Taxation of dividends

A) Residents

1. Individuals

Dividends paid to Portuguese resident individuals are subject to withholding tax at a rate of 25%. As a general rule, the tax withheld is deemed as the final tax due.
Notwithstanding, Portuguese resident individuals may elect to include the dividends in the income subject to the marginal Personal Income Tax rates. In this case, the withholding tax would have the nature of a payment on account for the final tax due.
In case a Portuguese resident individual makes such an election, only 50% of the total amount of the dividend will be considered for tax purposes.
If a Portuguese resident individual makes such an election, he would also have to include in the income subject to the marginal Personal Income Tax rates other income that, as a general rule, would only be subject to withholding tax (e.g. interest).
Dividends placed at the disposal in bank omnibus accounts (except where the identity of the effective beneficiary is disclosed), are subject to withholding tax at a rate of 30%.
 

2. Companies

Dividends paid to Portuguese resident companies are  subject to a 25% withholding tax rate, which is considered as a payment on account for the final tax due.
Companies holding a participation of at least 10% for more than one yearmay benefit from a withholding tax exemption.
Dividends received must be included in the taxable profit of the company and would consequently be taxed at a rate of 25%, increased by a 3% state surcharge applicable to the taxable profit exceeding € 1,500,000 and a 5% state surcharge applicable to the taxable profit exceeding € 10,000,00.  The tax rate would also be increased by  a municipal surcharge of up to 1.5%, depending on the municipality where the company is located.
However, according to the Portuguese participation exemption regime, dividends may be exempt provided the above-mentioned requirements to benefit from the withholding tax exemption are met (the requirement regarding the 1 year minimum holding period may be met after the dividend’s distribution).
Dividends paid to investment funds incorporated and ruled according to the Portuguese law are subject to a definitive withholding tax rate of 25%.
Withholding tax on dividends will not be mandatory for entities which benefit from a Corporate Income Tax exemption, namely, pension funds and venture capital funds.
This exemption is not applicable, whenever these entities hold their participations for less than one year. In this case, dividends will be subject to an autonomous taxation, at a tax rate of 25%.

B) Non-residents

Generally, dividends paid to non-resident investors, whether individuals or corporate entities, are subject to a 25% withholding tax rate.
In case the investor is resident in a country with whom Portugal has entered into between a Double Tax Treaty (DDT), the withholding tax rate may be partially reduced under the provisions set out therein.
Moreover, in case of companies resident in a EU Member State, dividends paid may be exempt from withholding tax in Portugal, if the above-mentioned requirements as regards Portuguese resident companies are met, namely in respect to the percentage of the participation and the minimum holding period.
This exemption may also be applicable to dividends paid to a Swiss company. In this case, the minimum holding percentage is 25% and the minimum holding period is two years.
Dividends placed at the disposal in bank omnibus accounts (except where the identity of the effective beneficiary is disclosed), are subject to withholding tax at a rate of 30%.
The same withholding tax rate should apply to dividends paid to tax haven entities.

Taxation of capital gains deriving from the disposal of share

A) Residents

1. Individuals

The positive difference between capital gains and losses deriving from the disposal of shares by resident individuals in Portugal is subject to a 25% autonomous tax rate. However, the individual may opt to include the capital gain in the income subject to the marginal Personal Income Tax rates.
If a Portuguese resident individual makes such an option, he would also have to include in the income subject to the marginal Personal Income Tax rates all other capital gains.
The positive difference between capital gains and losses deriving from the disposal of shares up to € 500 is exempt from Personal Income Tax.

2. Companies

Capital gains derived by Portuguese resident companies are included in the computation of the taxable profit, which is subject to a CIT rate of 25%increased by a 3% state surcharge applicable to the taxable profit exceeding € 1,500,000, and a 5% state surcharge applicable to the taxable profit exceeding € 10,000,000. The CIT final rate should also be increased by a municipal surcharge at a rate up to 1.5%, depending on the municipality where the company is located.
However, only 50% of the positive difference between the capital gains and losses deriving from the disposal of shares will be taxed whenever the sales proceeds are reinvested (provided certain requirements are met).
The negative difference between the capital gains and losses is only tax deductible on half of its value.
Capital gains or losses obtained by venture capital companies, venture capital investors and pure holding companies (which take the form of an SGPS) should not be considered for tax purposes, provided the participation is held for more than one year.
However, capital gains obtained by these entities are taxable whenever:

• the participation has been acquired to a related party in the previous 3 years;
• the participation has been acquired for less than 3 years to an entity resident in a tax haven;
• the seller results from the transformation of a company that benefited from a different tax treatment regarding capital gains and less than 3 years have elapsed since the transformation.

The positive difference between capital gains and losses obtained by investment funds incorporated and governed according to the Portuguese law is subject to an autonomous taxation at a tax rate of 21,5%.
However, the same positive difference should be exempt whenever the disposed shares are held by the investment funds for more than 12 months.
On the other hand, capital gains derived by pension funds and venture capital funds (incorporated and governed according to the Portuguese law) are exempt from taxation.

B) Non-residents

Under the Portuguese domestic rules, capital gains are exempt from taxation in Portugal if the investor (whether an individual or a corporate entity) has no permanent establishment therein to which the capital gain should be attributed and, additionally, none of the following situations are met:

• the non-resident company is held in more that 25% by an entity resident in Portugal;
• the non-resident individual or company is resident in a tax heaven;
• the disposed participation relates to (i) a Portuguese resident real estate company (a company in which more than 50% of its assets consist of real estate located in Portugal) or (ii) a resident company holding such a real estate company.

Nevertheless, in cases where these requirements are not met, capital gains may still be exempt from taxation under a relevant DTT entered into between Portugal and the country where the individual or the company is resident.

If the capital gains obtained from the disposal of shares by non-residents in Portugal are not covered by the exemptions set above, they will be subject to a tax rate of 25%.