Personal Income Tax (PIT)

Portuguese tax-resident individuals are taxed on their worldwide income.

Employment and pension income is subject to progressive tax rates up to 53%.

Capital investment income and net worth increases (including capital gains) are usually subject to a 28% tax rate.

The Portuguese special tax regime to attract high and ultra-high net worth individuals (HNWIs) sets out a wide range of PIT exemptions or low tax rates. The Portuguese double-tax treaty network is particularly relevant to the optimisation of the Portuguese non-habitual tax resident (non-dom) regime. The benefits of the Portuguese non-dom regime are set out below.

Portuguese-source income

Employment and professional income derived from high-value-added activities are subject to a reduced 20% PIT flat rate.

Foreign-source income

Employment income – exempt if effectively taxed in the source state; otherwise, if employment income derives from high-value-added activities that do not qualify for the exemption then it will benefit from the 20% PIT flat rate.

Professional income – exempt if income is taxable (does not effectively need to be taxed) in the source state and results from high-value-added activities; otherwise, if professional income derives from high-value-added activities that do not qualify for the exemption then it will benefit from the 20% PIT flat rate.

Pensions – since 1 April 2020, these have been subject to a 10% PIT flat rate. However, the previous (exemption) regime still applies to:

    • holders of non-habitual tax resident status, granted before 1 April 2020;

    • those whose application for non-habitual tax status had already been submitted on 1 April 2020; and

    • tax residents on 1 April 2020 who apply for non-habitual tax status by 31 March 2021.

Financial (eg, dividends, interest, capital gains, income from funds), royalties and other income – exempt if income is taxable (does not effectively need to be taxed) in the source state. If the relevant income does not qualify for the exemption, as a general rule a 28% PIT flat rate applies.

There is a special taxation rate on the disposal of shares for small enterprises – capital gains obtained from the disposal (including the redemption) of shares of small companies are subject to an effective tax rate of 14%.

Wealth and Real Estate Tax

Portugal has no wealth tax.

The transfer for consideration of real estate property located in Portugal is subject to real estate property transfer tax (up to 7.5%) and stamp tax (0.8%).

The holding of real estate property is subject to real estate municipal property tax, between 0.3% and 0.45% (0.8% in case of rural properties), levied annually on the tax value of the property.

An additional tax of up to 1.5% on the global real estate property value (with a tax value higher than EUR600,000) is levied in the case of individuals. For companies, the applicable tax rate is 0.4% (without the exclusion of this EUR600,000).

Corporate Income Tax (CIT)

The general CIT rate applicable is set at 21% (municipal and state surcharges may apply). The following regimes should be mentioned in regard to family-owned companies (from a domestic and transnational perspective):

    • inbound and outbound participation exemption regimes are applicable to dividends and capital gains, under certain conditions;

    • tax neutrality regimes apply to restructuring operations;

    • a special CIT regime is applicable to companies structured under the Madeira International Business Centre tax framework (5% CIT rate); and

    • exemptions under special tax regimes are applicable to funds or companies that carry out real estate and financial investments.

Trusts and Transparent Entities

Except for the Madeira trust regime, trusts are not foreseen under Portuguese civil law. Trusts are therefore usually considered in multi-jurisdiction family and tax planning situations.

The taxation of transparent entities raises technical difficulties (mismatches) and may, in some cases, generate disadvantageous tax treatment. Therefore, structures such as tax transparent entities are usually not recommended (although exceptions may apply).

Other Relevant Tax-Related Matters

Investment through family holding companies, unit-linked insurance policies, private investment funds or similar vehicles are often considered in Portuguese private wealth management.

Some general tax principles may be singled out.

    • Deferral mechanisms – structures implemented should consider deferral mechanisms to avoid unnecessary realisation (investment funds, unit-linked insurance, holding companies).

    • Offset mechanisms – with the aim to maximise the offset mechanism, structures such as companies, funds or other collective investment undertakings may be considered.

    • Double-tax treaty network and the Portuguese non-dom regime – the Portuguese non-dom regime may be substantially optimised through careful co-ordination with the applicable double-tax treaty network.

    • Tax haven avoidance – Portugal regards a wide range of jurisdictions as black-listed, applying aggravated taxes to income obtained on or through these jurisdictions; therefore, re-domiciling or extinguishing structures with connections to tax havens are matters of significant interest, which is highly relevant for immigrant families whose previous investment structures were planned in accordance with different jurisdictions (particularly UK non-doms and Latin American tax residents).

    • Compliance and exchange of financial information (particularly, the OECD's Common Reporting Standard (CRS) and the US Foreign Account Tax Compliance Act (FATCA rules)).

    • Multi-jurisdictional approach – multi-layer protection of taxpayers considering international protection instruments (eg, EU law, double tax treaties, bilateral investment treaties).

Although donations and inheritances are generally subject to a 10% tax rate, significant exclusions or exemptions apply.

    • In accordance with the territorial scope applicable, only events taking place in Portugal are subject to tax (such exclusion is particularly relevant for transnational succession tax planning purposes).

    • Donations and inheritances are, in any case, tax-exempted between:

        a) spouses or members of unmarried couples living under de facto relationships;

        b) descendants; and

        c) ascendants.

    • Under certain circumstances special exemptions may apply (eg: life insurance premium payments; payments from investment funds).

Even when exclusions or exemptions apply, a step-up in the assets' value may occur.

In general, there are no step-up planning tools in the Portuguese jurisdiction.

There are no major differences between residents and non-residents with regard to the taxation of real estate, with the exception of non-resident entities domiciled in black-listed jurisdictions. In such cases, the following aggravated tax rates apply:

    • real estate property transfer tax (due on the acquisition of the real estate property) – 10%; and

    • real estate municipal property tax (levied annually) – 7.5%. 

Moreover, we should note that real estate structuring may involve direct ownership, real estate investment funds or companies. Trusts are not suitable to directly hold real estate assets located in Portugal.

We highlight the following in case of direct ownership. The Portuguese PIT Code establishes that capital gains obtained on the sale of real estate property by residents are only considered on 50% of their value. The establishment of a different tax regime based on the holder’s residency raises an illegitimate discrimination under European Union law. As such, the Portuguese legislation is in breach of EU law and this has been confirmed by different courts (arbitration and national tax courts as well as by the CJEU). This implies that, in accordance with the EU Principle of Free Movement of Capital, capital gains obtained from the sale of real estate property shall also be considered on 50% if allocated to non-residents. As the standard tax rate applicable to non-residents is set at 28%, this regime means an effective tax rate on capital gains obtained by non-residents of 14%. Until the legislation is changed, in order to ensure that capital gains are only considered on 50% of their value, non-resident taxpayers will need to challenge any tax assessment that violates EU law in the terms referred to above.

In the last decade, Portuguese estate and transfer tax laws have been relatively stable. The gift and inheritance taxation framework, as well as special tax regimes, such as the Portuguese non-dom regime, have put Portugal on the map as a desirable jurisdiction for high and ultra-high net worth individuals.

For almost two decades, Portugal has enacted a general anti-avoidance rule and specific anti-avoidance tax rules (eg, controlled foreign corporation (CFC) rules, transfer pricing or restructuring rules).

In 2019, relevant legislative measures were taken to transpose the EU BEPS Directive.

Portuguese legislation aligned the concept of “abuse” with the EU concept of “valid commercial reasons” as established in the BEPS Directive (resulting from CJEU case law). 

CFC rules have also been adapted and are applied when controlled foreign companies settled outside the EU or the EEA are subject to an effective tax lower than 50% of the tax value that would be owed under Portuguese law, or if they are located in a tax haven.

Since 2017, Portugal has been integrated into the CRS/FATCA worldwide reporting system. In addition, the Portuguese legislature has extended the reporting regime to bank accounts containing more than EUR50,000 held by Portuguese tax residents.

In 2020, Portugal took several measures to transpose Council Directive (EU) 2018/822 of 25 May 2018, otherwise known as DAC 6.

Domestic legislation requires a mechanism for the exchange of information not only in the context of cross-border tax-planning arrangements (as imposed by the Directive) but has also extended this burden to internal arrangements. 

Generic and specific hallmarks (some of which are linked to the main benefit test) are identified in the Portuguese legislation, which enable the identification of cross-border arrangements subject to reporting requirements.

Although each family has its own characteristics, some trends are still recognisable in the Portuguese market.

    • Resistance to succession – in a significant number of family-owned businesses, the founder is still a member of the board and demands to take part in the current decision-making process; some resistance to innovation or alternative financing sources may, consequently, be identified.

    • First real generation crisis – a significant number of family-owned businesses in Portugal were founded in the 1980s; thus, families are now facing the challenge of turning over the firm to the third generation.

    • Lack of succession planning – although there has been a shift in recent years, a significant number of families still do not invest in preparation for the succession process.

    • Informality – most families do not constitute family councils or family business agreements to discuss the management of the family businesses or assets; although this is beginning to change, there is still a certain degree of informality that threatens the stability and rationality of decision-making processes.

The transnational dimension of succession planning implies additional concerns regarding the applicable laws, the coherence of the succession process and the tax implications in the different jurisdictions.

International succession planning is simultaneously a challenge and an opportunity to choose the applicable law in accordance with the best interests of the testator. Determining the applicable law (when possible) is therefore an important part of the succession planning process.

As different jurisdictions may be involved, avoiding clashes is of the utmost importance, particularly in ensuring the smooth transition of the assets. If possible, submitting the regulation of the succession to the same jurisdiction is preferable. That goal may justify the modification of the asset's detention structure or its location. Other areas of law should also be considered in this context, particularly family law and company law.

Regarding tax concerns, see 1. Tax.

Descendants and spouses (notwithstanding the marital property regime) and – in the absence of descendants – ascendants, are forced heirs. The percentage of the value of the assets they are entitled to varies between one third and two thirds. Nevertheless, since August 2018, it has been possible for spouses to enter into a prenuptial agreement waiving their right to inherit. The effectiveness of this agreement depends on the choice of the separation-of-property regime (see 2.4 Marital Property). In any case, this agreement will not restrict the surviving spouse’s right to use the family residence for at least five years.

The Portuguese civil code establishes three regimes to regulate marital property:

    • general community of estate – all combined property is considered joint;

    • estate subsequent to marriage – only property earned during the marriage is considered joint property (framework applicable by default); and

    • separation of property between spouses.

If the separation-of-property regime does not apply, the consent of the other spouse is particularly relevant in the transfer of immovable property.

From a tax perspective, the transfer of property may imply a step-up of the asset value.

See 1.1 Tax Regimes, particularly the material on exclusions and exemptions on stamp tax, applicable to donations and succession.

No special rules apply to the transfer of digital assets. There is no relevant case law in Portugal concerning digital assets.

In general, domestic trusts and foundations are not used in Portugal for planning purposes. However, under international structures, such entities are used in certain cases.

See 1.1 Tax Regimes.

Payments made by fiduciary entities to beneficiaries who are tax-resident in Portugal are taxed at a 28% rate (or 35% if paid by an entity located in a tax haven). Payments occurring as a result of the termination of fiduciary entities may be taxed at a rate of 28% if payments are made to the settlor. Otherwise, if the beneficiary is not the settlor, payments should be tax-exempt.

CFC rules may apply if the fiduciary entity is located in a tax haven.

See 3.1 Types of Trusts, Foundations or Similar Entities.

Asset protection planning in Portugal usually considers:

    • implementing family business structures with transnational elements in order to benefit from multi-layer protections (eg, national law, EU law, bilateral investment treaties, etc);

    • unit-linked insurance policies, especially in jurisdictions such as Luxembourg and Ireland; and

    • choosing the separation-of-property marital regime to avoid communication of debts.

Generally, business succession planning comprises the following elements.

    • Incorporation of family holding companies in accordance with the different branches of the family.

    • Elaboration of wills of the different family members.

    • Elaboration of a family business agreement.

    • Setting up of a family council and family assembly.

    • Corporate law instruments:

        a) establishing rules to nominate the family members who may integrate the family business and the applicable requirements (age, academic scores, etc);

        b) establishing rules to determine the company’s value;

        c) establishing (automatic) redemption mechanisms if some heirs become shareholders of the company;

        d) shareholder agreements establishing limitations on the free transfer of assets, as well as establishing pre-emption rights;

        e) establishing drag-along and tag-along clauses; and

        f) establishing penalty clauses.

    • Adjustments to the memorandum of association:

        a) considering the need for aggravated majorities for certain strategic options;

        b) setting out remuneration principles; and

        c) restricting the areas of free decision of board members.

    • Use of life insurance (unit-linked) policies and other similar instruments.

    • Designation of heirs by third parties (within the admissible legal limits) in order to cover different wills or circumstances (dynamic clauses).

Optimal tax results derive from the considered use of the tax exclusion or exemption regimes mentioned in 1.1 Tax Regimes.

When a partial interest in an entity is transferred, during lifetime or at death, the fair market value of the interest for transfer tax purposes is not adjusted to reflect a discount for lack of marketability and control.

Disputes regarding estates usually result from lack of succession planning.

Division procedures are time-consuming, and it may be several years until a final decision is taken. However, the parties do typically tend to conclude agreements.

Regarding payments from life insurance policies, the Portuguese Supreme Court has confirmed that such payments are not subject to succession laws (although an insurance premium should be considered a donation for succession purposes).

The use of arbitration for wealth disputes is increasing.

The calculation of damages follows general Portuguese civil law rules, essentially aimed at repairing the damages suffered by the parties.

No aggravated damages or punitive damages rules apply.

Penalty clauses included in succession planning instruments are very important.

The use of corporate fiduciaries is not prevalent in Portugal.

This is not applicable in Portugal.

This is not applicable in Portugal.

This is not applicable in Portugal.

Residency Permit

Any EU national may obtain a residence permit in Portugal if:

    • they have a professional activity as a worker or are self-employed in Portugal; or

    • they have sufficient funds and are covered by health insurance when the same applies to Portuguese citizens in their country of origin.

Regarding third-country nationals, a residence permit is granted for:

    • the exercise of independent professional activities;

    • the exercise of professional activities under an employment contract;

    • investment activity;

    • the exercise of a highly qualified activity or teaching;

    • students in secondary or higher education;

    • interns or trainees;

    • volunteers;

    • researchers; and

    • family reunification.

In 2009, Portugal enacted a special permit (expeditious and simplified) for investment activities (the so-called Golden Visa). Under this regime, the qualifying investment activities (carried out directly or through a single-member company incorporated in Portugal or in any other EU member state, as long as it has a permanent establishment in Portugal) entitle the applicant to a temporary residence permit. Furthermore, the investor’s family members may also benefit from a family reunification permit.

The Golden Visa grants the investor the right to remain in Portuguese territory and the right to free movement in the Schengen area. Moreover, after five years the beneficiaries of the Golden Visa may apply for a permanent visa or for Portuguese (and European) citizenship.

Portuguese Domicile

As a rule, if an adult:

    • legally resides in Portugal for at least five years;

    • demonstrates minimum knowledge of the Portuguese language;

    • has not been convicted of a crime punishable under Portuguese law by three or more years’ imprisonment; and

    • does not constitute a threat to national security because of their involvement in terrorist activities,

then that person may be granted Portuguese nationality.

There is an expedited means of obtaining Portuguese citizenship through the Jewish law of return for Sephardic Jews.

Under this mechanism, descendants of Portuguese Sephardic Jews may acquire Portuguese citizenship if they can demonstrate that they belong to a Sephardic community of Portuguese origin. Requirements include:

    • demonstrating belonging to a Sephardic family of Portuguese origin;

    • a Portuguese Sephardic name;

    • familiarity with the Portuguese language; and

    • direct or collateral descent.

These requirements must be proved through a certificate issued by a Portuguese Jewish community. In this case, it is not legally required that the individuals should have legally resided in Portuguese territory for at least five years or have adequate knowledge of the Portuguese language.

The laws protecting vulnerable adults in Portugal were profoundly revised in 2018.

The new regime is characterised by the need to respect the individual’s autonomy as much as possible and, therefore, the protective measures applied by the court should be specifically designed for each individual in accordance with that individual’s wishes and disabilities.

The powers of the guardian will be specifically established by the court and limited to what is strictly necessary to guarantee the vulnerable adult's safety and, as far as possible, their autonomy. Some management decisions, such as the sale of property, depend on court approval and the guardian must show accountability when requested by the court and on the termination of their guardianship. The protective measures applied must be periodically revised.

In addition, the law provides an incapacity mandate which allows the individual to anticipate the selection of the person or persons in charge of their assistance in personal and financial matters.

Finally, general instruments must be adapted to meet any particular needs of the person with disabilities (eg, power of attorney, insurance instruments, other succession-planning instruments such as appointing a trustee or fideicomisario, or other person responsible for the administration of the vulnerable adult).

The guardian must always be appointed by the court. In any case, the court must consider (where possible) the wishes of the minor or vulnerable adult.

From a financial point of view, different alternatives are considered and sometimes combined when individuals prepare financially for their retirement:

    • pension funds;

    • insurance policies; or

    • constitution of surface rights or usufruct.

In addition, Portuguese law recognises advanced healthcare directives or mandates, in order to ensure that the correct medical actions are taken in case of illness or incapacity.

Children born out of wedlock and adopted children may not be discriminated against for succession purposes. They are forced heirs.

Artificial insemination is permitted to infertile married (or under domestic partnership) different-sex couples and to any woman or female couple, regardless of their fertility.

Portugal recognises surrogacy arrangements only if a woman’s medical condition precludes her from getting pregnant naturally. The process must be authorised and supervised by the National Medically Assisted Procreation Council and must be free of any charge for the intended parents (except for medical expenses).

Portugal recognises same-sex marriage.

Foundations are the most commonly used structures for charitable planning. Foundations that qualify as “public utility foundations” may benefit from a wide range of tax benefits. In particular, public utility foundations may be CIT-exempt and donations made to these foundations may be considered a deductible cost-plus for CIT purposes, or as a tax allowance for PIT purposes. Furthermore, donations to these foundations may also be exempt.

See 10.1 Charitable Giving.