PORTUGAL

i. Name of country

PORTUGAL

ii. Region

Southwestern Europe, bordering the North Atlantic Ocean, west of Spain (Are you an American living in Spain? Reach out for specialized US tax planning Spain services).

iii. Population

10,263,850 (July 2021 est.)

iv. General Introduction

Portugal has an excellent reputation and is regarded as one of the most globalized and peaceful countries in the world, with a high quality of life and a very high Human Development Index ranking. It is one of Europe’s oldest nations, with a rich history, vibrant culture, exceptional cuisine, stunning beaches, and idyllic countryside.

The Portuguese economy was growing rapidly until the start of the 2019 novel coronavirus disease (COVID-19) global pandemic. However, macroeconomic forecasts for Portugal still point to economic growth of 4.8% for 2021. The economy is currently dominated by the services sector, particularly in the tourism industry, followed by the industrial sector, which employs about 25% of the working population and contributes 12% of GDP. The agricultural sector comes in last place, representing about 2.1% of Portugal’s GDP and employing 6% of the active population.

Dominant Industries

The dominant industries in Portugal are as follows:

• Metallurgy.
• Mechanical engineering.
• Machinery.
• Electrical and electronics.
• Textile.
• Forest-based industries (wood, cork, pulp, and paper).
• Construction.

The following industries have also been growing:

• Automotive and mould-making industries, especially in relation to biotechnology and information technology.
• Energy production, especially renewable energies.

Population and Language

• The Portuguese population is about ten million. The language spoken in Portugal is Portuguese, the eighth most spoken language in the world.

Business Culture

• Generally, Portuguese entrepreneurs are open to doing business. Although there is a downward trend, many businesses in Portugal are still based on family structures. This is not the case for international groups based in Portugal.The business culture is focused on creating relationships of loyalty and trust.

Key Business and Economic Events

• In November 2021, Portugal will again host the Web Summit. This is considered to be the largest and most important tech event in the world.

Political Events

• In 2021, Portugal will held local elections, which had an impact on the composition of the executive committee of municipalities.
  The Government’s draft State Budget for 2022 has been rejected. The Portuguese President dissolved Parliament and called early parliamentary elections to be held on 30 January 2022.

New Legislation

• Legislative activity has been focused on measures to combat the COVID-19 pandemic and to stimulate the economy. For example, Parliament recently approved the extraordinary process for business viability (procedimento extraordinário de viabilização de empresas) (PEVE). This creates a temporary extraordinary process to enable the recovery of viable entities, and is aimed exclusively at companies that are in a difficult economic situation or facing imminent or current insolvency due to COVID-19.
• The Government has started a public consultation process based on its Green Paper on the Future of Work. This document lists the topics on which bases the government intends to change employment legislation. At this stage, there is only a plan of intentions to enable concrete proposals to emerge from consultation with the various stakeholders.
• Additionally, the increasing number of people working from home due to the COVID-19 pandemic requires a new legal framework.
• The government also intends to regulate working on digital platforms and wants to attract more “digital nomads” (people working digitally from a location other than their home country) in the context of the global market, by improving the tax and employment environment. Extending the social protection systems for workers not covered by employment contracts and the measures to reduce undeclared work are also points of action.

v. Wifi Speed

With an average peak Internet access speed of 34.5 megabits per second, Portugal stood seventeenth on the list of countries with the fastest Internet access.

vi. Electrical outlet

In Portugal the standard voltage is 230 V and the frequency is 50 Hz.

vii. Per Capita GDP

Real GDP per capita
$32,200 note: data are in 2017 dollars (2020 est.)
$34,900 note: data are in 2017 dollars (2019 est.)
$34,000 note: data are in 2017 dollars (2018 est.)

note: data are in 2010 dollars

viii. Climate

maritime temperate; cool and rainy in north, warmer and drier in south

ix. Residence-by-Investment

The Golden Residence Permit Program in Portugal is a five-year residence by investment program for non-EU nationals. Portugal is a full member of the European Union. The residence permit allows visa-free access to Europe’s Schengen Area and requires an average stay in Portugal of only seven days per year over a five-year period.

Investment

A €500,000 (or €350,000 reduced option) investment in real estate in Portugal will result in a residency permit for a family with dependent children. The golden visa can be renewed every two years as long as the applicant stays in the country for two weeks every two years.

Processing Time

Three–eight months

Key Benefits

• Visa-free travel throughout Europe’s Schengen Zone, as well as the right to live, work, and study in Portugal
• Low physical presence is required (seven days during the first year of residence and 14 days for the two subsequent years)
• Taxation system that is appealing
• After five years as a legal resident, you can apply for citizenship while maintaining your other citizenship (s)
• High standard of living, regional cuisine and wines, a diverse culture, a temperate climate, and a high level of security
• Reunification of families

Requirements

Capital transfer

• A minimum of EUR 1 million must be transferred into a Portuguese bank account, or specifically approved investment options must be used.
• EUR 350,000 for research activities of public or private entities affiliated with the national scientific and technological system
• EUR 250,000 for artistic production or the recovery or preservation of national cultural heritage
• EUR 350,000 for the purchase of units in investment funds or venture capital funds committed to the capitalization of companies incorporated under Portuguese law, with a maturity of at least five years and at least 60% of the investment portfolio in companies with a head office in the national territory.

Property acquisition

• A real estate purchase of at least EUR 500,000
• A real estate purchase of at least EUR 350,000 for the refurbishment of properties older than 30 years or in an area of urban regeneration, including renovation costs*

Business

• At least ten new jobs must be created.
• EUR 350,000 for the incorporation or increase of the share capital of a Portuguese-registered company, with a minimum of five permanent jobs created or maintained over a three-year period.
• The threshold will be reduced by 20% if the funds are committed to a low population density area, defined as having less than 100 inhabitants per km2 or having a GDP per capita that is less than 75% of the national average.

Procedures and Time Frame

• The residence permit is valid for one year after it is issued and is renewable for two additional two-year periods.

During the five-year period, the Golden Residence Permit Program requires at least four trips to Portugal: twice at the initial application (to select the qualifying investment, begin the legal process, and provide biometric data), and once at each renewal (year 1 and year 3). At any point during the program, family reunification is possible.

xi. Natural Resources

fish, forests (cork), iron ore, copper, zinc, tin, tungsten, silver, gold, uranium, marble, clay, gypsum, salt, arable land, hydropower

xii. Ethnic Groups

white homogeneous Mediterranean population; citizens from Portugal’s former colonies in Africa and Asia and other foreign-born

xiii. Languages

Portuguese (official), Mirandese (official, but locally used)

xiv. Religion

Roman Catholic 81%, other Christian 3.3%, other (includes Jewish, Muslim) 0.6%, none 6.8%, unspecified 8.3% (2011 est.)

note: data represent population 15 years of age and older

xv. Median Age

total: 44.6 years
male: 42.7 years
female: 46.5 years (2020 est.)

xvi. Urbanization

urban population: 66.8% of total population (2021)
rate of urbanization: 0.44% annual rate of change (2020-25 est.)

xvii. Physician density

5.12 physicians/1,000 population (2017)

xviii. Government type

semi-presidential republic

xix. Unemployment Rate

6.55% (2019 est.)
7.05% (2018 est.)

x. Taxes

Headline Personal Income Tax Rate (highest marginal tax rate)

• 48% + 11% social security

Tax resident individuals are liable to personal income tax (imposto sobre o rendimento das pessoas singulares) (IRS) on their worldwide income, while non-residents are only liable to IRS on their Portuguese source income.

An individual is considered tax resident if they meet one of the following conditions:

• They remain in Portugal for more than 183 days, consecutive or not, in any 12-month period, starting or ending in the year in question.
• They stay in Portugal for a shorter period, but maintain a domicile suggesting an intention to have a habitual residence in Portugal in any period within the above 12-month period.
• On 31 December, they are crew members of ships or aircraft, if they are employed by entities with their place of residence, head office, or effective management in Portugal.
  They perform public duties or commissions abroad for the Portuguese state.

Other Methods to Determine Residency

Portuguese nationals who change their tax residency to a low-tax jurisdiction or tax haven as defined by Portuguese law are deemed to be tax residents in Portugal in the year in which the change occurs and in the four subsequent years, unless they prove that the change is due to compelling reasons (for example, to work temporarily in that jurisdiction for an employer domiciled in Portugal).

IRS is charged on annual income, which is classified into several income categories (including employment income), after specific deductions applicable to each category. A taxpayer must specify all their annual income subject to taxation in their annual income tax return, which must be submitted between 1 April and 30 June. As a rule, employment income is subject to IRS withholding tax (at variable rates depending on the employee’s pay and household conditions) on account of the final tax due. The final IRS progressive tax rates range from 14.5% to 48% (for taxable income of EUR80,882 and above). An additional solidarity rate of 2.5% is applicable to taxpayers with taxable income above EUR80,000 up to EUR250,000, and a rate of 5% is applicable to taxable income exceeding EUR250,000. Tax resident employees who have not been tax resident in Portugal in the previous five years may benefit from non-habitual resident (NHR) status for a ten-year period. Under the NHR regime, employment income is taxed at a flat rate of 20%, if that income derives from listed high value-added activities of a scientific, artistic, or technical nature.

Social security contributions are generally due at a rate of 11% on the employee’s gross pay for professional work.

Non-Tax Resident Employees

Employment income earned by non-tax resident employees is subject to IRS withholding tax at a rate of 25%. The IRS withholding tax rate may be reduced or eliminated under an applicable double tax treaty (DTT).
Non-tax resident employees who are resident in another EU or European Economic Area (EEA) member state can request the refund, in whole or in part, of the tax withheld if it is higher than the tax that would result from the application of the IRS general progressive rates under the same conditions as those applicable to tax residents in Portugal, taking into account all income, including income obtained outside Portugal. For EEA tax residents, this is only possible if the EEA country is subject to obligations of administrative co-operation in tax matters equivalent to that applicable in the EU.

The refund must be:

• Requested from the Tax and Customs Authority (Autoridade Tributária e Aduaneira) within two years of the end of the calendar year following the year in which the taxable event occurred.
• Made by the end of the third month following submission of the required documents and information to the Tax and Customs Authority.

Headline Corporate Income Tax Rate (excluding dividend taxes)

• 21% (in mainland)

Sole traders can set up a single-member limited company (Sociedade Unipessoal por Quotas) or an individual limited liability establishment (Estabelicimento Individual de Responsabilidade Limitada). However, in the second scenario, any business assets separate from personal earnings are subject to corporate tax.

Income tax rates in Portugal are progressive. As a result, you pay more tax the more you earn. Workers have a tax-free allowance of €4,104. Non-residents are taxed at a flat rate of 25% on their taxable remuneration.

Portugal’s income tax rates for 2020 (to be filed in 2021) are the following:

Annual taxable income

• up to €7,112 – 14.5%
• €7,113–€10,732 – 23%
• €10,733–€20,322 – 28.5%
• €20,323–€25,075 – 35%
• €25,076-€39,967 – 37%
• €39,968-€80,882 – 45%
• €80,883+ – 48%

NHR in Portugal

•  Introduced in 2009 by the Portuguese government to attract ‘high value’ residents, NHR offers reduced tax rates and some exemptions for your first ten years in the country. If employed in Portugal, non-habitual residents can benefit from a flat 20% income tax rate instead of the usual scale rates reaching up to 48%

Tax Resident Business

Corporations and other entities with their head office or place of effective management in Portugal qualify as tax resident. They are subject to corporate income tax (imposto sobre a rendimento das pessoas colectivas) (IRC) on their worldwide income.
Non-Tax Resident Business

Non-resident entities are subject to IRC on:

• Profits attributable to a Portuguese permanent establishment.
• Portuguese source income.
• IRC

The current standard IRC rate is:

• 21% in Portugal mainland.
• 14.7% in the Autonomous Region of Madeira.
• 16.8% in the Autonomous Region of Azores.
• For small and medium enterprises in Portugal mainland, a reduced rate of 17% is applicable on the first EUR25,000 of taxable income, with the surplus taxed at the standard rate of 21%.
• A municipal surcharge is levied by municipalities at variable rates of up to 1.5% of the annual taxable profit. The actual rate is defined every year by each municipality.

Taxpayers are also subject to a state surcharge of:

• 3%, for taxable income from EUR1.5 million to EUR7.5 million.
• 5%, for taxable income from EUR7.5 million to EUR35 million.
• 9%, for taxable income exceeding EUR35 million.

Generally, an annual IRC return for the current tax year must be submitted by May 31 of the following year.

Portugal currently has 78 double tax treaties in force, including with jurisdictions such as Angola, Brazil China, France, Germany, Japan, Luxembourg, the Netherlands, the UK, and the US.
Portugal has signed the OECD Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting.

Although major reforms are not expected, specific aspects of the Portuguese CIT law may continue to be introduced or reviewed to accommodate any relevant findings within the base erosion and profit shifting project (BEPS), undertaken by the Organisation for Economic Co-operation and Development (OECD).

Double Tax Treaties

Portugal has concluded 79 DTTs, 78 of which are currently in force including those with:

• All EU member states except Finland.
• The UK.
• The US.
• Switzerland.
• China.
• Hong Kong.
• Macau.

In the most recent DTTs, there is an increased emphasis on promoting enhanced exchange of information procedures to prevent tax fraud and evasion.

Base Erosion and Profit Sharing

In addition, Portugal is committed to implementing base erosion and profit sharing (BEPS) and:

• Has implemented EU directives on mandatory exchange of information to prevent harmful tax practices, including Directive 2011/16/EU on administrative cooperation in the field of taxation through Decree Law no. 64/2016 of 11 October 2016.

After applying due diligence rules, financial institutions established in Portugal must provide the tax authorities with information regarding the bank accounts, including custodial accounts, held by:

• individuals residing in a different member state; or
• entities which are controlled by one or more individuals residing in a different member state
• The tax authorities exchange this information with the relevant state(s) of residence.
• Is a party to the OECD Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Sharing 2017.

Portugal has also implemented the DAC 6 Directive ((EU) 2018/822), regarding the mandatory automatic exchange of information in the field of taxation in relation to reportable cross-border arrangements. In the Portuguese law, the reporting obligations are extended to domestic arrangements and cover VAT and property taxes. In addition, the Portuguese law, unlike the DAC 6 Directive, does not safeguard the right of professional secrecy.

Beneficial Owner Central Register

The Beneficial Owner Central Register (BOCR) database contains updated information on the natural person(s) who, directly or indirectly, or through a third party, own or control entities subject to registration. Certain entities, for example commercial companies and other legal persons, even if subject to foreign law, that are operating or engaging in a legal act or in a business in Portugal requiring a taxpayer number, must provide in electronic form:

• Sufficient, exact and up-to-date information on their beneficial owners.
• All relevant information on the beneficial interest that is held in these entities, including but not limited to the legal share capital’s holders’ identity.

Portugal signed the Multilateral Competent Authority Agreement (MCAA) for the CRS in 2016.

Portugal has implemented into its domestic law both a mechanism for the reciprocal automatic exchange of information for CRS-participating jurisdictions and has transposed DAC 2 (2014/107/EU) with regards to mandatory automatic exchange of information in the field of taxation.