On October 17, 2011, the Portuguese Government presented the 2012 State Budget proposal for Parliament’s discussion and further approval. The main measures with impact on corporate taxation are as follows:
- Tax losses carry forward: Tax losses generated from January 1, 2012 onwards can be carried forward for a 5-year period (previously, a 4-year carry forward period). However, the carry forward of tax losses will be capped at 75% of taxable profi t for the year (no limit was previously established). Tax carry forward of losses for the third consecutive year is no longer required to be preceded by an auditing of the accounts.
- CFC rules: Controlled Foreign Companies (CFC) provisions will no longer apply to subsidiaries resident in a European Union (EU) Member State or in a country of the European Economic Area (EEA) (which has a cooperation agreement on matter of taxation). Economic and business substance should underlie the incorporation and activity of the EU/ EEA subsidiary, which additionally should be engaged in an agricultural, commercial, industrial or services activity.
- Payments to blacklisted jurisdictions: The withholding tax rate on investment income (interest, dividends) paid to entities resident in jurisdictions with, or subject to, a favourable tax regime will increase to 30% (formerly, 21.5%).
- Rate of Corporate Income Tax: The reduced corporate income tax rate of 12.5%, applicable to taxable income up to EUR 12,500, will be revoked.
- Capital gains realised by non-resident entities: The corporate income tax exemption on capital gains realised by non-resident entities on the transfer of shares, other securities, autonomous warrants and derivative fi nancial instruments will also apply to entities resident in countries with which there is no Double Taxation Treaty or a Tax Information Exchange Agreement in force. Companies resident in blacklisted jurisdictions will not be entitled to benefi t from the exemption.
- Taxation of securities investment funds: The corporate income tax rate applicable on capital gains realized by securities investment funds is increased to 21.5% (previously, 10%).
- Madeira International Business Centre: The tax benefi ts applicable to shareholders of companies licensed in the Madeira International Business Center (MIBC) are expressly revoked. Personal and corporate income tax exemptions on dividends distributions and interest on shareholders loans will no longer apply. Therefore, dividends and interest will become subject to withholding tax at 21.5%. Notwithstanding, withholding tax relief is available under the EU Parent-Subsidiary and Interest & Royalties directives and under the applicable Double Taxation Treaty.
Appointment of tax representative: no longer mandatory for EU and EEA tax residents. Portugal amends its domestic legislation following the action brought forward by the EU Commission.