Tax in Focus

forward during five years and, if exemption on dividends is not granted, then companies may also opt for a tax credit for the underlying tax, thus eliminating double economical taxation.

Regarding R&D and intangibles, the reform will create a very competitive “patent box” regime which allows the taxation of only half of the royalties arising from the licensing of patents, industrial designs and models, but allowing for full deduction of related expenses, which leads to the communication (and also the carry forward) of net losses to other income. Also, intangibles acquired from a third-party and without a defined economic life can be amortized for tax purposes, during a period of 20 years.

It is proposed also to include a new tax benefit for the reinvestment of retained earnings. Targeted to small and medium-sized companies, it allows a corporate tax deduction of 10% of the retained and reinvested earnings used for the acquisition of eligible assets, capped at 25% of the corporate tax due.

The reform also strongly simplifies tax compliance obligations and there is also an effort to clarify the corporate tax law and to align it with case-law, in order to reduce litigation.

Q

How are these likely to impact Portugal’s business

environment?

The first impact, in my view, is the re-launch of Portugal as a reference hub for outbound investment, namely in Portuguese speaking countries.

The community of Portuguese Speaking Countries includes Angola, Brazil, Cape Verde, East-Timor, Guine-Bissau, Mozambique and Sao Tome and Principe. We must also consider the Administrative Region of Macao (China). Altogether the

community adds up to a 255 million people market. This number could be exponentially expanded if we account for the surrounding regions of economic integration of the members of this community.

Effectively the new participation exemption regime by itself is one of the most competitive across the EU, and may be combined with the Madeira International Business Center (MIBC). Under the MIBC, a 5% corporate income taxation is available for foreign sourced income, and no withholding tax exists, e.g., on interest, services or royalties paid abroad by MIBC companies.

It should also be considered that MIBC companies can apply the vast Portuguese treaty network and that Portugal has signed treaties with several countries in Africa, South America or Asia. In some cases, these countries have signed very few treaties, what grants to Portugal an absolute advantage in comparison to other typical holding locations.

The new R&D tax regime is an add- on for the development of excellence centres in Portugal, as, in addition to the regime referred above, companies may benefit from corporate tax credits in R&D activities and high qualified professionals moving to Portugal may benefit, under the non-habitual residents regime, from a 20% flat rate on high-added value employment activities and several exemptions on non-Portuguese sourced income.

In short, Portugal may become a strong hub between Europe and the USA and the emerging markets.

Q

What makes Portugal an attractive jurisdiction for

investment?

The Portuguese Government is willing to reform and attract FDI and as such it has approved a strategy for

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growth, employment and industrial development, to be implemented in the period 2013-2020.

In addition to simplifying the tax regime and committing to a stable and business friendly regime, it has been announced that a special team within the Portuguese Tax and Custom Authority, in collaboration with aicep Portugal Global – Trade & Investment Agency, will provide support to foreign investors implementing an effective red carpet for FDI.

Companies looking to invest in Portugal should also consider the integration of Portugal in the EU, the high-qualification of its human capital, and the state-of-the- art logistics and communication infrastructures (including one of the main deep water ports in Europe, the first European port for vessels coming from the Panama Canal).

The process of incorporating a company in Portugal is very straightforward and fast and special procedures are available for investments considered of national interest (e.g., single contact point is nominated to assist in dealing with public authorities and the timing for decisions is reduced).

Additionally, non-EU nationals aiming to invest in Portugal may obtain a special residence card, the so-called “Golden Visa”, which grants free movement in the Schengen area.

❝ Portugal

may become a strong hub between Europe and the USA and the emerging markets.

Contact: Jaime Esteves

PwC Portugal, Tax Lead Partner Email: jaime.esteves@pt.pwc.com

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