Corporate tax planning is a vital part of any business’s financial strategy, especially for those seeking to maximize their tax reliefs, exemptions, and allowances. Portugal, like many countries, offers a plethora of opportunities for tax planning. In this article, we dive into the legal aspects and advantages of tax planning in Portugal, differentiating between lawful strategies and illegal tax evasion.
1. Corporate Tax Planning vs. Tax Evasion
Understanding the distinction between corporate tax planning and tax evasion is paramount. Corporate tax planning focuses on leveraging legal provisions to reduce a company’s tax liability. Conversely, tax evasion involves avoiding taxes through false declarations or concealment of income, which is illegal.
In Portugal, tax evasion is criminalized, with Article 103 of the Portuguese Tax Offenses Law (Regime Geral das Infracções Tributárias) specifying related penalties.
2. Non-Habitual Resident (NHR) Tax Regime and Tax Planning
While the NHR regime is primarily aimed at individuals, businesses can also utilize it in their corporate tax planning strategies. Established in 2009, the NHR scheme provides tax advantages for new tax residents in Portugal who haven’t been tax residents in the last five years. It allows certain foreign income sources to be exempt from Portuguese income tax and offers a reduced 20% tax rate for specific professions.
Portuguese companies wishing to attract non-resident talent, regardless of their nationality, may utilize this regime to their advantage and, at the same time, as an HR benefit for employees.
3. Corporate Tax Incentives in Portugal
One of the main attractions for businesses in Portugal is the range of corporate tax incentives available. The participation exemption regime, for instance, gives resident companies tax exemptions on dividends and capital gains under set conditions. For larger investments exceeding €5 million, companies can negotiate tax reductions lasting up to 10 years, presenting a significant opportunity for tax planning.
Source: “Código Fiscal do Investimento” (Investment Tax Code) – Decree-Law No. 162/2014 of October 31.
4. Double Taxation Treaties and Corporate Tax Planning
For businesses operating across borders, Portugal’s Double Taxation Treaties (DTTs) can be a cornerstone of their corporate tax planning. These treaties prevent companies from being taxed twice on the same income in two jurisdictions, providing substantial relief.
Source: Portuguese Ministry of Finance and the official website of the Portuguese Tax and Customs Authority.
5. Anti-Avoidance Measures
To counter aggressive tax planning, Portugal has set up anti-avoidance measures like the General Anti-Avoidance Rule (GAAR) and Controlled Foreign Corporation (CFC) rules. As part of its commitment to fair taxation, Portugal is also aligned with the OECD’s Base Erosion and Profit Shifting (BEPS) project, which addresses profit-shifting strategies to low-tax areas.
Aggressive tax planning refers to complex schemes and strategies employed by individuals and corporations to exploit the tax system and reduce tax liabilities, often stretching the boundaries of the law. While these practices aim to minimize tax within legal confines, they often employ artificial transactions with no genuine economic substance merely to gain tax advantages. As a result, many jurisdictions view aggressive tax planning with suspicion, as it frequently skirts the edge of legality and, at times, veers into illegitimate territory.
The distinction between legitimate tax planning and aggressive tax planning often hinges on the spirit versus the letter of the law. While a specific manoeuvre may technically adhere to the written statutes, it might violate the intended purpose of the legislation. As governments worldwide, including Portugal’s, grapple with the economic challenges of tax base erosion and revenue loss, there’s an increasing emphasis on curbing aggressive tax planning, therefore these practices not only face heightened scrutiny but also run the risk of being deemed illegal, leading to severe penalties for the transgressors.
When implemented within the legal framework, tax planning in Portugal can offer businesses considerable advantages in reducing their tax liabilities. With a myriad of incentives and treaties, Portugal stands out as an attractive destination for business operations. It’s always advisable to work with tax professionals to ensure optimal and compliant strategies.
Disclaimer: The information provided in this article is for informational purposes only and should not be considered legal or tax advice. Please consult with a qualified tax professional for specific guidance tailored to your individual circumstances.