Portugal is a great place to start a business. The economy here has grown vastly and the GDP is consistently above the European average

1. Portugal’s Latest Amendments to the Income Tax Law – What you must know
Portugal is a great place to start a business. The economy here has grown vastly and the GDP is consistently above
the European average. The country is open to foreign investment and also provides subsidies to many. An
increasing number of skilled workers from other European countries are moving to Portugal to pursue better
opportunities. For those interested in starting a business or for those who already have a business in Portugal
here’s what you need to know about the latest amendments to the local income tax law.
The Portuguese government recently approved the Corporate Income Tax (CIT) reform. The key elements of the
reform offer simplification, increased competitiveness and decreased CIT. These new rules have come into force
from 1 January 2014.
A quick glance at the updates to the Corporate Income Tax law:
* Corporate Tax Rate:
* Lowering of the CIT rate to 23% (previously 25%) with further reduction to 21% in 2015 subject to some
conditions.
* 17% tax rate applied to the first €15,000 of taxable income earned by SMEs.
* State Surcharge:
* 7% State Surcharge (previously 5%) payable on taxable profits more than €35 million.
* Dividend and Capital Gains Participation Exemption Rules:
* Shareholding participation reduced to 5% minimum holding (previously 10%).
* Shareholding period increased to 24 months (previously 12 months).
* Companies distributing dividends may be subject to CIT or comparable tax.
* Extended the Period for Carry Forward of Losses:
* 12 tax years are allowed to carry forward losses for the purpose of taxation (previously 5 tax years). This shall
be applicable only to losses incurred in year 2014 and onwards.
* Allowable losses are limited to 70% (previously 75%).
* Transfer Pricing Rules:
* 20% participation threshold is applicable (previously 10%).
* Rules are extended to cover transactions between foreign Permanent Establishments (PE) and local head
office/other permanent establishments.
* Maintaining Accounting Records:
* It is now mandatory to maintain accounting records for a period of 12 years (previously 10 years).
Entities having operations in Portugal or those planning to set base in the country may find the above proposals
beneficial due to reduction in the effective CIT rate.
Why it makes sense have expert assistance
When operating a business overseas there is enough work to keep you busy without having to monitor and
interpret the local prevailing laws. Tax, HR, compliance – the list is endless. The risk of non-compliance because of
unforeseen changes or misunderstood regulations can pose great liability. Proper advice can help to avoid
violation of local laws, remove doubt, uncertainty and fear, and aid you in doing managing the maze of foreign
regulations. An experienced international consultant will assist you in establishing proper business and tax
structures, documenting overseas employees’ assignments, and monitoring required filing deadlines. To avoid
international business expansion failures, it is important to have the assistance of a professional, take the help of a
reliable service provider and also get assistance in other areas like expatriate tax rules, invoicing, transfer pricing,
etc.
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