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The 2011 State Budget has been passed through Law no. 55-A/2010 of 31 December, and entered into force on 1 January 2011. Additional legislation aimed at budgetary consolidation and government deficit reduction has also been passed, resulting in changes to the Portuguese tax system.
Here you can find some information on these new developments.
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2011 STATE BUDGET
With the passing of the 2011 State Budget through Law 55-A/2010 of 31 December, in force since 1 January 2011, and other legislation aimed at budgetary consolidation and government deficit reduction, a number of changes have been made to the Portuguese tax system, some of which are relevant to the International Business Center of Madeira (IBC).
Following is a description of some of the more important changes.
Personal income tax (IRS):
• Only non-resident individuals legally residing in a country, territory or region with which Portugal has an agreement aimed at avoiding international double taxation, or an agreement for the exchange of tax-related information, may now enjoy personal income tax exemption for capital gains from the sale of shares and other securities.
Social Security:
• The new contribution rate of 5% for entities contracting services from self-employed workers is only due when 80% or more of the services in question are provided to the same entity, not including those covered by another country’s social security system;
• Employers must provide mandatory electronic notification to Social Security of the hiring of new employees within 24 hours of the employment agreement’s start date;
• Now applicable to bonuses which, due to their amount and regular and permanent nature, should be considered as part of compensation; also applicable to all direct or indirect payments, in cash or in kind, given to employees on a regular basis as compensation for work done;
VAT (IVA):
• The standard VAT rate has been raised from 15% to 16% in the Autonomous Region of Madeira;
• Decree Law 134/2010 of 27 December, by transposing three EU Directives into the Portuguese legal system, changed the VAT Code and VAT System for Intra-Community Transactions (RITI), entering into force on 1 January 2011:
- Exemption from VAT, when goods are imported and immediately shipped or transported to a purchaser from another Member State, will depend on notification of the taxpayer ID number of the importer or the importer’s tax representative, the taxpayer ID number of the individual or company receiving the goods, issued in another European Union country, and proof that the imported goods will be sent to another European Union country;
- The provision of cultural, artistic, sporting, scientific, educational, recreational and similar services to individuals in Portugal remains subject to Portuguese VAT; when provided to a company, they are subject to VAT only when the company’s registered office is in Portugal;
- Services to access cultural, artistic, sporting, scientific, educational, recreational and similar events, whether involving a VAT taxpayer or not, remain subject to VAT only when the events are held in Portugal;
Corporate income tax (IRC):
• Only non-resident entities legally residing in a country, territory or region with which Portugal has an agreement aimed at avoiding international double taxation, or an agreement for the exchange of tax-related information, may now enjoy corporate income tax exemption for capital gains from the sale of shares and other securities.
• Profits distributed by entities residing in Portugal to entities residing in the EU or EEA are no longer exempt from withholding tax when the equity holding is less than 10%, even if the acquisition cost is 20 million euros or more; Note that the International Business Center of Madeira (IBC) provides for exemption from withholding tax for profit distribution;
• The elimination of double economic taxation on profits from subsidiaries residing in the EU or EEA no longer exists when the equity holding is less than 10%, even if the acquisition cost is 20 million euros or more; moreover, the partial deduction (50%) of profits received is no longer possible if the respective requirements are not met; The minimum 10% holding requirement now also applies to holding companies (SGPS);
• Holding companies (SGPS) may only deduct profits received when the distributed profits’ underlying income is actually taxed;
• Capital and other losses involving shares are no longer deductable when involving distributed profits eligible for elimination of double economic taxation in the last four years;
• The reinvestment of capital gains involving shares now depends on whether the shareholdings sold account for at least 10% of the subsidiary’s share capital, with the acquisition cost no longer relevant (formerly at least 20 million euros);
• The deduction of tax losses over two consecutive tax periods will result in the mandatory legal certification of accounts by a statutory auditor (ROC) in the third year;
• The tax loss/capital loss reporting period has been reduced from six to four years for entities whose main activities do not involve commerce, industry or agriculture;
• The withholding rate for remuneration received by corporate board members, together with capital gains for non-residents, has been increased from 20% to 21.5%;
• A definitive withholding rate of 30% is planned for capital gains or income made available in open accounts in the name of one or more owners on behalf of unidentified third parties, unless the actual beneficiary is identified;
• Autonomous taxation has increased 10 percentage points for taxpayers with a tax loss in the year of the expenses in question, with regard to all expenses subject to autonomous taxation;
• For profits distributed by resident entities to entities residing in the EU or EEA, the portion of the tax withheld and paid that exceeds the result of the application of general corporate income taxes and local state tax will be refunded, bearing in mind all of the income received by these entities, including income obtained in Portugal, when requested within two years;
• Invoices, equivalent documents and other tax-related documents may be filed in electronic format, provided that they are processed via computer;
MUNICIPAL PROPERTY TAX (IMI):
• The municipal property tax has been increased to 5%, applicable to properties owned by entities residing in tax havens;
MADEIRA MINIMUM WAGE
• The minimum wage in the Autonomous Region of Madeira has been set at €494.70, representing an increase of 2% compared to the minimum wage in mainland Portugal, in line with the region’s ongoing policy since 1987;
BILLING SOFTWARE CERTIFICATION
• Beginning in January 2011, personal and corporate income taxpayers must use invoicing software certified by the Portuguese Tax Agency (DGCI) for issuing invoices or equivalent documents and sales receipts; For our customers, whose invoicing is done via New Madeira, this obligation will be met at no additional cost;
New Madeira, an independent corporate service provider with vast experience in attracting inward foreign investment to Madeira, has provided all professional services related to the evaluation, implementation and management of business-related structures in the International Business Center of Madeira since 1990.
Please visit our new website at www.newmadeira.com.
If you have any questions about the International Business Center of Madeira or wish to discuss any ideas, please do not hesitate to contact us.
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