In our previous article, we explained the taxation of property capital gains realised in Portugal by individuals who are not resident there. Under Article 56 of the Corporate Income Tax Code (CIRC), that regime was also intended to apply to civil and commercial companies without a permanent establishment in Portugal. Paragraph 1 of that article provides that “income not attributable to a permanent establishment situated in Portuguese territory, received by non-resident companies and other entities, is determined under the rules established for the corresponding personal income tax categories”. In other words, the calculation of capital gains for non-resident legal entities without a permanent establishment in Portugal should follow the rules applicable to individuals, including taxation limited to 50% of the gain under Article 43(2)(b) of the Personal Income Tax Code (CIRS). This interpretation was not universally accepted, however, and some tax offices refused to apply that limitation of the taxable base to legal entities.
Supremo Tribunal Administrativo judgment no. 8/2024 of 24 January 2024 harmonises the case law by requiring capital gains from the sale of Portuguese property by a non-resident company without a permanent establishment in Portugal to be taxed in full, without the 50% reduction provided for in Article 43 of the CIRS. The decision was made in particular to maintain equality between resident and non-resident companies and avoid unjustified discrimination. It does not, however, fully resolve the possible application of Article 43(2)(b) to legal entities. The judgment concerns a non-resident limited liability company. The application of Article 43 of the CIRS to non-resident tax-transparent companies without a permanent establishment therefore remains open. Such companies are not taxed directly: their partners are taxed in the relevant category on their respective share of profits. Accordingly, an individual partner in a non-resident transparent company should be able to seek the limitation of the taxable base for property capital gains. The position that the tax authorities and the Supremo Tribunal Administrativo would take in that situation remains to be seen. Whatever the answer, a non-resident company without an establishment in Portugal must comply with its property capital gains reporting obligations. The professional accountants’ technical opinion PT27080, dated July 2022, recalls the tax obligations of a company established in Europe that intends to sell a property in Portugal.
Income received by these entities is normally subject to corporate income tax at 25%, either through withholding under Article 94(4) of the CIRC or through self-assessment under Article 87(4). For gains arising from transfers of property for consideration, the entity must file a declaration commencing activity and a model 22 income tax return no later than 30 days after the transfer, in order to self-assess corporate income tax, as required by Article 120(5)(b) of the CIRC. It must also file annex E to the IES by 15 July of the year following the period in which the capital gain arose, to establish that income. In this situation, the taxpayer must therefore submit model 22 and annex E to the IES. Capital losses must also be reported in annex E, although model 22 is not required where there is no taxable income. Because these obligations are not widely known, they should be systematically brought to the attention of non-resident entities without a permanent establishment in Portugal that acquire property.
Dr. Pedro Emanuel de OLIVEIRA
Lawyer