Portugal ndash Non Habitual Resident (ldquoNHRrdquo) and Madeira Free Zone (ldquoMFZrdquo) regimes ndash opportunities for Dutch Clients

Ricardo da Palma Borgesricardorpbapt

wwwrpbapt

Quality of Life 29th country on the OECD Better Life Index

2016 5th on 2015rsquos Internations Quality of Life Index

According to The Huffington Post Algarve was considered the

Worlds best place to live or retire in 2016 and as reported by

The Telegraph Portugal is the 2nd best place to retire abroad

Weather and environment quality 9th country on the OECD

2016 Better Life Index

2

Sunshine Estimated 3300 hours of sunshine per year one of the highest rates in Europe

Modern and cosmopolitan country Lisbon was elected 2nd best place to travel in 2015 and Porto was

the best European destination for 2014 Lisbon was also ranked the 16th most liveable city in the world in

Monocle Quality of Life Survey 2016 Best Cities to Live

Cultural Offering Portugal has a great list of ldquowondersrdquo declared a World Heritage Site by Unesco Fado

(the Portuguese most traditional music genre) was considered by UNESCO Intangible Cultural Heritage of

Humanity in 2011

Why Portugal

Education There is a significant number of International Schools

throughout Portugal attended by both Portuguese and foreign students

Portugal is ranked as having the 8th best system in the World according

to the U21 Rankings of National Higher Education Systems 2016

Other Languages Spoken A large part of the population speaks foreign

languages especially English Spanish and French Portugal was ranked

13th out of 70th countries in the EF Global English Proficiency Index 2015

Top conditions for sports sailing diving biking trekking horse riding

golf - with some of the best World courses

3

Why Portugal

Gastronomy The Portuguese gastronomy is as rich and diverse as its heritage and landscapes and has

recently been internationally recognized with 14 Michelin star restaurants in 2016 Portugal is also one of

the best wine tourism destinations Our country had 578 prizes at the 2016rsquos Decanter World Wines

Awards and also achieved 16 Grand Gold 114 Gold and 227 Silver Medals in the 2016rsquos Concours Mondial

de Bruxelles

Daily Flights About 300 daily flights from Portugal to foreign countries Porto Airport ranks among the

best airports in Europe since 2006

Convenient Location for Globetrotters Portugal ranked 1st on Globe Spots Top 10 countries in 2013

Health System Portugal has a high quality health system offering both public and private healthcare For

instance according to the 2016rsquos OECD Health Statistics the average life expectancy in Portugal in 2014

was 812 years4

Why Portugal

Investments Value for money in real estate investments

(which have undergone significant decreases since

2008)

Cost of Living In comparison with other major

European countries Portugal is highly affordable

Peaceful Country According to the 2016primes Global Peace Index

Portugal ranks 5th out of 163 countries

Portuguese Passport Citizenship If the head of the household

qualifies for residency in Portugal all the dependents will

automatically qualify so with no any additional costs Moreover

Portugal has one of the worlds most valuable passports and the

Portuguese Citizenship was ranked as the 16th most valuable in the

World by Quality of Nationality Index

5

Why Portugal

Economic Progress Successful conclusion of the Troikarsquos (International

Monetary Fund European Central Bank and European Union) financial

assistance program (2011-2014) on May 17 2014

Political Stability Portugal is a developed democracy with political and

social stability

6

Value Added Tax (VAT) Imposto sobre o Valor Acrescentado

Personal Income Tax (PIT)Imposto sobre o Rendimento das PessoasSingulares

Corporate Income Tax (CIT)Imposto sobre o Rendimento das PessoasColectivas

Social Security (SS) Seguranccedila Social

Stamp Tax (ST) Imposto do Selo

Property Transfer Tax (PTT)Imposto Municipal sobre as TransmissotildeesOnerosas de Imoacuteveis

Property Ownership Tax (POT) Imposto Municipal sobre Imoacuteveis

Gift and Inheritance Tax (GIT)Currently Stamp Tax (individuals) or CorporateIncome Tax (corporate entities)

Main Taxes in Portugal

Basic Features of the NHR regime

Decree-Law nr 2492009 of September 23 created a new PIT regime for NHR individuals

This status is granted to individuals who become residents for tax purposes in Portugalwithout having been so in the previous five years

NHR individuals may enjoy such status for a ten-year period after which they will be taxedunder the standard PIT regime

This new tax regime targets non-resident individuals who are likely to establish a permanentor temporary residence in Portugal

It establishes under certain conditions a PIT exemption on foreign source income as well asa limited taxation of income deriving from high value added activities

NHR are issued Portuguese certificates of tax residence The rationale of the regime is that weare only switching over the credit method for the elimination of international double taxationfor the exemption method

The particular features of the NHR regime may always be amended by law for better or forworse but the regime has remained stable Notwithstanding for those who have beengranted NHR status prior to the enactment of any modification under Portugueseconstitutional law the admissible degree of change to the regime is debatable

7

Key Advantages of the NHR regime

Foreign-sourced passive income (interest dividends certain royalties other income from capital capitalgains and income from immovable property) derived by NHR is PIT exempt in Portugal (without progressionexcept in the case of capital gains on real estate) provided that it is potentially liable to taxation in thesource State under the rules of a tax treaty or of the OECD Model Tax Convention (no effective taxation isrequired)

Foreign-sourced income from pensions is PIT exempt (with progression)

Foreign-sourced employment income is PIT exempt (with progression) provided that it is effectively taxedin the source State under the rules of a tax treaty or of the OECD Model Tax Convention

Foreign-sourced employment income is PIT exempt (without progression) in Portugal provided that it iseffectively taxed in the source State under the rules of a tax treaty or of the OECD Model Tax Conventionand that it is income derived from high value added activities of a scientific artistic or technical nature

Foreign-sourced income from independent personal services is PIT exempt (without progression) inPortugal provided that it is potentially liable to taxation in the source State under the rules of a tax treatyor of the OECD Model Tax Convention (no effective taxation is required) and that it is income derived fromhigh value added activities of a scientific artistic or technical nature as defined by Ministerial Order

Income deriving from employment or independent personal services of a domestic or foreign source butnot qualifying for the mentioned exemptions will be liable to autonomous taxation at a special 20 flatrate and not to the general and progressive PIT rates (currently of up to 565 for yearly taxable incomeabove euro250000) provided that it derives from high value added activities of a scientific artistic ortechnical nature

8

9

The Portuguese NHR Regime

For more information on this regime please read our presentation

httpwwwslidesharenetRPBArpba-the-non-habitual-tax-resident-regime-

29102014-40958196

You can also visit our microsite wwwnonhabitualtaxresidentcom or scan the

below QR code with your smartphone

Should you require in-depth information on this subject please check our

Information Note available at httpwwwslidesharenetRPBAthe-non-habitual-

tax-resident-regime-rpba30102014

Basic Features of the NHR regime

Decree-Law nr 2492009 of September 23 created a new PIT regime for NHR individuals

This status is granted to individuals who become residents for tax purposes in Portugalwithout having been so in the previous five years

NHR individuals may enjoy such status for a ten-year period after which they will be taxedunder the standard PIT regime

This new tax regime targets non-resident individuals who are likely to establish a permanentor temporary residence in Portugal

It establishes under certain conditions a PIT exemption on foreign source income as well asa limited taxation of income deriving from high value added activities

NHR are issued Portuguese certificates of tax residence The rationale of the regime is that weare only switching over the credit method for the elimination of international double taxationfor the exemption method

The particular features of the NHR regime may always be amended by law for better or forworse but the regime has remained stable Notwithstanding for those who have beengranted NHR status prior to the enactment of any modification under Portugueseconstitutional law the admissible degree of change to the regime is debatable

7

Key Advantages of the NHR regime

Foreign-sourced passive income (interest dividends certain royalties other income from capital capitalgains and income from immovable property) derived by NHR is PIT exempt in Portugal (without progressionexcept in the case of capital gains on real estate) provided that it is potentially liable to taxation in thesource State under the rules of a tax treaty or of the OECD Model Tax Convention (no effective taxation isrequired)

Foreign-sourced income from pensions is PIT exempt (with progression)

Foreign-sourced employment income is PIT exempt (with progression) provided that it is effectively taxedin the source State under the rules of a tax treaty or of the OECD Model Tax Convention

Foreign-sourced employment income is PIT exempt (without progression) in Portugal provided that it iseffectively taxed in the source State under the rules of a tax treaty or of the OECD Model Tax Conventionand that it is income derived from high value added activities of a scientific artistic or technical nature

Foreign-sourced income from independent personal services is PIT exempt (without progression) inPortugal provided that it is potentially liable to taxation in the source State under the rules of a tax treatyor of the OECD Model Tax Convention (no effective taxation is required) and that it is income derived fromhigh value added activities of a scientific artistic or technical nature as defined by Ministerial Order

Income deriving from employment or independent personal services of a domestic or foreign source butnot qualifying for the mentioned exemptions will be liable to autonomous taxation at a special 20 flatrate and not to the general and progressive PIT rates (currently of up to 565 for yearly taxable incomeabove euro250000) provided that it derives from high value added activities of a scientific artistic ortechnical nature

8

9

The Portuguese NHR Regime

For more information on this regime please read our presentation

httpwwwslidesharenetRPBArpba-the-non-habitual-tax-resident-regime-

29102014-40958196

You can also visit our microsite wwwnonhabitualtaxresidentcom or scan the

below QR code with your smartphone

Should you require in-depth information on this subject please check our

Information Note available at httpwwwslidesharenetRPBAthe-non-habitual-

tax-resident-regime-rpba30102014

Key Advantages of the NHR regime

Foreign-sourced passive income (interest dividends certain royalties other income from capital capitalgains and income from immovable property) derived by NHR is PIT exempt in Portugal (without progressionexcept in the case of capital gains on real estate) provided that it is potentially liable to taxation in thesource State under the rules of a tax treaty or of the OECD Model Tax Convention (no effective taxation isrequired)

Foreign-sourced income from pensions is PIT exempt (with progression)

Foreign-sourced employment income is PIT exempt (with progression) provided that it is effectively taxedin the source State under the rules of a tax treaty or of the OECD Model Tax Convention

Foreign-sourced employment income is PIT exempt (without progression) in Portugal provided that it iseffectively taxed in the source State under the rules of a tax treaty or of the OECD Model Tax Conventionand that it is income derived from high value added activities of a scientific artistic or technical nature

Foreign-sourced income from independent personal services is PIT exempt (without progression) inPortugal provided that it is potentially liable to taxation in the source State under the rules of a tax treatyor of the OECD Model Tax Convention (no effective taxation is required) and that it is income derived fromhigh value added activities of a scientific artistic or technical nature as defined by Ministerial Order

Income deriving from employment or independent personal services of a domestic or foreign source butnot qualifying for the mentioned exemptions will be liable to autonomous taxation at a special 20 flatrate and not to the general and progressive PIT rates (currently of up to 565 for yearly taxable incomeabove euro250000) provided that it derives from high value added activities of a scientific artistic ortechnical nature

8

9

The Portuguese NHR Regime

For more information on this regime please read our presentation

httpwwwslidesharenetRPBArpba-the-non-habitual-tax-resident-regime-

29102014-40958196

You can also visit our microsite wwwnonhabitualtaxresidentcom or scan the

below QR code with your smartphone

Should you require in-depth information on this subject please check our

Information Note available at httpwwwslidesharenetRPBAthe-non-habitual-

tax-resident-regime-rpba30102014

9

The Portuguese NHR Regime

For more information on this regime please read our presentation

httpwwwslidesharenetRPBArpba-the-non-habitual-tax-resident-regime-

29102014-40958196

You can also visit our microsite wwwnonhabitualtaxresidentcom or scan the

below QR code with your smartphone

Should you require in-depth information on this subject please check our

Information Note available at httpwwwslidesharenetRPBAthe-non-habitual-

tax-resident-regime-rpba30102014

MFZ new regime

Low CIT on foreign source income derived from activities carried out in theinstitutional scope of the MFZ by entities settled therein ndash tax rate of 5 applicablebetween 2015 and 2027

CIT and PIT exemption on royalties and service fees paid by entities settled in theMFZ to non-residents

CIT exemption on interest paid to non-residents by entities settled in the MFZ onloans contracted to finance the investments and regular activities of such entities

80 reduction of ST POT and PTT

CIT and PIT exemption on dividend distributions to non-resident shareholders

CIT and PIT exemption on interest paid to non-resident shareholders

For more information on the MFZ please read our presentationhttpwwwslidesharenetRPBArpba-madeira-free-zone-29102014

10

Deceased in the Netherlands

Dividend

NHR ndash Dutch Inheritance Tax and PIT Planning Structure The Netherlands imposes Inheritance Tax on the transfer of a

ldquoNetherlands Companyrdquo However it allows a tax free dividend to bedistributed to the heir new shareholder that allows him to liquidatethat tax liability

That dividend ndash as all the distributions paid by the ldquoNetherlandsCompanyrdquo ndash would be exempt from PIT in Portugal under the NHRregime at the level of the heir new shareholder because the DoubleTaxation Agreement (ldquoDTArdquo) between the Netherlands and Portugalstipulates that such dividends are potentially liable to taxation in thesource State

Under Portuguese GIT assets outside Portugal are not taxable

A potential capital gain on the sale of shares of the ldquoNetherlandsCompanyrdquo ndash to be derived by the heir new shareholder ndash may bePIT exempt as well under the NHR regime This is due to the fact thatunder the DTA capital gains on shares may be taxable in the sourceState provided that the NHR directly or indirectly holds at least 5 percent of the issued share capital of a particular class of shares in thatcompany and if the individual who derives the gains has been aresident of the Netherlands in the course of the last ten yearspreceding the year in which the gains are derived provided that atthe time he became a resident of Portugal the above--mentioned conditions regarding share ownership in the saidcompany were satisfied

100

Netherlands Company

Heir ndash a Portuguese NHR

11

Loan

Grants the temporary use of industrial property rights

MFZ ndash CIT and PIT Planning Structure

Interest paid and dividends distributed by the MFZ Company tothe Dutch shareholders are exempt from CIT and PIT in Portugal

Dividends distributed by the EU Operational Company to the MFZCompany are free from withholding tax in the source State due tothe EU Parent-Subsidiary Directive and may be CIT exempt inPortugal under the general participation exemption regime ndashrequirements on the next slide

Royalties on the Intellectual Property developed by the MFZCompany granted to the EU Operational Company (i) generate adeductible expense at the level of the latter (ii) are free fromwithholding tax in the source State due to the EU Interest ampRoyalties Directive (iii) are taxed at a nominal 5 CIT rate at thelevel of the MFZ Company on a 50 reduced taxable base thanksto the general Portuguese patent box regime recently modified tofollow the OECD BEPS Action 5 output - the ldquomodified nexusapproachrdquo

If the Shareholders wish to dispose of the MFZ Company thecapital gains so derived are CIT and PIT exempt in PortugalAdditionally if the EU Operational Company were to be sold thecapital gains on such shares would be CIT exempt in Portugalunder the general participation exemption regime ndash requirementson the next slide

Shareholders in the

Netherlands

100

MFZ Company

EU Operational Company

100

12

Loan

Grants the temporary use of industrial property rights

MFZ ndash CIT and PIT Planning StructureParticipation exemption requirements

For

dividends

For capital

gains

a 10 shareholding of (capital or voting rights) ndash direct or

both direct and indirect (direct participation is always

required) andX X

b 12-month uninterrupted holding period completed either

before or after the dividend distributionmust be completed

at the time of disposal (for capital gains) and

X X

c Not relating to subsidiaries whose assets are comprised

directly or indirectly in more than 50 of rights in rem over

immovable property in the Portuguese territory acquired

after January 1 2014 and not assigned to an agricultural

industrial or commercial activity not consisting in the sale of

immovable property and

X

d The receivingselling company must not be taxed under the

Portuguese tax transparency regime andX X

e The distributing or sold subsidiary (i) must be subject and

not exempt from one of the taxes listed in the Parent-

Subsidiary Directive or from a tax comparable to the

Portuguese CIT in the latter case at a nominal rate of at least

60 of the CIT rate in force or (ii) develop activities not

targeted by the Portuguese CFC regime

X X

f The distributing or sold subsidiary does not have residence

or domicile in a country territory or region liable to clearly

more favorable tax regime stated in a blacklisted approved by

a Ministerial Order of the Finance Minister

X X

Shareholders in the

Netherlands

100

MFZ Company

EU Operational Company

100

13

Loan

Grants the temporary use of industrial property rights

MFZ ndash CIT and PIT Planning Structure

Interest paid and dividends distributed by the MFZ Company tothe Dutch shareholders are exempt from CIT and PIT in Portugal

Dividends distributed by the EU Operational Company to the MFZCompany are free from withholding tax in the source State due tothe EU Parent-Subsidiary Directive and may be CIT exempt inPortugal under the general participation exemption regime ndashrequirements on the next slide

Royalties on the Intellectual Property developed by the MFZCompany granted to the EU Operational Company (i) generate adeductible expense at the level of the latter (ii) are free fromwithholding tax in the source State due to the EU Interest ampRoyalties Directive (iii) are taxed at a nominal 5 CIT rate at thelevel of the MFZ Company on a 50 reduced taxable base thanksto the general Portuguese patent box regime recently modified tofollow the OECD BEPS Action 5 output - the ldquomodified nexusapproachrdquo

If the Shareholders wish to dispose of the MFZ Company thecapital gains so derived are CIT and PIT exempt in PortugalAdditionally if the EU Operational Company were to be sold thecapital gains on such shares would be CIT exempt in Portugalunder the general participation exemption regime ndash requirementson the next slide

Shareholders in the

Netherlands

100

MFZ Company

EU Operational Company

100

12

Loan

Grants the temporary use of industrial property rights

MFZ ndash CIT and PIT Planning StructureParticipation exemption requirements

For

dividends

For capital

gains

a 10 shareholding of (capital or voting rights) ndash direct or

both direct and indirect (direct participation is always

required) andX X

b 12-month uninterrupted holding period completed either

before or after the dividend distributionmust be completed

at the time of disposal (for capital gains) and

X X

c Not relating to subsidiaries whose assets are comprised

directly or indirectly in more than 50 of rights in rem over

immovable property in the Portuguese territory acquired

after January 1 2014 and not assigned to an agricultural

industrial or commercial activity not consisting in the sale of

immovable property and

X

d The receivingselling company must not be taxed under the

Portuguese tax transparency regime andX X

e The distributing or sold subsidiary (i) must be subject and

not exempt from one of the taxes listed in the Parent-

Subsidiary Directive or from a tax comparable to the

Portuguese CIT in the latter case at a nominal rate of at least

60 of the CIT rate in force or (ii) develop activities not

targeted by the Portuguese CFC regime

X X

f The distributing or sold subsidiary does not have residence

or domicile in a country territory or region liable to clearly

more favorable tax regime stated in a blacklisted approved by

a Ministerial Order of the Finance Minister

X X

Shareholders in the

Netherlands

100

MFZ Company

EU Operational Company

100

13

Loan

Grants the temporary use of industrial property rights

MFZ ndash CIT and PIT Planning StructureParticipation exemption requirements

For

dividends

For capital

gains

a 10 shareholding of (capital or voting rights) ndash direct or

both direct and indirect (direct participation is always

required) andX X

b 12-month uninterrupted holding period completed either

before or after the dividend distributionmust be completed

at the time of disposal (for capital gains) and

X X

c Not relating to subsidiaries whose assets are comprised

directly or indirectly in more than 50 of rights in rem over

immovable property in the Portuguese territory acquired

after January 1 2014 and not assigned to an agricultural

industrial or commercial activity not consisting in the sale of

immovable property and

X

d The receivingselling company must not be taxed under the

Portuguese tax transparency regime andX X

e The distributing or sold subsidiary (i) must be subject and

not exempt from one of the taxes listed in the Parent-

Subsidiary Directive or from a tax comparable to the

Portuguese CIT in the latter case at a nominal rate of at least

60 of the CIT rate in force or (ii) develop activities not

targeted by the Portuguese CFC regime

X X

f The distributing or sold subsidiary does not have residence

or domicile in a country territory or region liable to clearly

more favorable tax regime stated in a blacklisted approved by

a Ministerial Order of the Finance Minister

X X

Shareholders in the

Netherlands

100

MFZ Company

EU Operational Company

100

13

Chambers amp Partners ndash Ricardo Band 2 RPBA Band 3 (2016) and Ricardo Band 1 RPBA Band 3 (2015 2014

2013)

Legal 500 ndash Ricardo and Bruno are Recommended Lawyers RPBA Band 3 (2016)

World Tax ndash Ricardo mentioned RPBA Tier 3 (2017)

Best Lawyers ndash Ricardo ranked under the Tax Law practice area and the Tax Planning subspecialty (2015)

World Transfer Pricing ndash Ricardo mentioned RPBA Tier 3 (2016)

Tax Directors Handbook ndash Ricardo mentioned RPBA Tier 3 (2015)

Expert Guides ndash Ricardo da Palma Borges recognized in the ldquoTaxrdquo edition of the Expert Guides which annually

identifies the best tax lawyers in each country (2016)

Whoacutes Who Legal ndash Ricardo ranked as a top lawyer in the Corporate Tax Lawyers directory (2013)

Global Law Experts - RPBA Tax Law Firm of the Year in Portugal (2016)

Corporate LiveWire - Ricardo da Palma Borges chosen as the winner of the Finance Award for Excellence in Tax

Planning ndash Portugal (2016)

Corporate Intl - RPBA Boutique Tax Law Firm of the Year in Portugal (2016)

Corporate Intl Magazine Legal Award ndash RPBA Boutique Tax Law Firm of the Year in Portugal (2014)

Acquisition International Tax Award ndash RPBA Portuguese Tax Law Boutique Firm of the Year (2015)

Acquisition International Legal Award ndash RPBA Boutique Law Firm of the Year ndash Portugal (2014) 14

Recent Tax Recognition

General warning disclaimer copyrightand authorised use

In the preparation of this presentation every effort has been made to offer current correct and clearlyexpressed information However the said information is intended to afford general guidelines only Thispresentation reflects information current at November 22 2016

This presentation is distributed with the understanding that RICARDO da PALMA BORGES amp ASSOCIADOSSOCIEDADE DE ADVOGADOS RL is not responsible for the result of any actions taken on the basis ofinformation herein included nor for any errors or omissions contained herein

RICARDO da PALMA BORGES amp ASSOCIADOS SOCIEDADE DE ADVOGADOS RL is not attempting throughthis work to render legal or tax advice and the information in this presentation should be used as a researchtool only and not in lieu of individual professional study with respect to client legal matters

Portuguese domestic legislation foreign legislation EU Directives and tax treaties have anti-abuseprovisions and each actual client structure should be analysed taking those into account

RICARDO da PALMA BORGES amp ASSOCIADOS SOCIEDADE DE ADVOGADOS RL is the copyright owner ofthis presentation and hereby grants you a non-exclusive non-transferable license to use this presentationsolely for your internal business provided that you do not modify its content in any way and that you donot retain any copyright or other proprietary notices displayed on such content You may not otherwisereproduce modify distribute transmit post or disclose the content on this presentation without RICARDOda PALMA BORGES amp ASSOCIADOS SOCIEDADE DE ADVOGADOS RLrsquos prior written consent

15

(+351) 212 402 743

geralrpbapt

wwwrpbapt

wwwlinkedincomcompanyrpba

wwwslidesharenetrpba

15

(+351) 212 402 743

geralrpbapt

wwwrpbapt

wwwlinkedincomcompanyrpba

wwwslidesharenetrpba

15