Portugal: Domestic Taxation
Corporate Income Tax on Dividend Income Received
Corporate income tax payable on dividend income received by a Madeira "holding" company or mixed holding company depends on the location of the foreign subsidiary making the remittances (ie within, or without the EU).
To qualify for the fiscal benefits which apply to a Madeira "holding" company the corporate entity must pass the following 3 tests:
- The holding company must be licensed to operate under the free trade zone legislation of Madeira. If the holding company is not licensed to operate under the free trade zone legislation of Madeira then normal Portuguese tax rates apply.
- The holding company must hold (at the time of writing) at least 10% of the shares in the foreign subsidiary at the time of the dividend remittance.
- The holding company must have held its shareholding in the foreign subsidiary for a minimum period of 12 months prior to the dividend distribution.
If a Holding Company is established under Free Trade Zone Legislation then income received from its holdings in the EU is taxable but income from non-EU sources is exempt from tax. Dividends distributed by such companies to non-resident shareholders are free of withholding tax.
Income earned by a Mixed Holding Company licensed under the Free Trade Zone Legislation from trading activities (other than through the holding of shares) is exempt from corporation tax until at least the year 2011 (See here for further details of the extension of the scheme). However income earned from trading activities carried out in mainland Portugal or with Portuguese residents is taxed at Portuguese corporation tax rate of 25%. Note however that most EU member states consider that Madeiran Mixed Holding Companies fall outside the ambit of the EU Parent/Subsidiary Directive, so that participation exemption is not given in respect of payments made to such companies.
Capital gains tax of 25% is payable by a Madeira Holding Company on the profitable sale of shares in a company in which it has a participating shareholding. Until 2000 these gains were not taxed if they were re-invested in the purchase of shareholdings in other companies ("roll over relief"), but the Tax Reform Act 2000 made them subject to Portuguese capital gains tax, payable in five equal annual instalments after the gain occurs.
Holding companies registered under Free Trade Zone Legislation pay an application fee and continuing annual fees.