For over 10 years, Portugal has been adopting a series of tax measures to strengthen its competitiveness and encourage foreign investment. To this end, in recent years Portugal has adopted a reform of personal income tax, in parallel with the implementation of tax regimes applicable to individuals, as well as a reform of corporate income tax.
Moreover, from the perspective of many foreign countries, Portugal is seen as the main linking jurisdiction, not only with Europe - which enables the use of various Community regimes from which Portugal, as a member state of the European Union (EU), benefits - but also with its former colonies, namely Brazil and the group of countries designated as Portuguese-speaking African Countries (PALOP), such as Angola, Guinea-Bissau, Cape Verde, São Tomé and Príncipe, Mozambique and Equatorial Guinea. Portugal's historical ties with these countries have led to the establishment of a number of agreements that enable and encourage the exchange of people and jurisdictions.
Portugal also benefits from an extensive network of double taxation agreements (DTAs), including, for example, with Macao, which can be a gateway to China.
There's also the Portuguese coastline, which confers a particular geographical advantage - reinforced by deep-water ports, such as the port of Sines, and by the opportunities brought by the opening of the Panama and Suez canals - it seems that now is the time for foreign investors to take advantage of the future opportunities Portugal, as a host country with a leading position on the international tax scene - and therefore a natural platform for investment - has to offer today.
With all this in mind, we'd like to take this opportunity to summarize some of the key opportunities and other aspects that make Portugal such an attractive investment location.
The Golden Visa
Under this scheme, citizens of non-EU member states who make or carry out one of the legally prescribed investments, such as the transfer of capital worth at least €1,500,000.00 or the acquisition of real estate worth at least €500,000.00 or €350,000.00 with renovations (among others), can apply for a residence permit from the Portuguese Immigration and Borders Service (SEF).
The Portuguese regime for non-habitual residents
In practical terms, this system offers undeniable advantages in terms of income taxation, such as the fixed rate ofIRS of 20 % applicable to income from employment and self-employment generating high value-added activities of a scientific, artistic or technical nature, compared with the maximum possible effective taxation of 53 %, and also the fact that most income earned abroad by RNHs is exempt in Portugal, provided certain conditions are met.
Succession and donation
Portugal levies no tax on the free transfer of property (donations), during life or at death (mortis causa), when the beneficiaries are the owner's spouses, de facto spouses and descendants or ascendants in the direct line of descent, unlike in France, for example, where there is no wealth tax in Portugal.
Portuguese participation exemption scheme
The participation exemption regime provides tax benefits for companies that are resident in Portugal for tax purposes, such as the exclusion, for the purposes of determining their taxable profit, of profits and reserves distributed to these companies, or the exemption of capital gains arising from the costly sale of shareholdings held by taxable subjects, after verification of certain conditions laid down by law.
Non-resident entities also benefit from a tax exemption on profits and reserves distributed to them, provided they are resident in the EU, the European Economic Area (EEA) or a state with which Portugal has signed a double-taxation treaty.
Opportunity for companies to invest in tax loss deduction and reporting
Tax losses incurred in a given tax period can be carried forward and deducted from taxable profits for a period of 5 years (limited to 70 % of taxable income determined in that same year). It should be noted, however, that companies recognized as small and medium-sized enterprises (SMEs) benefit from an extension of the reporting period, since they can deduct tax losses for 12 tax years.
The patent regime
This regime applies to contracts for the assignment or temporary use of certain industrial property rights, and represents a form of promotion for companies wishing to invest in Portugal. Under this regime, income from such contracts is taxed at only half their value, provided certain conditions are met.
The Portuguese tax neutrality regime
Portugal's tax-neutral regime, together with the provisions of the EU Merger Directive, applies to various corporate restructuring operations, providing tax exemption for capital gains arising from such restructuring operations, provided certain conditions are met.
Portugal's tax arbitration system
Arbitration offers several advantages over legal proceedings. It enables disputes to be resolved more easily, as the process is simplified, dematerialized, electronic and faster. In fact, as a general rule, the final decision is rendered within a maximum of 6 months (on average 4.5 months).
Portugal has signed a DTA with 79 countries, including all Portuguese-speaking countries, 12 American countries, 17 Asian countries and almost all European countries.
In the absence of a DTA, Portugal continues to unilaterally offer a reduction, or even elimination, of international double taxation to resident taxpayers.