algarve, Lisbon and Setubal, a deducting 10% of the relevant applications is granted.

The abovementioned € 10.000.000 limit is applicable to tax periods starting on or after January 1, 2017, whereas the previous limit stood at € 5.000.000. Investments carried out in the tax period starting on or after January 1, 2016 can still benefit from the said deduction to the limit of € 10.000.000, as long as they have not been included in any period.

The mentioned deductions are limited to 50% of the CIT assessed in each tax period, except in the tax year of the beginning of activity and the next two tax years (since the company does not result from a demerge operation).
Any unused credit may be carried forward for ten years (provided the mentioned limit is not exceeded).

Additionally, exemptions or reductions from Property Tax (IMI), Property Transfer Tax (IMT) and exemptions of Stamp Duty may apply on the acquisition of real estate which qualifies as relevant applications.

The mentioned tax benefits should respect the limits applicable to regional aid in force in which the investment is made.

RFAI cannot be combined with any tax benefits of the same contractual nature in respect of such relevant applications, except for the tax benefit for the reinvestment of retained earnings, provided that the applicable limits are not exceeded.

Job Creation

Companies which increase their number of employees by granting permanent employment to people aged between 16 and 35 years old, inclusive, except young people with less than 23 years old which have not concluded secondary education and are not attending an educational program that provides for the increase the education degree or professional qualification or to long term unemployed, may claim an additional deduction of 50% of the related costs. The additional cost may be claimed for a period of five years, calculated from the date in which of the permanent employment contract was enacted.
The maximum amount of the additional deductible cost, per employee, is 14 times the minimum monthly wage.
The additional deduction of 50% of the costs incurred with the same employee is applicable to more than one employer, provided that the employers are not deemed to be related parties.

This regime cannot cumulate with other benefits to support the creation of jobs, applicable to the same employee or job.

Until April 1, 2018, a law proposal which foresees amendments to tax benefits in the sequence of a qualitative and quantitative assessment of the respective benefits must be submitted by the government.

If the law proposal is not in force by July 1, 2018, this benefit will expire.

Social impact partnerships

Financial flows undertaken by social investors, in regards to social impact partnerships are considered as costs or losses in the taxable period, with an additional deduction of 30%.These costs or losses are, however, limited to 8/1000 of the sales turnover or services rendered.

Donations

Donations granted to certain entities whose main activity consists in the execution of initiatives in the social, cultural, environmental, scientific or technologic, sports and educational areas, are considered as cost for tax purposes (within certain limits, and in certain circumstances, on an additional deduction).

Credit for international double taxation

• A tax credit regarding international double taxation is granted on the lower of the following amounts:
  tax on profits paid abroad; or
• fraction of CIT, computed before the deduction, corresponding to the income that could be taxed in the foreign source country, net of costs or losses directly or indirectly incurred on its acquisition.

In case of existence of a double tax treaty concluded with Portugal, the deduction cannot exceed the foreign tax paid as foreseen in the treaty.

Economic double taxation relief on the profits and shares distribution

In order to benefit from a tax credit relief on the profits and shares distribution it is necessary to accomplish with certain requirements namely, i) an ownership not lower than at least 10% of the share capital or voting rights and, ii) this ownership has a time period (with no interruptions) of one year prior to the distribution or that has been kept for the necessary time to accomplish with this period of time.

It is also possible to benefit from this tax relief without the above mentioned requirements are duly verified regarding income of shares that being connected with the technical provisions of insurance companies and mutual insurances, are not, direct or indirectly, attributable to the policyholder as well as to the incomes from the following companies: regional development companies, investment companies and financial brokerage companies.

Madeira International Business Centre (MIBC)

The entities licensed to operate in the MIBC until 31 December 2014 are taxed at the CIT reduced rate of 5%, in force until 31 December 2020. This rate applies on taxable income thresholds, which will vary depending on the number of new jobs created.

That regime has been extended to entities licensed to operate in the MIBC as from 1 January 2015, and is valid until 31 December 2027 ("IV Regime").

Other tax benefits are also applicable to the entities in the MIBC, namely:

Entities licensed until 31 December 2014:

• exemption from taxation on dividend distributions and capital gains, under the Participation Exemption regime (at least 5% ownership, held for 24 months);
• exemption from stamp duty, property tax, property transfer tax, and regional and municipal surcharges;
• exemption from withholding tax on interest, service fees and royalties paid to non-resident entities.

Entities licensed after 1 January 2015:

• exemption from taxation on dividends received and capital gains obtained by the MIBC entities, under the Participation Exemption regime (at least 5% ownership, held for 24 months);
• exemption from withholding tax on dividend distributions and capital gains obtained by the shareholders of the MIBC entities (exceptions apply);
• exemption from withholding tax on interest, service fees and royalties paid to non-resident entities (exceptions apply);
• exemption from stamp duty, property tax, property transfer tax, and regional and municipal surcharges (subject to an 80% limitation per tax, transaction, or period).

Companies licensed to operate under the previous regime may transition to the IV Regime. The total tax benefits available to MIBC entities are capped at the highest of: (i) 20.1% of annual gross added value, (ii) 30.1% of annual staff costs or (iii) 15.1% of annual turnover.

Autonomous Region of the Azores

Entities resident in the Azores benefit from a tax credit between 20% and 40% of the profits reinvested in certain fixed assets.

Financial services to public entities

When State, Associations of Public Law and Social Security carry out operations of finance other companies using funds obtained from credit institutions, they are subject to taxation on the difference of interest and other income capital they hold for such operations and the interest owed to these institutions, with exemption from withholding on CIT in each financial year.

Until April 1, 2018, a law proposal which foresees amendments to tax benefits in the sequence of a qualitative and quantitative assessment of the respective benefits must be submitted by the government.

If the law proposal is not in force by July 1, 2018, this benefit will expire.

Shipping companies of the merchant navy

Profits from the shipping activity are only taxable in 30% of their amount. The transactions of foreign financing for the purchase of ships, containers and other equipment for ships, shipping companies hired by the shipping companies merchant navy, even if the hiring is done through domestic financial institutions, are exempt from stamp duty.

Until April 1, 2018, a law proposal which foresees amendments to tax benefits in the sequence of a qualitative and quantitative assessment of the respective benefits must be submitted by the governmentIf the law proposal is not in force by July 1, 2018 this benefit will expire.

Entities managing package systems and packages residue

These entities are exempt from CIT, except for capital income as defined for personal income tax purposes, throughout the period of the license, for results that during this period are reinvested or used to achieve the ends they are legally assigned.

Until April 1, 2018, a law proposal which foresees amendments to tax benefits in the sequence of a qualitative and quantitative assessment of the respective benefits must be submitted by the governmentIf the law proposal is not in force by July 1, 2018 this benefit will expire.

Sports, culture and leisure associations

Profits obtained by sports, culture and leisure entities are exempt from CIT if the income subject to taxation does not exceed the amount of € 7,500. The amounts invested by sports clubs in new infrastructure, except when these investments result from subsidies received for this purpose, can be deducted to the taxable income, limited to 50% of such taxable income. In case of insufficient taxable income, the deduction can be made until the end of the second year after which the investment was made.

Until April 1, 2018, a law proposal which foresees amendments to tax benefits in the sequence of a qualitative and quantitative assessment of the respective benefits must be submitted by the governmentIf the law proposal is not in force by July 1, 2018 this benefit will expire.

Associations and Confederations

Public corporations of an associative nature, incorporated by law with the purpose to discipline and represent the practice of liberal professions and employer, as well as employers’ associations and confederations and trade unions and associations are exempt from CIT, except on capital income and commercial, industrial or agricultural income, as defined for PIT effects.
Entities described above are also benefit from CIT exemption on income derived from training courses provided to associated members within their statutory purpose.
Parents’ associations are also exempt from CIT on income derived from the exploitation of school cantines.

Uncultivated community lands and local communities

Local communities are exempt from CIT on income derived from vacant land, including the income derived from the lease of the right of exploitation, from the transfer of goods or the provision of services to partners, provided that such income is allocated, in accordance with an approved utilization plan, with the local common behaviours or with the deliberations of the competent bodies of the partners, in forestall investment or other improvements on the vacant land or, in improvements in the local community that owns and manages the vacant land, within the fourth year after the income is obtained except in case of fair impediment on the fulfilment of the allocation term, notified to the General Direction for Taxation with the respective written grounding, until the last day of the month following the end of the referred term.

Capital income as defined for PIT purposes and capital gains realized with the sale of vacant land are not exempt from CIT.

Incentives for the companies’ recapitalization

A PIT incentive is created, allowing a deduction to the gross amount of profits made available or, in case of divestment, the net positive amount of capital gains and capital losses, equivalent to up to 20% of the capital contributed in cash in favor of a company in which the taxable person holds a participation and which finds itself in the position foreseen in the article 35 of the Portuguese Commercial Companies Code (loss of half of the capital).

The foreseen deduction will occur in the taxable income’s accrual in relation to the period when the mentioned contributions are made and the five subsequent years.

Incentives for the acquisition of companies in difficult economic situation

The regime of incentives for the acquisition of companies in a difficult economic situation, for cases approved by the Institute for the Support of Small and Medium Enterprise and Innovation (IAPMEI), foresees the possibility for the acquiring company to deduce the tax losses assessed, and not deduced by the acquired company, in the previous five fiscal years after the application of the regime provided that some of the requirements are fulfilled and that an authorization is granted by the finance minister. The deduction value depends on the holding percentage (aminumum of 50% is required) and isproportion of the acquiring company participation in the share capital of the acquired company, capped to 60% of the taxable income of the acquiring company as long as such tax losses are still within the legal carry forward period.

Please note that the above mentioned regime is also applicable to the processes approved by the Institute of Support to Small and Medium Enterprises and Innovation.

Tax Benefits for the carryover transactions/ operations

Carryover transactions/ operations regarding securities or similar rights realized on the stock exchange market as well as the report and fiduciary disposal in guarantees performed by financial institutions, namely credit and financial institutions with the interposition of central counterparties, are exempt from stamp tax duty

Tax benefit for the reinvestment of retained earnings (DLRR)

The reinvestment of retained earnings (“DLRR – Dedução por Lucros Retidos e Reinvestidos”) is a tax incentive to micro, small and medium-sized companies that allows a CIT deduction of 10% of the retained and reinvested earnings used for the acquisition of relevant applications. Reinvestment should be made within three years, computed as from the end of the tax year in which the earnings are realized. The annual deduction is capped at 25% of the CIT due, with a maximum annual deductible amount of € 7,500,000.

Note: Tax Benefits can not be granted or used if the taxpayer does not comply with obligations related with the payment of taxes or Social Security contributions due.

Conventional Remuneration of Share Capital (RCCS)

The regime foresees a deduction from the taxable profit corresponding to 7% of the contributions, up to € 2 million, upon the incorporation of an entity or capital increases, applicable to cash contributions and conversion of credits, or the use of profits of the same taxable period.

The capital increase with the use of profits generated in the same taxable period will be applicable provided that its registration occurs until the submission of the annual CIT return of that same period.

The new provision of third-party loan conversions is only applicable to contributions that are realized after January 1, 2018 or after the first day of the taxable period starting after that date, when it should not coincide with the calendar year.

The tax benefit has a wide application, regardless of the shareholders’ nature and is not limited to the de minimis rule.

The deduction to the taxable profit will be made in the tax period where the entries are made and in the following five tax periods.

The limitation to the net financing expenses of the taxpayers that use this benefit will be the higher value between € 1 million and 25% of the result before depreciations, amortizations, net financing expenses and taxes (30% in case of taxpayers not yet benefiting from this regime).

Tax benefit regarding the incorporation of companies in the interior regions

Micro enterprises and SME’s located in the interior regions of the country, engaged primarily in economic, agricultural, commercial, industrial or service providing activities, will benefit from a rate of 12.5% for the first € 15,000.00 of taxable amount.

The regions benefitting from this measure shall be established by ministerial ordinance, based on criteria such as migration and aging, economic activity and employment, entrepreneurship, among others.

“Programa Semente”

This tax benefit is applicable to individual start-up investors, allowing a deduction of 25% of the eligible investment from the amount of Personal Income Tax payable. This investment is limited to shareholdings not exceeding 30% of the share-capital or the voting rights, to cash contributions actually paid, the annual amount of the eligible investment cannot exceed € 100,000.00 per taxable person, among other requirements.

This deduction is limited to 40% of the Personal Income Tax payable, with the possibility of a deduction in the two subsequent tax periods in case the annual limit is insufficient, without, however, exceeding the de minimis threshold.

Capital gains arising from the sale of shares are not taxable if the investment is held for at least 48 months and the realization value is reinvested in the same year or the year following the transmission.

Tax Benefits: Non-resident companies

Tax benefits are granted to ensure the interest in investment in the Portuguese territory.

Capital gains

A CIT exemption applies to capital gains obtained by nonresidents on the transfer of:

• share capital in Portuguese resident companies;
• other securities issued by Portuguese resident companies;
• autonomous warrants issued by Portuguese resident companies and traded on stock exchange;
• derivatives traded on the stock exchange;
• participation units in Capital Venture Funds traded on stock exchange;
• taxation at 10% of the positive balance between the capital gains and the capital losses on the sale of participation units, when the owner of such income, being a non-resident entity, is not exempt.

Exceptions:

The capital gains realised on the transfer of shares in Portuguese resident companies are not exempt from taxation in Portugal, whenever one of the following situations occurs:

• Entities resident in a tax havens;
• Entities held in more than 25% by Portuguese resident companies, except if the selling entity (i) is resident for tax purposes in the European Union (EU), the European Economic Area (EEA) or in a state with which Portugal has concluded a double tax treaty allowing exchange of information (ii) is subject, and not exempt, to a tax mentioned in the Council Directive 2011/96/UE, of 30 November, or to a tax identical or of a similar nature to CIT (as long as the applicable legal rate is not lower than 12.60%) and (iii) hold a direct or direct and indirect participation of at least 10% of the share capital or of the voting rights of the distributing entity during the year prior to the transfer;
• Disposing of participations in Portuguese companies whose assets are constituted in more than 50% by immovable property located in Portugal.

Interest on Loan

Interest on loans granted by non-resident financial institutions to resident credit institutions are exempt.

Gains derived from swap, forwards and any operations connected with the latter

Are exempt when obtained by non-resident financial institutions in operations with resident credit institutions or with the State.

Collective Investment Vehicles

Income deriving from  participation units of securities investment funds and shares on security investment entities is exempt. The income of participation units in venture capital investment funds are also exempt, except if the entity is resident for tax purposes in a tax heaven, or its share capital is hold in more than 25% by a Portuguese entity, case in which the income is subject to withholding tax at the rate of 10%. Income deriving from participation units of real estate investment funds and shares on real estate investment entities is subject to withholding tax at the rate of 10%.

Interest of term deposits

Are exempt when made by non-resident financial institutions.

Interest from public and private bonds

The income obtained in Portugal by non-residents may be exempt, in case of bonds with a maturity longer than one year and listed in a liquidation centralised clearing system.

Foreign loans and rents of leases of imported equipment

The Minister of Finance may grant full or partial exemption on CIT for interest on foreign capital, representing loans and leasing payments for imported equipment when are liable to the State, Autonomous Regions, local authorities and their associations, or any of its departments, institutions and organizations, even companies providing public services, provided that the creditors have their domicile abroad and do not have a permanent establishment in Portuguese territory to which the loan could be allocated.

Interest related to foreign capital representing Schuldscheindarlehen

Loan agreements concluded by Instituto de Gestão da Tesouraria e do Crédito Público, E.P.E., in name and in representation of the Portuguese Republic, are exempt from CIT and PIT, provided that the creditor of the loan is a non-resident without permanent establishment in Portugal. The benefit depends on a certification by the Instituto de Gestão da Tesouraria e do Crédito Público, E.P.E..

Special taxation regime for debt securities issued by non-resident entities

Income deemed to be obtained in Portugal, arising from public and non-public debt securities issued by non-resident entities is exempt from PIT and CIT. This exemption applies when the income is to be paid by the Portuguese State as a warranter of obligations assumed by companies in which the Portuguese State, along with other EU Member States, are shareholders.

Repos with non-resident financial institutions

Gains obtained by non-resident financial institutions as a result of repos with resident financial institutions are exempt from CIT, as long as such gains are not attributable to a permanent establishment of those institutions located in Portugal.

Tax losses

Tax losses generated in tax years prior to 1 January 2010 can be carried forward for 6 years.

Tax losses generated from 1 January 2010 until 31 December 2011 can be carried forward for 4 years.

Tax losses generated from 1 January 2012 until 2013 can be carried forward for 5 years.

Tax losses generated from 1 January 2014 onwards can be carried forward for 12 years.

From 1 January 2014 onwards, the deduction of tax losses carried forward, even if the tax losses were generated before 2014, is limited to 70% of the taxable profit assessed in the relevant fiscal year.

Tax losses generated from 1 January 2017 onwards can be carried forward for a 5 years period.

From 1 January 2017 onwards, rules regarding the utilisation of carry forward tax losses under the FIFO method were revoked. This allows deducting first the carryforward tax losses which carry forward period ends first.

Regarding companies that under the foreseen Law Decree are considered as being a micro, small or medium company (so called “PME”) and proceed with an agricultural, commercial or industrial activity, they dispose of 12 years to carry forward the tax losses generated.

^{(1) Deduction of carryforward tax losses capped at 75% of the taxable profit.
(2) Deduction of carryforward tax losses capped at 70% of the taxable profit.}

CIT Computation

In 20187, taxpayers should file the Corporate Income Tax return regarding the tax year 2017.

Tax profit

The taxable income of entities that carry commercial, industrial or agricultural activities is computed on the net profit determined in accordance with the accounts, deducting the negative equity variations not reflected in the net profit, and considering the tax adjustments (added back or deducted) foreseen in the CIT code. These tax adjustments are included in Table 07 ("Quadro 07") of the CIT return ("Modelo 22").

Taxable income

The taxable income is determined in Table 09 ("Quadro 09") of the CIT return ("Modelo 22"), based on the taxable income obtained in Table 07 ("Q07"). Certain benefits may be deducted from the taxable income, as well as carry forward tax losses.

Total payable tax

The tax due results from applying the CIT rate to the taxable income assessed, with the subsequent deduction or adding-back of certain amounts, to quantify the tax payable or to recover, which are included in Table 10 ("Quadro 10") of the CIT return ("Modelo 22").

Investment funds

Collective Investment Vehicles (CIV)

Taxation of CIV at Corporate Income Tax (CIT) level

CIV now assess a taxable profit corresponding to the net income of the period, computed in accordance with the applicable accounting standards, being however disregarded the following:

• investment income, rental income and capital gains (unless if  derived from “offshore” entities);
• expenses related to the income referred above;
• non-deductible expenses under article 23-A of the CIT code; and
• income and expenses related to management fees and other commissions reverting to the CIV.

Tax losses generated by the CIV follow the regime foreseen in the CIT code, with the necessary amendments.

The computed taxable income is subject to the general. CIV are exempt from municipal and state surtax, being however subject to autonomous taxation foreseen in the CIT code.

CIT due by CIV is assessed in the periodic CIT return (Form “Modelo 22”) and the payment should be made until the last day of the time limit foreseen for the submission of the form.

Taxation of CIV at Stamp Duty level

Stamp Duty is also levied on the net asset value of the CIV, as follows:

• for CIV investing exclusively in money market instruments and deposits, at a rate of 0.0025%; and
• for other CIV, at a rate of 0.0125%.

The tax is assessed quarterly, in March, June, September and December of each year and is due by the CIV until the 20th day of the month following the taxable event.

Taxation of CIV’s investors

Regarding the taxation applicable to income obtained by holders of participation units / shareholdings in the CIV, it is applicable the taxation «at exit» rule.

Income obtained by resident investors, is subject to taxation at Personal Income Tax (PIT) level (generally, at the rate of 28%) and CIT level (being considered in the taxable profit of the investors).

Income obtained by non-resident investors without permanent establishment benefit from a favorable tax regime:

• taxation at the rate of 10%, in case of income arising from Real Estate Investment Funds and Real Estate Investment Companies; and
• exemption, in case of income arising from Securities Investment Funds and Securities Investment Companies.

This regime does not apply – being instead applicable the PIT and CIT regime foreseen for resident investors – whenever the investors are tax residents in “offshore” jurisdictions or, as a general rule, are held in more than 25% by tax residents in Portugal.

Foreign Investment Funds

Similar to other non-resident entities, foreign investment funds are taxed only on income obtained in Portugal.
Withholding tax at a rate of:

• 25% on dividends;
• 25% on real estate income;
• 25% on treasury bonds;
• 25% for the remaining cases.

Exemptions

Retirement/Educational Saving Funds

CIT exempt when established and operating under national legislation.

Security Savings Fund

CIT exempt when established and operating under national legislation.

The positive difference between the amount due at the closing of the security savings funds and the amounts deposited is subject to withholding tax at the rate of 21.5%, but the taxpayer can opt for aggregating the other income considered for PIT purposes.

Venture Capital Funds

Exemption from CIT when established and operating under national legislation.

Pension Funds

Exemption from CIT and Real Estate Transfer Tax when established and operating under national legislation.

Income obtained by pension funds established in another EU country or in a EEA Member State (bounded to administrative cooperation on tax matters), will also be exempt from CIT if they fulfil, cumulatively, the following requirements:

• exclusively assure the payment of retirement pensions granted fromelderly, handicapped, surviving, pre-retired, health and post-employment benefits, and death benefits, when complementary and ancillary to the previously mentioned;
• are managed by pension funds professional institutions to which Directive 2003/41/EC, of the European Parliament and Council, dated 3 June 2003, applies;
• are the effective beneficiary of the income;
• in case of dividend distributions, the related shareholding should have been held for a consecutive one year period.

Real Estate Investment Funds in Forest Resources

Exemption from CIT when established and operating under national legislation, as long as:

a) at least 75% of its assets are allocated to the exploitation of forest resources, and
b) that exploitation is submitted to forest management plans or certification.

In case the above conditions are not met, the exemption will not be applicable, and the taxation regime for CIV will apply.