Reimbursement of withholding tax on dividends

The Participation Exemption Regime revisited

The Portuguese participation exemption regime allows international enterprises to avoid double taxation of dividends and capital gains from the disposal of foreign and Portuguese shareholdings. It applies to both inbound and outbound flows.

It placed Portugal on the map as a privileged jurisdiction for companies to do business and invest worldwide in a tax-efficient manner.

A qualified shareholding requires a 10% direct or indirect shareholding (or voting rights) held for 12 months.

In the case of outbound payments, the Parent Company must be tax resident in a European Union jurisdiction or in a country with which Portugal has entered into a Treaty to Avoid Double Taxation (“Tax Treaty”). Other requirements include:

• The nonresident corporate shareholder must be liable and not exempt from a type of Corporate Income Tax as listed in Directive 2011/96/EU or taxed at a minimum rate of 12.6%; and
• The applicable Double Tax Treaty provides for an administrative cooperation mechanism regarding taxation similar to the E.U. system.

Inbound dividends paid to a Portuguese parent company are exempt if the foreign subsidiary’s profits are liable and not exempt from a type of Corporate Income Tax listed in Directive 2011/96/EU or taxed at a minimum rate of 12.6%.

Participation exemption benefits are not available to companies that have not complied with Beneficial Ownership registration rules. Other restrictions apply.

More information on the participation exemption regime.

 

Reimbursement of tax withheld on outbound dividends

Distribution of dividends taking place before the corresponding shareholding is held for one full year do not qualify for an exemption. As such, dividends will be liable to a tax withholding. Absent of an applicable Tax Treaty or in the event the Parent-Subsidiary Directive regime does not apply, the tax withholding rate is 25%.

In this situation, there is the possibility of requesting the total or partial reimbursement of tax withheld. A petition for restitution must be filed with the Portuguese Tax Authorities within two years as of the tax withholding fiscal year. The petitioner must also provide full evidence of a qualifying shareholding.

 

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