2019 State Budget – What remains to be done about capital gains taxation

26 de Abril de 2019

The tax treatment of capital gains obtained by non-­residents upon transfer of shares in resident companies is worse than that applicable to capital gains obtained by residents.

The Corporate Income Tax (“CIT”) regime on capital gains obtained by non-residents upon transfer of shares ­deriving their value, directly or indirectly, mainly from real estate located in Portugal (to which this paper exclusively refers) has been amended again by the 2019 State Budget (“2019 SB”) Law.


This, following the amendment already introduced to the regime, approximately one year ago, by the 2018 State Budget (“2018 SB”) Law. Further to this amendment made by 2018 SB Law, capital gains obtained by non-resident entities upon transfer of shares, or equated rights, in other non-resident companies deriving their value, directly or indirectly, in more than 50% from real estate located in Portugal, became subject to Portuguese CIT.
Under the new rule, the capital gains at stake are however not subject to taxation if the real estate from which the shares derive their value is allocated to an agriculture, industrial or commercial ­activity, other than the purchase and sale of real estate.


In this sense, the new regime is similar to that already applicable to capital gains obtained by resident entities. Indeed, according to the commonly known participation exemption regime applicable to them, as long as all other requirements are met (e.g., those related to the shareholding, which cannot be inferior to 10% nor held for less than 1 year), capital gains obtained by residents are not taxed even if the assets of the company being transferred are mainly comprised of real estate, as long as it is allocated to any of the referred activities.


Notwithstanding, since the amendment to the CIT Code was not followed by an amendment of the Tax Benefits Law (“EBF”) – which, as rule, provides for an exemption to the capital gain obtained by non-residents upon transfer of shares -, in practice and for most of the cases the 2018 SB Law did not eventually meet the envisaged goal.
One may therefore understand the need to have the 2019 SB Law returning to this topic by changing article 27 of the EBF, hence excluding from the CIT exemption those capital gains that the 2018 SB Law envisaged to tax, despite the poor legislative technique used to draft the new provision.

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