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Portugal: Domestic Taxation

Withholding Taxes on Incoming Dividends

Withholding taxes on incoming dividends remitted to a Madeira holding company are reduced in 2 situations:

  • Parent-Subsidiary Directive: When the subsidiary is resident in an EU territory the provisions of the EU Parent-Subsidiary directive apply. The effect of this directive is that where a Madeira holding company controls at least 10% of the shares of an EU subsidiary for a minimum period of 12 months any dividends remitted by the EU subsidiary to the Madeira holding company are free of withholding taxes. (N.B. Some countries consider Madeira a tax haven and have anti-avoidance legislation in place against both Madeira holding companies & Madeira "mixed" holding companies - the effect is to negate the effects of the Parent-Subsidiary directive).
  • Double Taxation Treaties: Where the provisions of the EU Parent-Subsidiary directive do not apply (or where anti-avoidance provisions are in place) Madeira holding companies can rely on Portuguese double taxation treaties the effect of which is to obtain a reduction in withholding tax rates on dividends remitted to Madeira from the subsidiary jurisdiction. Portugal has around 50 double taxation treaties in place. The greater a country's network of double taxation treaties the greater its leverage to reduce withholding taxes on incoming dividends. An elaborate network of double taxation treaties is thus a key factor in the ability of a territory to develop as an attractive holding company jurisdiction. (N.B. Some countries consider Madeira a tax haven and have anti-avoidance legislation in place against both Madeira holding companies & Madeira "mixed" holding companies - the effect is to exclude Madeira holding companies from the benefits of the tax treaty signed with Portugal).

 

 

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