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Portugal: Changes to debt securities tax regime to impact positively on the bond market


Tiago Cassiano Neves

In a moment where the key policy objective of Portugal is moving towards a successful exit of the adjustment programme, changes to tax rules may also play a role in providing positive signs for foreign investors. Despite the much-awaited corporate tax reform is still to be approved (at the time of writing), a separate piece of legislation dealing with taxation of public and private debt securities was in the meantime published and merits a closer look. Portugal has historically favoured source-based taxation on passive income coupled with stringent documentation requirements to claim tax treaty rates or exemptions. Taxation of cross-border interest income is a good example whereby Portugal applies a 25%/28% domestic withholding tax rate (35% for payments to blacklisted jurisdictions) with non-residents having only the possibility to access either reduced rates under the tax treaties (between 10% and 15%) or selected number of exemptions to reduce impact of withholding tax.

Besides the limited in-scope exemption provided by the Interest & Royalty Directive, investors have relied both in the special tax regime for public and private debt securities and/or securitisation tax regime to access withholding tax exemption on cross-border interest payments.

Under the special tax regime for debt securities (Decree-Law 193/2005 as amended) not only Portuguese sourced interest but also capital gains derived by qualified non-resident beneficial owners from the disposal of public or private debt securities issued by Portuguese resident entities are exempt from Portuguese personal and corporate income tax, provided such debt securities are integrated in a centralized system recognised under the Portuguese Securities Code and complementary legislation.

To access the exemption is necessary: (i) the beneficial owners have no residence, head office, effective management or permanent establishment in the Portuguese territory to which the income is attributable; (ii) beneficial owners are not held, directly or indirectly, in more than 20% by Portuguese resident entities; and (iii) the beneficial owners are not domiciled in a blacklisted jurisdiction, exception made to central banks or governmental agencies of such territories.

Law 83/2013 of December 9 enacted important measures designed to enhance the special tax regime for debt securities. These changes include:

  • Extension of the scope also to cover securities of monetary nature such as treasury bills and commercial paper, and convertible bonds and other convertible securities, integrated in a centralised system or EU/EEA international clearing system. Upon request of the issuer, the Minister of Finance may authorise the application of the special regime to other debt securities.

  • Extension of the beneficiaries of the regime that will include: (i) central banks and government agencies; (ii) recognised international organisations; (iii) entities resident in a jurisdiction with either a tax treaty or an tax exchange of information agreement in place with Portugal; (iv) any other non-residents that are not resident in a blacklisted jurisdiction. Portugal has signed 83 agreements (67 tax treaties and 16 TIEA agreements) providing for the exchange of information although some are still pending approval. The law provides for a grandfathering rule stating that a taxed entity that becomes eligible (as result of broadening the scope) will benefit from the exemption on income (interest or capital gains) only as from the date of the maturity of the last coupon after the entry into force of the law.

  • Streamline the rules and procedures as regards the proof of non-residence by beneficial owners.

  • Provide procedures for withholding tax mechanism for securities issued by Portuguese entities integrated and registered exclusively with international central securities depositories (ICSDs).

The new changes are bound to stimulate further the debt instruments market in Portugal and facilitate the raising of financing from non-resident investors.

Tiago Cassiano Neves (


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