On the 13th of January 2015 Decree-Law No. 7/2015 was published, altering the tax regime for the Collective Investment Vehicles (CIVs), a concept including both securities investments and real estate funds, and securities investment and real estate investments companies. Portugal with its good banking and financial laws, regulations and practice, highly skilled and competitive labour force, and other good legal and regulatory conditions is now a more attractive country for these investment vehicles also from a tax standpoint. This Decree-Law 7/2015 is to come into force on the 1st of July 2015. Therefore, it is still possible to consider establishing and/or re-domiciling CIVs in Portugal.
The previous CIVs taxation regime foreseen income taxation by means of withholding tax at source within the sphere of the CIV’s, in other words, income taxation “at entrance”, and not within the legal sphere of investors. With this new tax regime, such income will only be taxed “at exit”, in other words, it will be subject to Corporate Income Tax (CIT) in the scope of CIVs, similar to the applicable tax regime for companies in general.
Hence any investments income, securities investments, capital gains on securities, real estate, or rental income of the CIVs shall thus, be subject to corporate tax only for the net result after deduction of and costs and losses and any capital losses determined on an annual basis. General corporate income tax rate (21% for 2015) and autonomous corporate income taxation rates are applicable to the taxable income of CIVs. Given the taxation “at exit” of the CIVs, they are also exempt from withholding taxes for any of the above income received and or accrued.
Non-resident investors or holders of CIVs participation units or investment companies without a permanent establishment in Portuguese territory, still benefit from a full exemption in Portugal from taxation on any income and capital gains derived from units or shares in securities investment funds and securities investment companies. Income and capital gains derived from units or shares in real estate investment funds and real estate investment companies are taxed in Portugal at a special flat rate of 10 %.
Resident investors or holders will always be taxed, whether Portuguese individuals or corporate resident entities, but at present time, as above referred, “at exit”. In other words, they will be subject to Personal Income Tax and Corporate Income Tax, only when income or dividends are distributed and/or, upon the sale, exchange, redemption or otherwise disposal of participation units or shares on CIVs.
In a less positive aspect of this new tax regime, from now Stamp Tax is also levied at the net asset value of the CIVs on a quarterly basis, at a rate of 0.0025%, for CIV investing exclusively in money market instruments and deposits and at a rate of 0.0125% for all other CIVs.
In our view, with this new CIV’s tax regime, these real estate and securities investment funds, either settled as funds or as companies, will from now onwards be more competitive from a taxation standpoint when compared to similar existing CIVs taxation regimes in other EU and or OECD countries. Portugal may so become a suitable option for these collective investment vehicles.
Decree-Law No. 7/2015 produces its effects as from the 1st of July 2015, also establishing a transitional regime in order to avoid abusive transactions and to ensure capital markets stability. Time to think about Portugal as a competitive hub for CIVs.
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