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Dividend Tax in Portugal

Dividend Tax in Portugal

Updated on Thursday 31st January 2019

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Dividend-Tax-in-Portugal.jpgThe dividend tax in Portugal applies both to residents and non-residents and it has a flat rate of 28%. However, a special participation exemption is applicable under certain criteria. Dividends paid to a Portuguese resident by a Portuguese company or an EU company are subject to a different taxation regime. A withholding tax on dividends is also applicable in Portugal; however, a special rate may apply if a double tax treaty exists between Portugal and the other jurisdiction. Our lawyers in Portugal can answer your questions concerning dividend taxation and other general questions about taxes for companies.
 

What is the tax rate on dividends in Portugal?

 
Portugal has a participation exemption regime for the taxation of dividends. Under this regime, the dividends received by a resident company from a local/foreign shareholding are exempt from taxation if that shareholder holds at least 10% of the capital or voting rights of that company (directly or indirectly) for at least one year. This exemption for dividends does not apply if the payment is deductible for the entity making the payment. There are a few important facts about the tax on dividends in Portugal:
 
  • the Portuguese withholding tax on dividends paid to a non-resident company is 25% (or 35% if the payment is made to a company that is a resident of a country considered tax haven). 
  • an exemption applies if the recipient of the payment qualifies for the domestic participation exemption regime. 
  • the withholding tax rate is also reduced to 0% when the recipient is located in one of the countries with which Portugal signed a double tax treaty. 
  • Portuguese residents that receive investment income, such as dividends paid by a Portuguese company or a foreign company are taxed at 28%. 
 
It is good to know that Portugal has almost 70 tax treaties in force. One of our lawyers in Portugal can give you complete details on the provisions of the double tax treaties.
 

Dividends and interest incomes in Portugal

 
A flat rate of 28% is the tax imposed on dividends and interests in Portugal, with the mention that the taxpayers in this country can choose to be liable for the tax on dividends at marginal rates ranging between 15,5 and 48% as it was established in 2018. Moreover, taxpayers can benefit from a credit against the Portuguese tax liability for the lower tax that was paid in the country of origin for interests and dividends. Portugal signed numerous double taxation agreements through which a tax credit is offered in the case of dividend tax, with the stipulation that the percentage established in the treaty needs to be respected. There are also cases in which a taxpayer discloses the dividends in the tax return, meaning that the company will be subject to taxation only on 50% of the dividends, with the mention that the company will have to be a tax resident in the European Union. In the case on interest incomes of resident and non-resident entities in Portugal, these are levied at a tax rate of 28%. It is extremely important to know the tax regime for the chosen business structure in Portugal and all the legal aspects involved. This is a matter where our team of lawyers in Portugal can provide the needed legal assistance. 
 

Short facts about dividends

 
The profits of a company or of an investment fund are shared at a certain period (most of the times quarterly) with the owners or stockholders of the firm. These payments are known as dividends and can be paid in cash or as shares, depending on the agreement signed by the owners of the business in Portugal. It is good to know that there are two categories of dividends, the qualified dividends which involve the shares that have been held for at least 60 days, and the non-qualified dividends which refer to varied dividends a business owner can receive, such as real estate investment trusts or dividends on employee stock. There are many investors or business owners who decide on investing the dividends and generate further profits.
 

Reinvesting the dividends

 
Dividends can be reinvested with the help of the company issuing such profits through varied dividend reinvestment plans. In this direction, the company can propose a reinvestment plan based on the earned dividends which won’t be paid, but instead, reinvested. Brokerage companies also provide dividend reinvestment plans under certain conditions and charges. However, reinvesting the dividends is often considered a good business plan because company owners in Portugal can continue with their activities while their money “work” for their personal advantage. 
 

What is a dividend ETF?

 
The dividend ETF is the exchange-traded fund destined for investments in high-dividend-paying stocks, mostly related to the real estate investment trusts. ETFs with low fees are normally recommended if you would like to protect your profits. Also, it is suggested to diversify the portfolio by choosing not just one industry and specific companies, but other areas too and make smart investments. This way, an entrepreneur can avoid potential risks when it comes to the reinvestment of dividends.
 

The benefits of reinvested dividends

 
Because the dividend tax needs to be considered, it is important to know the ways in which the dividend investments are made. Also, the owner of dividends will have to consider the applicable fees for reinvested dividends, especially if you are chasing high dividends like ETFs. It is good to know that a financial consultant can provide you with detailed information about the taxes on dividends in Portugal and also about the ways in which you can reinvest the dividends. Also, the legal aspects of dividend reinvestment plans are highly important, especially if you would like to know if there are other fees involved. There are many foreign investors who present a high interest for the methods through which they can reinvest the dividends and expand their portfolios with low risks as much as possible. Instead of having misunderstandings regarding the terms and conditions of dividends you wish to direct them for reinvestment plans, it is recommended to talk to an advisor and find out comprehensive information in this sense.
 

Other taxes for companies in Portugal

 
Resident companies in Portugal are taxed on their worldwide profits while non-residents are taxed only on the profits derived from the country. Branches in Portugal belonging to international companies are only taxed on their profits derived from Portugal. The tax year is generally the same as the tax year and an electronic self-assessment system is in place. 
 
Please do not hesitate to contact our law firm in Portugal and find out all the legal details you need to know about the dividend tax in Portugal. We are at your services if you would like legal advice in company formation, company liquidation, company litigation or debt collection in Portugal.