As of January 1 2026, Hong Kong, Liechtenstein, and Uruguay will no longer be treated by Portugal as offshore jurisdictions. From an optimistic perspective, we may finally be approaching a new understanding – that has been so often requested by the professionals who deal with these issues on a daily basis – in order to remove from such list territories with which Portugal has in place double tax treaties (DTTs), such as Hong Kong and Uruguay, and, because of that, mechanisms of exchange of information.
But let us start from the beginning. Under the pretext of fighting international tax evasion and fraud, Portugal provides for a set of anti-abuse measures on income taxes, real estate taxes, stamp tax, and tax benefits, targeting operations carried out with entities and/or individuals resident or domiciled in countries, territories, or regions classified as “tax havens” or subject to privileged tax regimes, as defined by ordinance of the Portuguese minister of finance (blacklisted jurisdictions).
These measures, which are intended to discourage the use of low- or zero-tax jurisdictions, may lead to:
Non-application of a withholding tax exemption in Portugal on the remittance of dividends and payment of interest and royalties in situations where the beneficial owner is resident in a blacklisted jurisdiction;
Non-application of the Portuguese inbound participation exemption regime when the entity distributing the profits is resident in a blacklisted jurisdiction;
Non-deductibility of amounts paid or due, for any reason, to individuals or entities resident in a blacklisted jurisdiction;
Autonomous taxation of expenses corresponding to amounts paid or due, for any reason, to individuals or entities resident in a blacklisted jurisdiction;
Non-deductibility of capital losses in the context of the liquidation of an entity resident in a blacklisted jurisdiction;
Portuguese nationals who relocate their tax residence to a blacklisted jurisdiction being considered resident in Portugal in the year in which that change occurs and for the following four years;
Application of an increased real estate transfer tax for immovable property acquired by entities resident in a blacklisted jurisdiction or that are controlled by an entity resident in a blacklisted jurisdiction; or
Application of an increased property tax rate for immovable property owned by entities resident in a blacklisted jurisdiction or that are controlled by an entity resident in a blacklisted jurisdiction.
Comparison: Portuguese blacklist v EU list of non-cooperative jurisdictions
The Portuguese blacklist currently includes approximately 80 jurisdictions, while the EU list of non-cooperative jurisdictions contains only 11 jurisdictions, meaning that Portugal applies aggravated tax measures to a much broader set of jurisdictions than those identified by the EU as problematic from a tax cooperation perspective.
The criteria for a jurisdiction to be blacklisted in Portugal are (at least in theory) the following:
The absence of a tax identical or similar to corporate income tax (CIT) or, if such a tax exists, the applicable rate is less than 60% of the Portuguese CIT rate (currently, 20%);
The rules for determining the taxable income on which income tax is levied differ significantly from internationally accepted or practised standards, particularly those of OECD countries;
The existence of special regimes or tax benefits – such as exemptions, deductions, or tax credits – that are more favourable than those established in national legislation, resulting in a substantial reduction in taxation; and
The legislation or administrative practice does not allow access to and effective exchange of information relevant for tax purposes; namely, information of a tax, accounting, corporate, banking, or other nature that identifies the respective partners or other relevant persons; the holders of income, assets, or rights; and the performance of economic operations.
The Portuguese blacklist is objective and does not include exclusions for:
Cases in which the entity is cooperative (e.g., entities resident in blacklisted jurisdictions but listed in non-blacklisted jurisdictions);
Regulated entities (e.g., pension funds); or
Sovereign wealth funds.
While the Portuguese blacklist is based on national criteria – which, while similar in some respects, are applied more extensively and without the same level of ongoing review and international consensus – the EU list results from a coordinated process among member states, focusing on objective criteria such as tax transparency, fair taxation, and the implementation of anti-BEPS measures.
Potential incompatibility with DTTs and EU law
The Portuguese blacklist includes jurisdictions with which Portugal has already concluded DTTs (as was the case of Hong Kong and is still the case of the United Arab Emirates) that provide for the exchange of information and mutual assistance in tax matters. This addresses many of the concerns that justify the existence of the blacklist in the first place and reduces the risk of tax evasion or avoidance.
Besides, Portuguese anti-abuse measures call into question non-discrimination rules set forth in DTTs, which seek to ensure equal tax treatment for residents of both contracting states.
For example, the Portuguese rule providing for a higher real estate transfer tax rate solely because the acquirer is a Portuguese company controlled by an entity resident in the UAE can be viewed as discriminatory under the DTT in force with the UAE. The treaty establishes that a Portuguese company whose capital is controlled by a UAE resident shall not be subjected in Portugal to any taxation or requirement that is different from or more burdensome than the taxation and requirements to which other similar Portuguese companies are or may be subjected.
Furthermore, while some anti-abuse measures expressly allow taxpayers to avoid the most onerous taxation by proving, for example, that the expenses correspond to transactions carried out and are not excessive in amount, or that there is no arrangement primarily aimed at obtaining a tax advantage, there are still anti-abuse measures that do not allow taxpayers to rebut the presumption of abuse or to demonstrate that, in their specific circumstances, there was no tax fraud or evasion.
This raises issues of compatibility with EU law, particularly the principle of free movement of capital, with the Portuguese arbitral tribunal having already stressed that measures of “blind” discrimination are not supported by the European Court of Justice’s interpretation, which holds that national legislation cannot go beyond what is necessary to achieve the objective of combating tax evasion.
Key takeaways on Portugal’s tax regime for blacklisted jurisdictions
Portugal’s aggravated tax regime for blacklisted jurisdictions raises significant concerns regarding its compatibility with international obligations, particularly DTTs and EU law. The exclusive focus on jurisdictions (disregarding the circumstances of the taxpayers), the inclusion of jurisdictions with which Portugal has DTTs in place, and the application of aggravated taxation without allowing taxpayers the opportunity to rebut presumptions of abuse may conflict with non-discrimination principles and the EU’s fundamental freedoms, such as the free movement of capital.
Therefore, while the intention behind these anti-abuse measures is clear, their broad and sometimes inflexible application may expose Portugal to legal challenges and calls for reform to ensure alignment with international standards and EU law, thereby enhancing legal certainty and the attractiveness of Portugal as an investment destination.
After the removal of Hong Kong, Liechtenstein, and Uruguay from the Portuguese blacklist, it is to be hoped that the time for a new approach on this matter has finally come.
