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Budget Bill 2014 - turning the page?
The Portuguese Government presented to the Portuguese Parliament 2 important documents, a Draft Law reforming the Portuguese Corporate Income Tax Code (CIT Draft Law) and a Budget Bill for 2014. Taxand Portugal discovers the most relevant tax measures featured for multinationals, which if approved, will generally apply from 1 January 2014.
Gradual lowering of the CIT rate
It is proposed to reduce the standard corporate tax rate to 23%. The Government also commits to further reduce the standard CIT rate to 21% in 2015 and in the longer term achieve a reduction of the rate to between 17% and 19% in 2016 depending on the evolution of economic and financial situation. The Government also declares the intention to phase out the municipal and state surtaxes by 2018.
Enhancing the participation exemption regime and foreign tax credit
The CIT Draft Law amends both the income tax exemption for dividends received by a Portuguese company (inbound) and capital gains derived from the sale of shares. The CIT Draft Law also provides measures to extend the participation exemption rules for dividends and capital gains to permanent establishments of foreign entities operating in Portugal.
No changes are proposed to the domestic exemption on capital gains derived by non-residents from the sale of shares in Portuguese companies, which continues to broadly exempt non-residents unless gains derived relate directly or indirectly from shares in resident companies whose assets consist in more than 50% of Portuguese real estate property.
The CIT Draft Law provides that foreign tax credit will be determined on a per-country basis with a 5-year carry forward mechanism for excess (unused) credits.
Group taxation regime and reorganisations
For group taxation, the proposed changes include:
- Reduction to 75% shareholding the threshold to apply for group taxation
- Extension of the regime to “sandwich” groups
- Streamline of the beginning, termination and modifications to the tax group
As for reorganisations, the CIT Draft Law provides for a review of the range of transactions to which the Portuguese tax neutrality regime applies (eg reverse mergers), tax rules for non-neutral reorganisations and clarification of several tax aspects, including the elimination of pre-request to transfer losses in the framework of reorganisations.
Exit tax on the transfer of residence
The CIT Draft Law provides amendments to the exit tax rules applicable to transfer of residence of Portuguese companies to other EU/EEA countries. Besides the possibility of immediate payment of CIT upon exit, the CIT Draft Law provides for an option for payment in 5 installments and an option for deferral until the year of effective disposal of the asset or transfer of residence to another jurisdiction.
Tiago Cassiano Neves
T. +351 218 913 232
Aside from the tax updates already mentioned, the CIT Draft Law and the Budget Bill for 2014 also provide for:
- Clarification of tax deductibility of expenses
- Harmonisation of CIT rules with the new international accounting standards
- Review of the stamp tax exemption on short-term intercompany loans
- Review of several tax benefits, including, amongst others, real estate taxes for investment funds, tax benefits for restructurings, a new tax incentive for reinvested profits
Multinationals operating in Portugal should investigate the CIT Draft Bill and the Budget Bill for 2014 to garner further knowledge on how these updates will affect their specific situation.