Debt securities - rates, eligibility, availability of relief etc. - Portugal
Withholding Tax - Law 83/2013 clarified by Circular Letter 4/2014
Standard rate of withholding tax: | 35% | Holding requirements / restrictions: | No |
Note: For details regarding debt securities subject to DL 193/2005 refer to Debt Securities subject to DL 193/2005 - Portugal
Market specifics - main provisions
1. Amends the DL 193/2005 and is effective:
- As of the 2nd income payment in 2014 of each security issued before 1 January 2014; and
- As of the 1st interest payment after 1 January 2014 for securities issued as of 1 January 2014; and
- On zero-coupon bonds issued as of 1 January 2014.
2. Waiving of holding restriction on non-exempt beneficial owners imposed by Article 17 of DL 193/2005. Under Law 83/2013 all types of beneficial owners may hold Portuguese domestic debt securities with Clearstream Banking.
3. It covers all Portuguese debt securities, integrated in a centralised system managed by:
i) | An entity resident in Portugal, currently Interbolsa; or |
ii) | A managing body of an international clearing system established in another European Union (EU) or European Economic Area (EEA) Member State, provided that, in the latter case, it is bound to administrative cooperation in taxation equivalent to that prescribed in the EU, currently with Clearstream Banking S.A. and Euroclear Bank (Belgium). |
This special regime covers all debt securities, regardless of the currency in which they are issued, including those of a monetary nature (that is, whose term is less than or equal to one year), namely:
- Public bonds;
- Corporate bonds;
- Treasury bills;
- Commercial paper;
- Bonds convertible into shares and other convertible debt securities including securities of a monetary nature;
- Mortgage bonds;
- Other subordinated debt securities;
- Securitised bonds; and
- Eurobonds issued in centralised systems managed by international settlement systems: ICSDs.
4. The withholding/reimbursement tax on settlement transactions does not apply to LuxCSD being recognised as ICSDs by the Portuguese legislation (but remain applicable to CSD participants). If the securities are delivered from an ICSD to another entity that is not an ICSD, any withholding tax due must be reclaimed directly via the Portuguese Tax Authorities (the “PTA”) through the procedures for the reclaim for refund of Portuguese tax withheld on accrued interest at the date of the transfer of the securities described hereinafter.
5. The duties defined under this special tax regime must be performed by the direct registering entity resident in Portugal or a representative entity (except for those contained in Article 11 of the Special Regime, Article 119 and no 1 of Article 125 of the Personal Income Tax (PIT) Code that shall not apply to securities subject to the rules set forth in the Article 17 of DL 193/2005).
The representative entity is a resident entity in the Portuguese territory designated pursuant to no 2 of Article 125 of the PIT Code, by the Direct Registering Entity who is not considered resident in Portugal or has not a permanent establishment situated therein, or by the entity that manages the International Settlement System.
6. To be tax exempt at source, the disclosure is not required for the Non-Resident Exempt beneficial owners.
On each coupon payment date or redemption date, the ICSD must report to the Direct Registering Entity or to the Representative the following information:
i) | The identification of the securities; |
ii) | The quantity of securities; |
iii) | The amount of income; and |
iv) | The amount of tax withheld, where applicable (categories a) and b)). |
This information should be disclosed by the following categories of beneficial owners: | |
a) | Resident entities subject to withholding tax; |
b) | Non-Resident entities subject to withholding tax; |
c) | Resident entities exempt of withholding tax; |
d) | Non-Resident entities exempt of withholding tax (no need to provide final beneficial owner disclosure). |
Regarding the a), b) and c) categories of beneficial owners, the following information is also needed: | |
a) | Name and address; |
b) | Tax identification number, when available; |
c) | Identification and amount of securities held; |
d) | Amount of income. |
Availability of relief
The availability for tax relief varies according to the applicable Portuguese legislation, as follows:
2. Domestic Bonds subject to Law 83/2013 clarified by Circular Letter 4/2014
The type of tax relief (full/partial) varies according to the residence and status of the final beneficial owner, as follows:
Click on the image to view the diagram showing the availability of relief at source and/or quick reclaim of withholding tax on income from Portuguese domestic Bonds subject to Law 83/2013 clarified by Circular Letter 4/2014.
Debt securities subject to | Holding restriction | Withholding tax rate | Relief at source | Quick | Standard |
No | 35% | ||||
DTT/TIEA residents eligible for tax exemption | Yes | Yes | No | ||
Credit institutions, financial companies, pension funds, insurance companies domiciled in an OECD Member State or in a DTT country | Yes | Yes | No | ||
Collective Investment Vehicles (CIVs) domiciled in an OECD Member State or in a DTT country | Yes | Yes | No | ||
Central banks, public law agencies, public law entities or International/Supranational organisations recognised by the Republic of Portugal | Yes | Yes | No | ||
Portuguese residents eligible for tax exemption | Yes | Yes | No | ||
Portuguese residents not eligible for tax exemption but applying for reduced tax rate | Yes | Yes | No |
Relief at source of withholding tax is available only if the appropriate documentation is submitted to LuxCSD. A quick refund is available if a relief at source has not been obtained by the eligible beneficial owner. The standard refund process is still being analysed with Portuguese tax authorities. Further information will be provided at a later stage.