Portugal has implemented a major reform of its Corporate Income Tax Code.

This includes a participation exemption method for dividends and capital gains, including a withholding tax exemption on outbound dividends providing certain conditions are met.  This has been implemented as per OECD guidelines and European Commission recommendations in order to avoid double taxation.
The Portuguese holding company offers an efficient way in which to make distributions to jurisdictions with which Portugal has a Double Taxation Agreement.

Many European holding companies do not offer this advantage.

In order to distribute dividends or capital gains whilst meeting the conditions for this exemption the beneficiary of the income must be:-
– A member state of the European Union, the European Economic Area or a country with which Portugal has concluded a Double Taxation Agreement.
– Hold a minimum of 5% of the share capital of the distributing company.
– A shareholding company that has held the shares continuously for twenty four months prior to the distribution of the dividends
– Subject to a tax similar to the corporate income tax applicable to companies located in that jurisdiction and that the rate is not lower than 60% of the Portuguese corporate income tax rate.

Dividends and capital gains paid into a Portuguese company are exempt from Corporate Tax if the Portuguese company meets criteria similar to the above.
If the assets of the subsidiary consist of real estate located in Portugal advise should be taken as the above exemption may not apply.
It is hoped that the changes will make Portugal a choice for worldwide investment.