Depending on the particular circumstances of the investor intending to establish a business presence in Portugal, such investor may choose to either set up a domestic Portuguese company or to establish a branch of a non Portuguese entity. In this article we highlight some advantages of the latter, especially in terms of taxation.
Sociedade por quotas (Lda)
By far the most common type of business entity, the sociedade por quotas or Lda is a private limited liability company having the share capital divided into “quotas” of at least 1 euro each. There is no minimum capital requirement, but it must have a minimum of 2 quota holders. The transfer of quotas is subject to registration with the Commercial Registry and, if to a third party, to prior consent by the company. An Lda may at any time elect to “upgrade” to an SA, a more compliance-demanding format, corresponding roughly to an UK Plc. Should an Lda have a sole quota holder for more than one year, it must “downgrade” to a Unipessoal Lda.
The branch of a non resident business entity is a permanent establishment that carries on a business activity in Portugal, its registration being mandatory should any such activity be carried on (or intended to be carried on) for more than one year. It is a local extension of the represented business entity, without separate legal personality, the management of the branch being performed under delegation of powers by the owning entity. It is in practice treated as a domestic Lda company as regards taxation and compliance; but, unlike other jurisdictions, there is no requirement to file the “parent’s” accounts in Portugal; and, unlike a domestic company, the distribution of profits by the branch to the “parent” is not subject to any Portuguese taxes.
More details may be found on the Belion Partners’ website under “Company Services” and “Portuguese Company Law”.
As mentioned, the tax treatment of the branch of a foregn entity is essentially the same as that of a domestic company.
However, whereas withholding tax generally applies at 25% to the distribution of dividends by Portugal-resident entities to non-resident entities, unless reduced or eliminated under a double taxation treaty or an EU Directive, no tax applies to the remittance of a Portuguese branch’s profits to its parent.
Also, unless eliminated under a double taxation treaty, the capital gains made on the disposal of a Portuguese company by a foreign owner will be taxed at 28%. But if the Portuguese branch is owned by a special purpose corporate vehicle (SPV) used for the sole purpose of having the said branch, then it may be possible to structure the sale of the SPV in lieu of the branch in a tax free fashion.
Even if a Portuguese subsidiary owner is entitled to benefit from a double taxation treaty or an EU Directive, enjoying such benefit is in practice complicated by the Portuguese taxman’s requirement that a certificate by the tax authorities of the country of origin of the owner be submitted, confirming the foreign owner’s entitlement to the benefits. In practice, such certificates are often difficult to obtain.
In general, in order to do business in Portugal it will be more efficient from a bureaucratic and a taxation point of view to use a branch of a foreign entity instead of a domestic company. However, individual circumstances must be taken in account and specific advice should be sought by a foreign investor considering establishing a business presence in Portugal. This can be done by contacting Belion Partners.