europe's best kept secret · europe's best kept secret 5 6-30 16 millions 31-50 26...

Europe's Best Kept Secret

Why Portugal is your top tax choice2012

www.pwc.pt

LeendertVerschoor

Among the 20 mostvisited countries in theworld

Portugueselanguage is

Portugal

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language isspoken byabout 230million peoplearound theworld

But why Portugal isyour top tax choice?

Agenda

Investing in/through Portugal

Buying property in Portugal

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Taking up residence in Portugal

Europe's Best Kept Secret3

Investing in/through Portugal ?

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Madeira International Business Centre

Jobs creationTaxable incomethreshold (EUR)

1-2 2 millions

3-5 2.6 millions

• 5% CIT rate from 2013 to 2020 (4% in 2012)on income derived from transactions withnon-resident entities (non-EU sourcedincome, in case of holding companies).

• These rates apply to thresholds of taxable

Corporate Income Tax (CIT) reduced rates

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6-30 16 millions

31-50 26 millions

51-100 40 millions

More than 100 150 millions

• These rates apply to thresholds of taxableincome depending on the number of jobscreated.

• Income exceeding the threshold is taxed at25%.

• Income derived from intra group services (e.g.treasury, coordination and distributioncenters) is outside the scope of the MIBCspecial tax regime, being taxed at 25%.


Other advantages

• Interest, royalties and services paid to non-resident entities are exempt from withholding tax.

• Parent-Subsidiary Directive

― Withholding tax exemption on distribution of profits to EU/EEA and Swiss parent companies (10% shareholding and 1-year minimum holding period required; 25% and 2 years for


(10% shareholding and 1-year minimum holding period required; 25% and 2 years forSwitzerland).

• Interest and Royalty Directive

― Withholding tax reduction (until 30 June 2013) and exemption (from 1 July 2013 onwards) on interest and royalties paid between EU or Swiss associated companies.

• Stamp duty exemption.

• Foreign tax credit relief.


Double Taxation Treaties (DTT)

• MIBC licensed companies benefit in general from the provisions of the wide network of DTT signedby Portugal (more than 60).

• Restrictions apply however in the case of the DTT signed with Brazil, Canada, Spain, United States ofAmerica, Netherlands, Mexico and Switzerland.


• Exemption from taxation of capital gains realised by foreign shareholders (not covered by MIBCspecial tax regime).

• Special foreign tax credit relief provisions.

Portugal as a hub for investments

• Links with:

― Africa (Angola, Cape Verde and Mozambique)

― Asia (including Macao)

― South America (Brazil)

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• Tax benefits

• Double Tax Treaties

• Incentives for internationalization

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Portugal/Madeira

BrazilAngola

Buying property in Portugal


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Taxation of real estate

Own name Black listedcompany

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Own name

White listedcompany

company

Taxation of real estateOwnership in own name

Acquisition Ownership Sale

TaxIMT – 6 %

IMI – 0.3% to 0.5% (revaluated)and 0.5% to 0.8% (non-revaluated)

PIT on 50 % ofthe capital gainat progressiverates from 11.5%

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resident Stamp Duty –0.8%

PIT on rental income – Marginalrates (11.5% to 46.5%)

to 46.5%

Reinvestmentrelief may apply

Non TaxResident

IMT – 6 %

Stamp Duty –0.8%

IMI – 0.3% to 0.5% (revaluated)and 0.5% to 0.8% (non-revaluated)

PIT on rental income – Final rate of16.5%

PIT: Final rate of25%

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Taxation of real estateOwnership through a company

Acquisition Ownership Sale

“Whitelisted”

company

IMT – 6 %

Stamp Duty –0.8%

IMI – 0.3% to 0.5%(revaluated) and 0.5% to 0.8%(non-revaluated)

Sale of property: CITat 25%

Sale of shares byresident individual:

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company 0.8%CIT on rental income at 16.5%

resident individual:PIT at 25%

“Blacklisted”

company

IMT – 10 %

Stamp Duty –0.8%

IMI – 7.5 %

CIT on rental income at 16.5%

Deemed rental income of 1/15of the Tax Registered Value

Sale of property: CITat 25%

Sale of shares byresident individual:PIT at 25%

Taxation of real estate

• Rules for 2012 create (again) penal rates for acquisition andownership through “blacklisted” companies;

• Ownership through “white listed” companies may still beadvantageous – case-by-case analysis;

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advantageous – case-by-case analysis;

• Comparison: Portugal ranks well on comparison with other locationsin terms of real estate taxes, with some attractive features – e.g.,16.5% flat rate of rental income obtained by non-residents

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Taxation of real estate - comparison

PropertyTransfer Tax

Annual PropertyTax

Non resident individuals without PE

Capital Gains Rental income

Spain(includingCanaries)

7% on the fairmarket value (maydiffer according tothe location)

0.4% to 1.10% on thecadastral value

3% on propertyowned by non-residents

Taxed at 19%Gross incometaxed at 24%

3%, on the value of the 3% on 25% of the taxTaxed at 20%

Withholding tax

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Cape Verde3%, on the value of thecontract.

3% on 25% of the taxregistration value

Taxed at 20%+Property tax at 3%

Withholding tax10%/20%?

France

5.09%, on thepurchase price (or onthe market price ifhigher)

Tax rates differaccording to thelocation of the property

If EU tax resident:withholding tax at 19% / Ifnon-EU tax resident:subject to the one-thirdwithholding tax

Rates range from0% to 40%(minimum rate of20% applies)

Greece8% up to € 20,000and 10% for the excess

Rates from 0,2% to 1%for the value exceeding€800.000. 2010 to2012, 2% for propertyvalues exceeding €5,000,000

Taxed from 0% to 20%,according to the holdingperiod

Progressive ratesranging from 0%to 45%

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Property TransferTax

Annual PropertyTax

Non resident individuals without PE


Bermuda Not applicablePrivate dwellings taxedat progressive rates(from 0.6% to 19%)

Not applicable Not applicable

Saint Lucia Not applicable Not applicable

Taxed atprogressive rates

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Saint Lucia Not applicableResidential propertytaxed at 0.25%.

Not applicableprogressive rates(from 10% to30%)

Italy

Registration tax maybe levied in a fixedamount orproportional amount(1%, 3% or 7%)

The tax rate rangesbetween 0.4% and 0.7%(can be increased up to0.9%)

Taxed at progressiverates from 23% up to43%

Taxed atprogressive ratesfrom 23% up to43%

UK

4% on theconsideration paid forland transactions (5%if over 1m£)

National non-domesticrate, paid by businessoccupiers does notapply to landlords(except vacantproperty)

Exemption for foreigninvestors who do notcarry on a trade

20% rate forforeign investorswho do not carryon a trade

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PropertyTransfer Tax

Annual Property TaxNon resident individuals without PE


Netherlands

6% on marketvalue(reduction to2% fordwellings)

Rates depend on themunicipality

Exemption unless thenon-resident is engagedin a trade or businesstherein and the propertyis part of the assets

30% is levied onthe deemed yieldof the net assets

Sweden 4.25%SEK1,200/ flat, maximizedto 0.4% for dwellings

Flat rate of 30% Flat rate of 30%

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to 0.4% for dwellings

Ireland

1% fordwellings withvalues notexceeding €1m(2% applies onthe excess)

A flat rate levy of, currently€200, applies to rentedresidential properties,holiday homes and secondhomes (subject to certainexemptions)

Rate of 30%20% withholdingtax

GermanyGeneral tax rateof 3.5%

Rates vary between 0.1%and 0.6% of the fair marketvalue

Standard progressiveincome tax rates forproperty sold within 10years after acquisition

Progressive rates

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General tax appraisal of urban real estate

Urban real estate still appraised under the previous rules (“CA rules”) is to beappraised under the current rules (“IMI rules”) during 2012

As a result:

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The tax registration value should in principle INCREASE

The IMI rate will DECREASE

Impact on the IMI annual charge will depend on the combined effect of bothfactors above

Taking up residence in Portugal


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19

Financial Times praises Portugal‘the country’s recovery is underway’

250,731

60.00035,060

36,300

15,269

175,000

68,200

300,000

100,000

55,694

32,800

75,00041,793

19,501

20,294

153,301

171,084

60,361

30.00%

35.00%

40.00%

45.00%

50.00%

55.00%

60.00%

Ta

xr

ate

*

Marginal Personal Income tax rates

Maximum rates applicable in the E.U.

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0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

Ta

xr

ate

Country

*

**

*

*

* * *

* Fixed rate applicable to the entire taxable income


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Residents are subject to progressive rates:

Personal Income Taxation

Taxable Income (Euros) Tax Rate (%) Deductible amount (Euros)

Up to 4,898 11.5% 0

From 4,898 to 7,410 14% 122.45

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From 7,410 to 18,375 24,5% 900.50

From 18,375 to 42,259 35.5% 2,921.75

From 42,259 to 61,244 38% 3,978.23

From 61,244 to 66,045 41.5% 6,121.77

From 66,045 to 153,300 43.5% 7.442,67

Over 153,300 46.5% 12,041.67


- For 2012 and 2013: “Solidarity surcharge” of 2.5% ontaxable income in excess of EUR 153,300

- Example:

Gross income : EUR 350,000 (couple)

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Taxable income: EUR 155,750

EUR 122.50



Some income subject to flat rates:

• Investment income (interest, dividends, etc.) 25 %

• Capital gains on sale of shares 25 %

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Non-residents subject to flat rates:

• Rental income 16.5 %

• Capital gains on sale of real estate 25 %

• Capital gains on sale of Portuguese shares exempt

• Employment and self-employment income 21.5 %

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Taxation of life insurance products

• Beneficial tax regime

― Taxation only on withdrawals in excess of contributions.

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― Mitigated taxation of withdrawals from qualifying policies -Income excluded from tax:

1/5, after 5 and before 8 years Effective rate: 20%

3/5, after 8 years Effective rate: 10%.

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Inheritance and gifts

• No tax on inheritance and gifts for spouses, descendants andascendants;

• Stamp tax at 10% or other transfers for no consideration;

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Assets outside Portugal out of scope

• No wealth tax

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Taxation of Trusts

• Concept of trust not recognised under Portuguese law.

• Tax treatment vary on a case-by-case basis – may be tax efficient wayof holding assets.

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• However, since 2012, Controlled Foreign Companies (CFC)legislation covers the use of trusts

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“Gold Visas”

• No EU workers must have legal residency and work permits.

• New special regime provides for residence titles for foreign individuals whoinvest in Portugal.

• “Gold Visas”: special residence titles delivered to foreign individuals who startan activity in Portugal and:

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an activity in Portugal and:

― transfer capital of 1 Million Euros or more to Portugal; or― acquire immovable property worth 500 000 Euros or more; or― create at least 30 jobs

For a minimum period of 5 years.

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RERT III – Tax Amnesty

• RERT III: special regularization regime for tax residents, in respect of assetsheld outside Portugal as of 31 December 2010.

• Third tax amnesty since 2005.

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• Collections from RERT III reached 258 Million Euros.

• Regularised assets of 3.4 Billion Euros.

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Non Habitual Residents


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Tax regime for non-habitual residents

Who may benefit?

The status of non-habitual resident in Portugal will be granted to an individualwho:

- qualifies as tax resident in Portugal for a certain tax year; and

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- did not qualify as a Portuguese tax resident in any of the prior five years.

Status applies for 10 consecutive years.

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What income is taxable?

Taxation at a flat rate of 20% on the net income from:

- employment income; and

- business and professional income


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from listed “high value-added activities of a scientific, artistic or technicalnature”

Examples: Architects, Engineers, Companies’ top managers, …

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What income is exempt in Portugal?

In general, income from a foreign source will be exempt (with progression)from taxation, provided:

― such income is taxed/may be taxed in the State of source under therules of a Double Tax Treaty (DTT); or


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rules of a Double Tax Treaty (DTT); or

― such income is taxed in the State of source (”blacklisted” tax havensexcluded) under its domestic legislation (if no DTT exists) and it maynot be regarded as arising from a Portuguese source, underPortuguese tax rules.

Different (but similar) conditions apply for each type of income

Pension income may be exempt in both countries

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Tax regime for non-habitual residents – example

• Married couple;

• Interest from Jersey: EUR 50,000;

• Rental income from Florida: EUR 80,000;

• UK pension: EUR 300,000;

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• Dividends from Netherlands: EUR 45,000;

• Employment income (“high value-added activities”): EUR 50.000.

Tax regime for non-habitual residents - Example

Non-habitualresident

Resident

Employment income EUR 10,000 EUR 20,279.97

UK Pension - EUR 121,679.47

Interest from Jersey EUR 15,000 EUR 15,000

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EUR 15,000 EUR 15,000

Rental income from Florida - EUR 32,447.86

Dividends from Netherlands - EUR 11,250

Total tax liability EUR 25,000 EUR 200,657

Net Income EUR 500,000 EUR 324,343

2013 State Budget – What to expect ?

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2013 State Budget – What to expect ?

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20% flat tax rate for(self) employmentHub for investments No inheritance/gift tax

Things toremember....

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(self) employmentincome

Opportunities for realestate investments

Hub for investments No inheritance/gift tax

Europe's Best Kept Secret37

Non-habitual residentsexemption of foreign

source income,including pensions

No wealth tax

Find out more...


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www.pwc.pt/pt/fiscalidade/individuals-taxation.jhtml

www.pwc.pt

This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon theinformation contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to theaccuracy or completeness of the information contained in this publication, and, to the extent permitted by law. PricewaterhouseCoopers, its members,employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining toact, in reliance on the information contained in this publication or for any decision based on it.

© 2012 PricewaterhouseCoopers. All rights reserved. In this document, “PwC” refers to PricewaterhouseCoopers & Associados - Sociedade de RevisoresOficiais de Contas, Lda., which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity.

europe's best kept secret · europe's best kept secret 5 6-30 16 millions 31-50 26...

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