The rulings come after the 2015 personal income tax reform that introduced into the Portuguese tax law the concept of fiduciary structures. The tax framework applicable to the income derived by Portuguese resident individuals from fiduciary structures following that reform may be summarised as follows:
- Ordinary distributions during the lifetime of the fiduciary structure to resident individuals are qualified as investment income (Category E) and subject to tax at a flat rate of 28%. Distributions from fiduciary structures domiciled in blacklisted jurisdictions are taxed at the aggravated rate of 35%.
- Termination distributions from the fiduciary structure arising from liquidation, revocation or termination of such structure will be qualified as follows:
- Capital gain or loss (Category G) when derived by the settlor and taxed at a flat rate of 28%. When paid by fiduciary structures domiciled in blacklisted jurisdictions the capital gains are taxed at the aggravated rate of 35%.
- When distributed to an entitled party other than the settlor (e.g. a beneficiary) it is excluded from taxation under the Personal Income Tax (PIT) Code. Such distribution is qualified under the stamp tax code as a gratuitous transfer of goods potentially subject to a 10% tax rate if falling under the territorial scope of stamp tax.
The tax rulings shed some important light on taxation of income paid by fiduciary structures by confirming that:
- Liquidation distributions from a trust of cash deposited in a Swiss bank to a beneficiary tax resident in Portugal – despite being a triggering event for stamp tax purposes – fall outside the territorial scope of stamp tax. This is because monetary values are deposited in a bank account located outside of Portugal and without headquarters, place of effective management or permanent establishment in Portugal.
- Liquidation distributions to persons other than the settlor (e.g. a beneficiary) in the framework of the trust termination events are expressly excluded from PIT in Portugal.
- Liquidation distributions to a Portuguese resident individual who is both settlor and beneficiary of the trust is not a triggering event for stamp tax purposes, as the stamp tax code only refers to distributions to persons other than the settlor (and because they are then subject to PIT).
- A trustee is not subject to stamp tax on the distributions to beneficiaries in the framework of trust termination events, as the trustee is acting on a fiduciary basis and is not entitled to any amount from the termination of the trust.
The tax rulings constitute a positive step in such a complex field as taxation of foreign trusts. Naturally some points remain unclear, such as the exact scope of the term 'fiduciary structure' and the types of trusts involved, the transfer of assets from the settlor to the trustee, or the residence of trusts and sourcing rules. All this considered, case-by-case analysis is still needed to determine the concrete tax implications of foreign trusts in Portugal.