Portugal’s updated Tax Havens blacklist – PLMJ

Order in Council no. 292/2011, published on 8 November, updated the list of countries, territories and regions with clearly more favourable privileged tax regimes ( known as ‘tax havens’) appearing in the earlier Order in Council no. 150/2004 of 13 February. It also excluded from the list two countries that are members of the European Union (EU): Cyprus and Luxembourg.

In relation to Luxembourg, it should be noted that, up to now, only holding companies set up under the Law of 31 July 1929 and by the Grand Ducal Decree of 17 December 1938, were considered included on the tax haven blacklist. These companies known as “Holding 1929” companies were exempt from income tax under the above legislation. 

As the regime in question had been abolished in Luxembourg following the European Commission Decision no. 2006/940/EC, which held that the regime amounted to a state aid incompatible with the common market, it no longer made sense for the country to be included on the list of tax havens for the purposes of Portuguese tax legislation and the result is this change to the law. 

The removal of Cyprus from the list of tax havens arises from recognition that, as an EU Member State, it is also subject to the EU system for exchange of information between tax authorities laid down in Directive 77/799/EEC and later repealed and substituted by Directive 2011/16/EU (on administrative cooperation in the area of taxes and not yet been transposed into Portuguese law), and in Directive 2008/55/EC (on assistance in collecting taxes).

The removal of Cyprus and Luxembourg from the list of tax havens means that the special anti-abuse measures laid down in Portuguese law no longer apply to these two countries. These measures include the following requirements and restrictions:

(i) A requirement to maintain a residence for tax purposes in Portugal imposed on persons with Portuguese nationality who move their residence for tax purposes to a country, territory or region appearing on the said list, either in the year in which the change of residence is confirmed or in the four subsequent years. There is an exception to this rule when the person in question can prove that the move is for justifiable reasons such as the carrying on of temporary activity in that territory for an employer domiciled in Portugal.

(ii) A ban on applying the exemption method in the elimination of international double taxation on category B (business and professional) income earned from the provision of high added value services of a scientific, artistic or technical character, from intellectual or industrial property, or from the provision of information relating to experience acquired in the industrial, commercial or scientific sectors, as well as income from categories E (income from capital), F (income from buildings) and G (increases in wealth) earned by non-habitual residents, in cases in which there is no convention to eliminate double taxation.  

(iii) A ban on using the IRS (personal income tax) allowance of 30% of the interest and charges of repayment of debts contracted for the acquisition, construction or improvement of buildings for the taxpayer’s own and permanent dwelling or for rental which is duly proved to be for the permanent dwelling of the tenant, up to the limit of EUR 591. This allowance applies to property situated in Portugal or in another Member State of the European Union or in the European Economic Area as long as, in the latter case, there is exchange of information, when the said charges are due to an entity resident in a country, territory or region that appears on the list of tax havens that does not have a permanent establishment in Portugal to which such income is imputable.

(iv) A ban on using the IRS (personal income tax) allowance of 30 percent of the rent paid the tenant of an urban building for the purposes of their permanent dwelling, up to a limit of €591, in relation to property situated in Portugal or in another Member State of the European Union or in the European Economic Area as long as, in the latter case, there is exchange of information, when the said charges are due to an entity resident in a country, territory or region that appears on the list of tax havens that does not have a permanent establishment in Portugal to which such income is imputable, except when the annual value of the rent is equal to or greater than the amount corresponding to 1/15 of the value for taxation purpose of the of the rented property.

(v) The non-application of the reinvestment system for IRC (corporate income tax) for the values involved, in cases in which the transfers and acquisitions for value of holdings in companies are made with entities resident in a country, territory or region appearing on the list of tax havens; 

(vi) The non-application of the IRS and IRC exemption system that benefits capital gains made from the transfer for value of corporate holdings, other securities, autonomous warrants issued by entities resident in Portugal and traded on regulated stock markets and derivative financial instruments made in regulated stock markets, by entities or individuals that are not domiciled in Portugal and do not have a permanent establishment there to which the said income is imputable. 

(vii) The presumption, in the area of transfer pricing, that there are special relations between an entity resident in Portugal or non-resident with a permanent establishment here and entities resident in one of the territories appearing on the said list of tax havens.  

(viii) The non-deductibility, for the purpose of determining taxable profit for IRC, of amounts paid or due to individuals or companies resident in one of the territories appearing on the tax haven blacklist, except when it is proved that such charges correspond to operations that have, in fact, taken place and are not of an unusual nature or for an excessive amount. These expenses are subject to rates of aggravated autonomous taxation.

(ix) The imputation of profits earned by companies resident in one of the territories included on the said list to their shareholders resident in Portugal, in proportion to their respective holding in the company and regardless of the actual distribution of those profits, as long as the legal requirements for the purpose are met.

(x) A ban, in respect of the rules on thin capitalisation in IRC (corporate income tax), on demonstrating that the same level of indebtedness would have arisen in analogous conditions in an independent entity, when what is at issue is excessive indebtedness as against entities resident in countries, regions or territories appearing on the list of tax havens.

(xi) Real estate held by entities resident in countries, regions or territories appearing on the list of tax havens are subject to increased rates of municipal property tax (Imposto Municipal sobre Imóveis – IMI) (currently 5 percent and 7.5 percent in the 2012 State Budget Bill) and municipal property transfer tax (Imposto Municipal sobre as Transmissões Onerosas de Imóveis – IMT) (currently 8%, and 10% in the 2012 State Budget Bill). 

The list of tax havens currently includes the following countries, regions or territories:

 

1. Andorra

42. The Northern Mariana Islands

2. Anguilla

43. The Marshall Islands

3. Antigua and Barbuda

44. Mauritius

4. Netherlands  Antilles

45. Monaco

5. Aruba

46. Montserrat

6. Ascension

47. Nauru

7. Bahamas

48. Christmas Island

8. Bahrain

49. Niue Island

9. Barbados

50. Norfolk Island

10. Belize

51. Sultanate of Oman

11. The Bermudas

52. Pacific islands not mentioned specifically

12. Bolivia

53. Republic of Palau

13. Brunei

54. Panama

14.Channel Islands (Alderney, Guernsey, Jersey, Great Stark, Herm, Little Sark, Brechou, Jethou and Lihou)

55. The Pitcairn Islands

15. Cayman Islands

56. French Polynesia

16. Territory of the Cocos (Keeling) Islands

57. Porto Rico

17. Cook    Islands

58. Qatar

18. Costa Rica

59. Solomon Islands

19. Djibouti

60. American Samoa

20. Dominica

61. Independent State of Samoa

21. United Arab Emirates

62. Saint Helena

22. Falkland Islands

63. Saint Lucia

23. Republic of Fiji

64. Saint Kitts and Nevis

24. Gambia

65. San Marino

25. Grenada

66. Saint Pierre and Miquelon

26. Gibraltar

67. Saint Vincent and the Grenadines

27. Guam

68. Seychelles

28. Guiana

69. Swaziland

29. Honduras

70. Svalbard (Spitsbergen archipelago and Bear Island)

30. Hong Kong

71. Tokelau

31. Jamaica

72. Tonga

32. Jordan

73. Trinidad and Tobago

33. Qeshm Islands

74. Tristan da Cunha

34. Kiribati Island

75. Turks and Caicos Islands

35. Kuwait

76. Tuvalu

36. Labuan

77. Uruguay

37. Lebanon

78. Republic of Vanuatu

38. Liberia

79. British Virgin Islands

39. Liechtenstein

80. American Virgin    Islands

40. The Maldives

81. Republic of Yemen

41. Isle of Man

Rogério M. Fernandes Ferreira is the Head of Tax at PLMJ. He can be reached via rogerio.fernandesferreira@plmj.pt

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1. Andorra

2. Anguilla

3. Antigua and Barbuda

4. Netherlands    Antilles

5. Aruba

6. Ascension

7. Bahamas

8. Bahrain

9. Barbados

10. Belize

11. The Bermudas

12. Bolivia

13. Brunei

14.   Channel Islands (Alderney, Guernsey, Jersey, Great Stark, Herm, Little Sark, Brechou, Jethou and Lihou)

15. Cayman    Islands

16. Territory of the Cocos (Keeling) Islands

17. Cook    Islands

18. Costa Rica

19. Djibouti

20. Dominica

21. United Arab Emirates

22. Falkland Islands

23. Republic of Fiji

24. Gambia

25. Grenada

26. Gibraltar

27. Guam

28. Guiana

29. Honduras

30. Hong Kong

31. Jamaica

32. Jordan

33. Qeshm Islands

34. Kiribati Island

35. Kuwait

36. Labuan

37. Lebanon

38. Liberia

39. Liechtenstein

40. The Maldives

41. Isle of Man

Portugal’s updated Tax Havens blacklist – PLMJ

Garcia-Sicilia

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