A
company is considered to be resident if it has
its head office, or its effective centre of
management, on Portuguese territory. A permanent
establishment is considered to be created when
employees or agents are active, or a fixed installation
or permanent representation exists, for more
than 120 days in any 12-month period.
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Madeira Rates of Income Tax
The rate of corporate income tax in Madeira
(Portugal) was raised from 20% (since 2008)
to 25% from 2012. There is also a state surcharge
of 3% on taxable profits between EUR1.5 million
and EUR10 million, rising to 5% on taxable profits
above EUR10 million.
See
Offshore Legal and Tax Regimes for details
of the lower tax rates applicable to companies
in the Madeira Free Trade Zone, and Holding
Companies.
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Madeira Calculation of Taxable
Base
Certain types of income are partially or wholly
exempt from taxation; these include:
- Dividends
from quoted companies;
- Interest
on certain public bonds including those
issued before 1991.
All
normal commercial costs are deductible from
taxable income; the following partial list sets
out some only of the more important rules covering
deductibility:
- 20%
of representation expenses, empoyees' travel
allowances, and passenger car expenses are
disallowed;
- interest
on loans to finance production can usually
be capitalised if they last for at least
two years;
- social
costs up to 15% of an employee's salary
are deductible (25% if the employee has
no right to social security);
- losses
can be carried forward for 6 years as long
as there is continuity of business activity;
- group
relief is available for 90% subsidiaries;
- bad
debt relief is given on a tapered scale;
some types of debt are not considered 'bad';
- depreciation
is normally on a straight-line basis; there
are limits on the depreciation of cars.
Domestic
dividends received by a resident company which
has owned at least 10% of the paying company
or an acqusition value of at least EUR20m for
at least one year are exempt from tax. The EU
participation exemption applies with similar
conditions; but the paying company must be subject
to income taxation. If the participation is
less than 25%, a 50% tax credit is given.
There
are provisions in tax law equivalent to 'Controlled
Foreign Company' legislation which kick in for
participations of 25% or greater, and apply
when rates of tax paid on foreign profits are
less than about 20%. General anti-avoidance
provisions were introduced as from 1999. Thin
capitalisation rules apply in Portugal to indebtedness
towards non-resident related parties. A debt-to-equity
safe harbour ratio of 2:1 applies. Indebtedness
towards non-resident third parties (e.g., banks)
but guaranteed or secured by non-resident related
parties is also covered by thin capitalisation
rules. Interest arising from excessive non-resident
related party debt will be disallowed as a deductible
tax expense, unless the taxable entity or company
is able to demonstrate that its indebtedness
level and capital structure is established at
arm’s length.
NB:
This brief summary of some of the more important
aspects of Madeiran (Portuguese) income tax
law is given for general information only; it
should not be relied upon in actual situations,
for which professional tax advice is necessary.
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Madeira Filing Requirements
and Payment of Tax
The tax year is the calendar year, ending December
31. Tax is assessed on the basis of the preceding
calendar year, on the financial year of the
company that ended in the previous calendar
year.
Companies
make three equal payments of tax in the year
of assessment, in July, September and December,
based on the previous year's tax payment. A
final, balancing, payment must be made along
with the submission of the corporate tax return
by the end of the following May.
These timings are different for companies with
year-end dates other than on December 31.
Certain
companies which have reported tax losses in
previous years have been required to make advance
payments of corporate income tax from 1999 onwards.
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Madeira
Withholding Tax
See Double Taxation Treaties
for details of rates of withholding tax applying
to treaty countries. Other than as specified
in the treaties, the rates of withholding are
as follows: Dividends
25%, Interest 25%, Royalties 15%, Rental and
Commissions 15%.
Under
the EU Parent/Subsidiary Directive, from January
2000 outbound profit distributions and dividends
from a Portuguese 25% subsidiary to its EU parent
are not subject to withholding.
Under
the parent/subsidiary directive the holding
requirement has been 10% since 2009, prior to
that it was 15% in 2007/08; and 20% in 2005-06.
Under the EU's Directive on Interest and Royalties,
which came into effect in 2004, both types of
payment are exempt from withholding tax if they
are between associated companies (rules as for
the participation exemption).
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