This major Reform of the Corporate Income Tax (CIT), was approved with the votes in favour of more than 85% of its members and is in force since January 1, 2014.
Many positive changes have been introduced as this Reform is expected to contribute to the recovery and competitiveness of the Portuguese economy.
As the International Business Centre (IBC) of Madeira is fully integrated within the Portuguese CIT system, the new scope of measures will be fully applicable to companies licensed within this special EU approved tax regime.
Key measures are:
- A Worldwide Participation Exemption regime which exempts dividends and capital gains received/ obtained, as long as the parent Portuguese company holds a participation of at least 5%, for more than 24 months, in the subsidiary. The subsidiary must not reside in a tax haven and must be subject to tax.
- Income derived from branches of Portuguese companies abroad is also exempt for CIT in Portugal, as long as the branches are subject to tax and are not located in a tax haven.
- An exemption from withholding tax on the payment of dividends has been granted to corporate shareholders that are in the EU and the EEA, provided they are subject to tax and hold a participation in the Portuguese company of at least 5% for more than 24 months. With a great relevance, this exemption has been extended to foreign corporate shareholders that are in countries that have signed a DTT that foresees exchange of information with Portugal.
- Tax losses are now deductible against a maximum of 70% of each year’s profits within a period that has now been extended from 5 to 12 years.
- A unilateral tax credit relief is now granted for withheld taxes paid by Portuguese companies in other countries and can be deducted in a 5-year period.
- A Patent Box regime has been introduced in which 50% of the income derived from temporary disposal or use of Industrial Property Rights subject to registration in Portugal, such as Patents and Industrial designs or models, is now exempt from CIT in Portugal, which will allow a CIT of 2.5% in Madeira’s IBC. These rights must have been originated from R&D activities carried out by the Portuguese company and cannot be granted to a tax haven company. Intangible assets, including goodwill and industrial property rights such as brands, production processes, models, and other similar rights, are now depreciated for a period of 20 years.