Taxation of Financial Products

BONDS

RESIDENTS

Bondholders may receive two types of income:

the interest

which compensates the bondholder;

the capital gains or losses

that result from the transfer of the securities.

National Bonds

Interest

The interest from national bonds is subject to a definitive withholding tax of 28% (or 22,4% if the taxpayer is a resident of the Autonomous Region of the Azores). As a result, this income doesn’t need to be included in your IRS declaration, unless you opt for aggregation.


Where to declare?

If you opt for aggregation, you must declare them in Annex E Table 4B, Code E20.

anexo E quadro 4B, Código E20

Aggregation

The taxpayer can opt to aggregate this income in the tax return, where it will be considered only 50% of the total amount and will be taxed according to the rate applicable in your income bracket. If the withholding has been made at the tax of 28%, it will become a payment on account and the general rules will be applied.


For the effects of aggregation, the taxpayer must:

  • request a statement from the bank regarding the income received and the withholding tax, and include the corresponding values in Annex E of the income tax return;
  • attach the bank statement to the income tax return.

Note that income from public debt is partially exempt, as long as the capital invested is tied up for a minimum of five years and the repayment is due at the end of the contract period:

  • 20% of the income is exempt, if the repayment takes place between five and eight years of the contract;
  • 60% of the income is exempt, if the repayment is made after the first eight years of the contract.

Capital gains

Gains obtained from the sale of bonds are subject to a tax of 28% (or 22,4% if the taxpayer is resident in the Autonomous Region of the Azores), unless the holder of the income opts for aggregation in their tax return. If your balance is negative, and you opt for aggregation, you can report it for the following five years.

Where to declare?

Capital gains on national bonds: Annex G Table 9 Code G10.

anexo G quadro 9 código G10

Capital gains on foreign bonds: Annex J Table 9.2A Code G10.

anexo J quadro 9.2A, código G10

If the taxpayer decides to choose to aggregate this income with all other accrued income and include it in the IRS declaration, the value of the gains is added to the remaining income to determine what is the applicable IRS rate.

Foreign bonds

Capital gains on foreign bonds: Annex J Table 9.2A Code G10.

anexo J quadro 9.2A, código G10

NOT RESIDENT

Interest

The interest on national bonds of which the beneficiaries are non-residents is exempt from tax, unless the beneficiary:


  • has, in Portuguese territory, a permanent establishment to which the income is attributed;
  • is an entity resident in a region subject to a clearly more favorable tax regime, included in the list of tax haven, in which case it is taxed at 35%.

In situations where the exemption doesn't apply, the non-resident taxpayer, without a permanent establishment in Portuguese territory, is taxed at 28%.


However, if a Double Taxation Agreement (DTA) exists between Portugal and the country of residence of the bondholder, the withholding tax provided for in the DTA may be applied. For this purpose, the holder must comply with the legal formalities.


To do this, the non-resident must prove to the entity that is obliged to withhold the tax that the conditions resulting from the DTA have been met, by presenting the Template 21-RFI.

Modelo 21-RFI

You should attach a document issued by the competent authorities of the country of residence, certifying your tax residence for the period in question and that you are subject to income tax in that country. If there is a Double Taxation Agreement (DTA) between Portugal and the country where the non-resident lives, the withholding tax may be provided for in the DTA and, to this end, you must proceed with its application.

Capital gains

Capital gains derived from the transfer of national bonds, integrated or not, in centralized systems recognized by the Portuguese Securities Market Code, by a non-resident holder without a permanent establishment in the Portuguese territory, are exempt from taxation in Portugal.

his exemption doesn’t apply if the beneficial owner has, in the Portuguese territory, a permanent establishment to which the income is attributed. In this case, the positive annual balance is taxed at a special rate of 28%.

If the beneficial owner is an entity domiciled in a region subject to a clearly more favorable tax regime, included in the list of tax haven, the capital gains are subject to IRS at a rate of 35%.

Foreign bonds, issued by non-resident entities

RESIDENT

Interest

Accrued interest on international bonds held by a resident in Portuguese territory is subject to withholding tax of 28% (or 22,4% if the taxpayer is resident in the Autonomous Region of the Azores) when the interest is paid or made available.


If the interest is subject to taxation in the country of the company that issued the bonds, the holder has the right to a tax loan for international double taxation.

Where to declare?

Annex J, Table 8A

anexo J quadro 8A

If there is a Double Taxation Agreement (DTA) between Portugal and the country where the issuing company is domiciled, the withholding tax may be the one provided for in the DTA. For this purpose, the holder must comply with the formalities established by the DTA in the country where the issuing company has its headquarters. In this case, the tax loan is limited to the amount of the tax paid abroad.


In the other cases, the taxpayer is entitled to a tax loan, which is deductible until it reaches the part of the taxable income proportional to the net income, corresponding to the lower of the following amounts:

tax paid abroad;

fraction of the IRS collection, calculated before deduction, corresponding to the income taxed in the country in question, net of specific deductions. 

Accrued interest on international bonds issued by non-resident entities without a permanent establishment in Portuguese territory, resident in a jurisdiction subject to a clearly more favorable tax regime, included in the ordinance approved by the Minister of Finance that lists the "tax haven", will be taxed at 35%.



Capital gains

Where to declare?

Capital gains on foreign bonds: Annex J Table 9.2A Code G10.

anexo J quadro 9.2A, código G10

Gains obtained from the sale of international bonds are subject to a tax of 28% (or 22,4% if the taxpayer is resident in the Autonomous Region of the Azores), unless the holder of the income chooses to aggregate it in their tax return.

If the taxpayer chooses to aggregate this income with all the other accrued income, including them in the IRS declaration, the value of the gains is added to the remaining income to determine what is the applicable IRS rate.

If the balance of capital gains and losses on the sale of securities is negative, resulting in capital losses, and the option to aggregate is made, the losses may be deducted from future capital gains within 5-year period.


NOT RESIDENT

Accrued interest on international bonds and capital gains on the onerous transfer of such bonds aren't subject to tax in Portugal.

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Taxation of Financial Products
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