Portugal has not ratified the Hague Convention regarding the
recognition of foreign trusts, and it is not expected to do so
either in the near future.
Portuguese law, as a rule, does not provide for the
settlement of trusts, with the exception of offshore trusts
in the Madeira Free Trade Zone. As a civil law
country, certain legal instruments rooted in common law,
including trusts, are not regulated by the Portuguese legal
In light of the above, foreign trusts are subject to the
general Portuguese Civil Code regulations on private
international matters. Under these rules, a trust must be
interpreted as a bilateral agreement from which mutual
obligations arise for the parties involved (the settlor and the
Foreign trusts exist as arrangements, although are generally
unknown and lacking civil legislation to specifically and
comprehensively deal with them. Analysis of the applicable
legal framework must take into account the main features of the
trust, including the parties’ obligations and the
effects over the trust assets.
It was only in 2015 that most regulations on the tax
treatment of income generated through fiduciary structures were
introduced in the Portuguese legal and tax framework under the
Personal Income Tax Reform (Law No. 82-E/2014, of December
Tax treatment on liquidation
One of those regulations applies to values allocated on
liquidation, revocation, and termination of fiduciary
structures to taxpayers (other than those that have
incorporated them, i.e. non-settlors).
It sets out that such values are not subject to Personal
Income Tax, but rather fall within the scope of Portuguese
Stamp Duty. Hence, values allocated upon liquidation,
revocation, and termination of fiduciary structures to
non-settlor Portuguese resident taxpayers are considered
gratuitous transfers subject to Stamp Duty in Portugal at a 10%
rate (increased to 10.8% for real estate assets located in
However, because of the territorial scope of Stamp Duty, the
tax only applies if the assets are deemed to be located in
Portugal, specifically to:
- Rights over movable assets or real estate in
- Shareholdings where the entity has its head office, place
of effective management, or permanent establishment (PE) in
Portugal (provided the purchaser also has its domicile in
- Monetary values deposited at credit institutions with
their head office, place of effective management, or PE in
Portugal, or, in case of non-deposited monetary values, the
transferor has is domicile, head office, place of effective
management or PE in Portugal.
Stamp duty territorial scope
Accordingly, distribution of assets resulting from the
liquidation of a fiduciary structure to its beneficiaries will
only trigger Portuguese Stamp Duty if the assets are deemed to
be located in Portugal, pursuant to the aforementioned
Otherwise, there will be no territoriality for Stamp Duty
purposes on a direct allocation of the assets to a Portuguese
tax resident beneficiary.
The territorial scope of Stamp Duty described above comes
from the general rules of the Stamp Duty Code (no specific
territorial rule was introduced regarding the termination of
In other words, when we say that there will be no
territoriality for Stamp Duty purposes (if the assets
are not deemed to be located in Portugal), we believe that this
is the correct interpretation of the applicable rules.
According to the recent binding rulings issued by the
Portuguese tax authorities addressing cases of distribution of
assets on the liquidation of fiduciary structures, the
Portuguese tax authorities fortunately take the same view (i.e.
no Stamp Duty is due on the distribution of non-Portuguese
located assets to a Portuguese tax resident beneficiary (that
is not a settlor) as a result of the liquidation.
In fact, Portuguese tax authorities clearly state that
assets distributed in the context of liquidating fiduciary
structures to a Portuguese tax resident beneficiary are only
subject to Stamp Duty in Portugal provided the objective,
subjective and territorial scope of Portuguese Stamp Duty is
Structuring a liquidation
Notwithstanding the current binding rulings of the
Portuguese tax authorities, one must proceed with caution.
Liquidating a fiduciary structure with a Portuguese tax
resident beneficiary must be properly structured to mitigate
the possibility of being scrutinised by the Portuguese tax
authorities and ultimately triggering Stamp Duty.
In particular, two issues must be considered when
- The documentation supporting the liquidation of a
fiduciary structure must undoubtedly prove that the asset
allocation aims at terminating the fiduciary structure;
- The fiduciary structure must be totally terminated
(partial liquidation or termination is not advisable).
Overall, liquidating fiduciary structures with assets
allocated to a non-settlor may be an interesting planning
route, especially for individuals considering a change of tax
residence to Portugal to take advantage of the tax incentives
of our Non-Habitual Tax Resident Regime, as well as for those
already in Portugal wishing to restructure their wealth at the
lowest tax rate possible.
||Marta Duarte Silva
This article was written by Diogo Ortigão
Ramos and Marta Duarte Silva of Cuatrecasas
Tel: +351 355 38 00