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Tax Updates Portugal N.º 3 - December 2013

12/10/2013
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CHANGES TO DEBT SECURITIES TAX REGIME AND UPDATE TO MADEIRA TAX REGIME

Law 18/2013 of 9 December amends Budget Law for 2013 and introduces relevant changes to tax legislation. These changes are independent with changes included on the Budget Bill for 2014 (already approved and awaiting publication on official journal) or Draft Law reforming the Portuguese Corporate Income Tax Code (still pending in Parliament). We highlight two aspects of Law 18/2013:

1. AMENDMENTS TO THE SPECIAL TAX REGIME ON DEBT SECURITIES


Under Decree-Law 193/2005 (special tax regime on debt securities), Portuguese sourced interest and capital gains derived by qualified non-resident beneficial owners from the holding/disposal of public or private debt securities issued by Portuguese resident entities are exempt from Portuguese personal and corporate income tax, provided certain conditions are met.


The main changes to Decree-Law 193/2005 include:

  • Extension of the scope of the regime to cover securities of monetary nature such as treasury bills and commercial paper, convertible bonds and other convertible securities, integrated in a centralized system or EU/EEA international clearing system
  • Extension of the beneficiaries of the regime which include: (i) central banks and government agencies; (ii) recognised international organisations; (iii) entities resident in a jurisdiction with either a tax treaty or an tax exchange information agreement in place with Portugal; (iv) any other nonresidents that are not resident in a blacklisted jurisdiction. Non-resident entities owned by more than 20% by a Portuguese entity will also become eligible for the exemption (previously excluded).
  • Extension of the Quick Refund period from 90 days to 6 months counting from the date the withholding has been performed.
  • Clarification that standard reclaim (full reclaim) to Portuguese Tax Authorities may be undertaken until the end of the second year following the year the payment took place. Portuguese Tax Authorities will have 3 months to reimburse beneficial owners following tax reclaim (interrupted if any information request is made).
  • Streamline of necessary documentation for qualifying investors to prove the right to exemption at source.
  • The regime provides for procedures for withholding tax mechanism for securities issued by Portuguese entities integrated and registered exclusively with international central securities depositories (ICSDs).
  • The law provides for a cut-off rule stating that a taxed entity that becomes eligible (as result of broadening the scope) will benefit from the exemption on income (interest or capital gains) only as from the date of the maturity of the last coupon occurring after 31 December 2013.

2. COMPANIES LICENSED TO OPERATE IN INTERNATIONAL BUSINESS CENTRE OF MADEIRA

Under the Portuguese Tax Benefits Code, a special regime applying for companies operating under the Madeira IBC is applicable until 31 December 2020.

Under the current regime, a 5% CIT rate is applicable until the end of 2020 based on taxable income ceilings, which are connected with number of jobs. Those taxable income ceilings are backed by substance requirements involving either the creation of one to five jobs during the first six months of activity and a minimum investment of €75,000 on the acquisition of tangible or intangible fixed assets during the first two years of activity or creating of six or more jobs within the first six months of activity.

The EU Commission issued on July 2013 a decision allowing Portugal to increase by 36.7% the taxable income ceilings to which the reduced 5% CIT rate apply. Law 18/2013 transposes the new taxable income ceilings into Portuguese legislation which are applicable as from 1 January 2013, as follows:

Previous ceilings

New ceilings

Number of jobs created

Tax base ceiling (€M)

Number of jobs created

Tax base ceiling (€M)

1 - 2

2

1 - 2

2,73

3 - 5

2,6

3 - 5

3,55

6 – 30

16

6 – 30

21,87

31 – 50

26

31 – 50

35,54

51 – 100

40

51 – 100

54,68

> 100

150

> 100

205,5


In the meantime, the European Commission has formally decided also to extend the authorization of new companies in the Madeira IBC until the 30 June 2014. This extension comes together with the news of ongoing negotiations to potentially extend the tax regime beyond 2020.


3. CONCLUSION

The changes to the special tax regime on debt securities are bound to stimulate further the debt instruments market in Portugal and facilitate the raising of financing from non-resident investors.
Groups operating on the Madeira international business center should continue to monitor the impact of revised taxable income ceilings and also of proposed changes to the CIT (still pending in parliament), which are also bound to have a positive impact on current or new corporate structures.


For more information or if you wish discuss in detail any issues related to this alert, please contact your local Garrigues professionals and follow our special webpage on the Budget proposals.


Lisbon Office

Fernando Castro Silva
Tel. + 351 21 891 32 32
e-mail: fernando.castro.silva@garrigues.com

Tiago Cassiano Neves
Tel. +351 218 913 232
e-mail: tiago.cassiano.neves@garrigues.com



 

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