Jurisdiction with a tax treaty with Portugal, but dividends exempt from taxation

[carlosbl]

Hi to all,

Is there any jurisdiction which has a tax treaty with Portugal, but the dividends are exempt?

In other words, I am looking for a jurisdiction to incorporate a company whose shareholders are tax residents in Portugal, and when it comes to distributing dividends, Portugal does not claim any type of tax for dividend distribution.

I have thought about the Isle of Man. I do not know if with this jurisdiction this will be possible and if there are some other alternatives.

Thanks in advance.

 

[Martin Everson]

No

No

 

[carlosbl]

And without tax treaty, for example Bahamas?‌

 

[lokifree]

Malta for instance, but only if you are a NHR in Portugal. If you have‌ a Maltese company and distribute dividend to a Portuguese NHR, there is not WHT tax‍ in Malta and in Portugal you don't pay taxes either (because under the double tax⁠ treaty Malta has a right to tax but does not do it in practice). I⁤ am not sure if this is a kind of situation that you referred to in⁣ your question. Cheers!

 

[carlosbl]

Yes, it is for a NHR in⁢ Portugal.

So Malta could be a solution, any other zero-tax jurisdiction?

 

[lokifree]

I guess Cyprus as well, but then‍ you may face CFC problems in Portugal due to a low tax rate in Cyprus.⁠ With Malta (35% nominal tax on corporate income) and their tax refund machanism you can⁤ still avoid CFC issues as far as I know.

 

[CyprusLaw]

I note that Cyprus is not antax haven, the⁤ corp tax is low - 12.5% - but it’s not considered a tax haven and⁣ it abides to all EU directives and regulations.

 

[lokifree]

it doesn't matter really. Cyprus has a lower⁠ CIT rate than Portugal (21%) and it suffices to apply CFC rules on the difference.⁤ However, it largerly depends what is the source of income of such company. If it⁣ is capital gains or dividends, both Cyprus and Portugal apply tax exemption (under conditions) so⁢ CFC is not a problem.

 

[CyprusLaw]

Noted, I am not aware of the Portugal tax system so I⁣ can only express a view for the Cyprus level. Dividends from Cyprus Co are SDC/tax⁢ exempt in this case (just 2.65% for GHS) so then it will depend on the︀ Portugal tax system as the shareholder will essentially have to declare the dividend income in︁ Portugal

 

[carlosbl]

Hi,

I am thinking about a solution with a structure of several companies.

The first‌ of all companies must be an UK LTD and the last one must be a‍ company whose shareholder is a Portuguese NHR.

From a tax optimization point of view, which⁠ jurisdictions would be the best for companies A and B?

The objective is to achieve⁤ that the Portuguese NHR pays 0 taxes in Portugal when it presents the income tax⁣ return including the money from the dividends.

Thanks in advance.

 

[Martin Everson]

UK and UK and be done.

According to Belion Partners:

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Applicability of Double Taxation‌ Agreements​

One interesting feature of this regime is that many double taxation treaties (of which‍ Portugal signed 79) grant the source country the possibility of taxing income paid to residents⁠ of the other country, although in practice many countries abstain from using this possibility so⁤ as to attract foreign investment. This means that in practice many types of income will⁣ often be zero-taxed in the hands of the “non-habitual resident”, since Portugal will not tax⁢ them merely on account that they may be taxed in the other country.

Taking the︀ UK/Portugal treaty and 2 types of income as an example, if you are a resident︁ of Portugal but receive income from the UK, then, in respect of such income, the︂ UK has the power to:

• Tax dividends under article 10, although it does not if︃ the recipient is not a UK resident
  
• Tax royalties under article 12, although it does︄ not if the recipient is not a UK resident
  

I.e. if you receive dividends or︅ royalties from a UK company, such income may be subject to tax in the UK︆ under the UK/Portugal agreement. As a consequence, although in practice it will not be taxed︇ in the UK, it will not be taxed in Portugal either if you benefit from︈ "non-habitual resident" status.
-------

 

[lokifree]

Can you explain what sort⁠ of income will accrue in the UK company? It matters for the determination whether Portuguese⁤ CFC rules apply.

BRIEFLY ABOUT CFCR RULES IN PORTUGAL:

Controlled Foreign Company Rules (CFC Rules)⁣

To be subject to the Portuguese CFC rules, the following criteria apply:

• The territory is⁢ included in the Portuguese tax haven list, OR
  
• The corporate tax rate, relevant to the︀ subsidiary, is less than 50% of the tax rate due under Portuguese corporate tax rules︁ (less than 10.5%, as the Portuguese corporate tax rate is 21%).
  

CFC rules do not︂ apply if the “passive” income does not exceed 25% of the total income of the︃ entity – i.e. royalties, dividends, income from financial leasing, sale of shares, operations exclusive of︄ the banking system, interest, and defined commercial income obtained from related parties, that add little︅ or no economic value.

The minimum participation threshold has been reduced from 25% to 10%︆ of the share capital or voting rights, for taxpayers resident in Portugal. This applies when︇ at least 50% of the shares and rights are held, directly or indirectly by taxpayers︈ (corporate or individuals), resident in Portugal. Share capital and rights, held by related parties to︉ the CFC, are also taken into account.

If certain conditions are met, it may be︊ possible to deduct tax losses.

Depending on the specific circumstances, a number of additional rules︋ may apply, relating to the taxation of CFCs.

(Portuguese Tax Law - New Provisions︌ To Meet The EU Anti-Tax Avoidance Directive (ATAD) - Dixcart)

 

[brescape]

So if the UK tax company pay directly to NHR in Portugal, the dividend will‌ not be taxed (not by UK, nor by Portugal)

UK, with 19% (soon 24%) CIT‍ would not ce subject to the Portuguese CFC rules, from what you write above.

Would it mean that a UK limited controlled from Portugal that pays Dividend to a individual⁠ tax resident in Portugal (but NHR) doesn't create a PE in Portugal, and therefore only⁤ subject to CIT and no individual tax?

 

[carlosbl]

My idea would⁢ be a UK limited controlled from Spain, that pays dividends to other company (holding company)︀ in the UK or other jurisdiction, and this company pays dividend to a Portuguese NHR.︁

For the holding company I have thought about UK, Georgia or Malta.

 

[brescape]

Issue I see, is that the UK company (regardless of the ownership) could be considered‌ as PE in Portugal. So in this respect that CFC rules above (that I do‍ not entirely understand) are quite important

 

[pesto]

Wonder if this works well with a Georgia or Malta company, will be‌ following this thread.

 

[Barney2201]

Just to bump this topic again...

Could a NHR resident of Portugal own a UK‌ company but receive most of the UK co’s profits as salary / bonus mix using‍ NT tax code as not UK resident rather than waiting for profits to be taxed⁠ under UK Corp tax?

Assuming NHR resident spends few days per year working in UK⁤ and pays tax on the days they spend in UK via self assessment rest of⁣ salary / bonus is not subject to UK or Portuguese tax

 

[ilpablo]

The problem with Portugal is that on the paper seems very attractive but there is‌ a lot of fog around their rules.

I spoke with some lawyers / tax consultants.‍ I believe that the only safe way to get free money as NHR, is through⁠ stocks dividends or owning a foreign company while having a local director / structure. Something⁤ that you certainly can do in Malta, but it cost less to do in Romania⁣ or Bulgaria.