Global Tax Alert | 20 November 2013

Portugal amends Debt Securities Tax Exemption Regime

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On 15 November 2013, the Portuguese Government introduced several amendments to the “Portuguese Debt Securities Tax Exemption Regime,” enacted by Decree-Law 193/2005 dated 7 November 2005 (Decree-Law 193/2005). The new legislation is only pending Presidential promulgation and release in the Official Gazette to become effective.

Pursuant to Decree-Law 193/2005, interest paid to holders of debt securities issued by the Portuguese Government or by Portuguese corporate entities and registered with a central clearing system recognized by the Portuguese Securities Code are exempt from Portuguese income tax, provided certain requirements and certification procedures are met. An exemption is also available for capital gains derived from the disposal of such debt securities. Currently, this exemption does not apply with respect to monetary debt securities – which are defined as debt securities with a maturity of less than one year – except treasury bills.

For this exemption regime to apply, Decree-Law 193/2005 requires that the investors are (i) neither residents in the Portuguese territory (or having a permanent establishment therein to which the income is allocated); (ii) nor residents in the countries and territories included in the Portuguese “blacklist” (i.e., countries and territories currently listed in Portaria 150/2004, of 13 February 2004), with the exception of central banks and governmental agencies of those jurisdictions and (iii) in case of being legal entities, provided that not more than 20% of its share capital is held, directly or indirectly, by Portuguese residents.

Amendments to Decree-Law 193/2005

The amendment to Decree-Law 193/2005 introduces several changes to the Portuguese Debt Securities Tax Regime, including the following:

  • Debt securities in-scope: It shall comprise monetary debt securities (including commercial paper), convertible bonds and other convertible securities, regardless of the currency in which they are issued, registered with a clearing system managed by a Portuguese resident entity or by an International Clearing System resident in another EU member state or in an EEA (European Economic Area) state (bind to administrative cooperation in the field of taxation). Also, it is foreseen that the Government may authorize, upon requirement of the issuer, the application of the exemption regime to debt securities not integrated in any of the above centralized systems.
  • Beneficiaries: Extension of the exemption regime to nonresidents entities that are resident in country or territory with a Double Taxation Agreement or an Exchange of Information Agreement (EIA) with Portugal. Portugal has already entered into EIA's with several black-listed territories, such as the Cayman Islands, Jersey, Bermuda, Gibraltar and Isle of Man.
  • Special reimbursement mechanism: Introduction of a more flexible regime of reimbursement of tax unduly withheld.

The new legislation introduces several other changes to Decree-Law 193/2005, namely regarding the rules and procedures that enhance the application of this exemption, which need to be carefully addressed.

Effective date

The changes herein announced to Decree-Law 193/2005 will enter into force on the immediate day after the publication of the new legal amendment, which should occur before the end of November 2013. Notwithstanding, with respect to securities issued through 31 December, 2013, the upcoming changes will only be applicable to income generated after the first coupon payment occurred after that date.

For additional information with respect to this Alert, please contact the following:

Ernst & Young, S.A., Lisbon
  • António Neves
    +351 21 791 2295
  • Nuno Bastos
    +351 21 791 2000
  • Carlos Lobo
    +351 21 791 2146
  • Paulo Mendonça
    +351 21 791 2045
  • João Sousa
    +351 21 794 9305
Ernst & Young, S.A., Oporto
  • Pedro Paiva
    +351 22 607 0694
  • Anabela Silva
    +351 22 607 9620

EYG no. CM3975