Taxation of Financial Products

EXCHANGE TRADED FUND - ETF

An Exchange Traded Fund – ETF is a diversified group of transactionable activities in the stock market.


From a fiscal point of view, at the moment of sale in the stock market, the gains aren’t deducted. However, all sales made during the year must be declared in the annual IRS declaration. You must declare them in Annex G. The total balance of capital gains or losses will be deducted with an autonomous tax of 28%, unless you opt for the aggregation.


RESIDENT

Dividends

The taxation of dividends is as follows:

a tax of 35% for income whose source is in a tax haven

a tax of 28%, withheld at the source, for the generality of capital income;

the residents in Portugal have the possibility to choose the aggregation, being the taxable income reduced by 50% in relation to the profits distributed by companies in Portugal or in other Member States of the EU (only if they meet the requirements defined in the Mother-Daughter Directive).

Where to declare?

The dividends are income of Category E (financial income) and they can be declared in Annex E of IRS Model 3, in relation to this income, or in Annex J (income earned abroad). See the table below:

Intermediary Dividends of Withheld tax Aggregation/double taxation Declare in
with tax residence in Portugal - company with tax residency in Portugal 28% (or 22,4% if the taxpayer is resident in the Azores) by the financial intermediary If you choose aggregation, only 50% of the dividends will be declared (if you choose aggregation of dividends, you will have to declare all the capital income received in Portugal and abroad) No need to declare, but if you choose aggregation: Annex E, Table 4B E10 for dividends withheld in Portugal Declare in the 5th column 50% of the gross income from dividends, and in the 6th column a withheld of 28%
- entities domiciled in another EU Member State that meet the requirements defined in the Mother-Daughter Directive (requires proof that the entity meets these requirements 1)
- international companies and companies listed in the national stock exchange but without Portuguese tax residence Double taxation:
- 28% by the financial intermediary
+
- applicable tax in the country of the issuing country 		To avoid double taxation Annex J Table 8. E10 for dividends withheld in Portugal. E11 for dividends without withholding in Portugal

1 - To prove to the tax authorities that European companies comply with the rules defined in the Mother-Daughter Directive (Directive 2011/96), you can do it in two ways:

  • contact the tax authority of the country and ask for this this certificateo
  • contact the issuing company of the stocks and ask them to send you a certificate issued by the relevant tax authority that meets the legal requirements

Capital gains

Selling ETF may result in capital gains or losses.


Note that:

  • if you hold ETF for more than 24 months, you can update the acquisition value and to do so you should check the applicable values in 2022
  • you can deduct from the capital gains the costs incurred in buying and selling ETF, namely the purchase commissions.

Where to declare?

Capital gains are declared in Annex G, Table 9.

Anexo G, no quadro 9

Gains from the sale of stocks 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 the aggregation of this income with all other accrued income and includes it in the IRS declaration, the value of the gains will be added to the remaining income to determine what is the applicable IRS rate.


Where to declare?

You can opt to aggregate this income on your tax return, but only 50% of the total amount of dividends distributed or made available to you will be considered and taxed at the rate applicable in your income bracket.


If you opt for aggregation, you must declare them in Annex G, Table 15.

Anexo G, no quadro 15

In the situations where the aggregation is made, the negative balance (between the gains and losses from the stock transaction) may be deducted from income of the same kind that the holder will establish in the following five years.

If you opt for aggregation, you must aggregate all income of the same category.

NOT RESIDENT

NOT RESIDENT

Dividends

The income from capital obtained in Portugal by non-residents paid by national entities is subject to deduction at source, with a withholding tax of 28%.

However, there is no obligation to make this deduction if, by virtue of an agreement to avoid the double taxation that Portugal has celebrated, the competence to tax income received by a resident of the other contracting State is not attributed to the source State or only to a limited extent.

In this case, the non-resident must prove to the withholding agent that the conditions of the DTA have been met, by submitting 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

The capital gains obtained by non-residents on the sale of stocks in companies with their registered office or effective center of management in Portugal are exempt from IRS. However, this exemption doesn’t apply to:

in the case of capital gains derived from the onerous transfer of stocks in companies domiciled in Portugal whose assets consist of more than 50% of real estate located in Portugal;

in the case of holding companies that have a controlling relationship with companies domiciled in Portuguese territory and whose assets consist of more than 50% of real estate located in Portugal;

in the case of a person domiciled in a country, territory or region subject to a clearly more favorable tax regime, included in the list of tax havens. In this case, capital gains are subject to the IRS at a rate of 35%.

In the situations described in the first two topics, the positive balance between capital gains and losses is taxed at a rate of 28%.

Back

Information of the responsibility of LexPoint – Informação Jurídica On-Line © Copyright 2022
All rights reserved by LexPoint, Lda
This text is purely informative and does not constitute or dispense consultation or support from specialized professionals.