Taxation of Financial Products

Term Deposits

RESIDENT

National Term Deposits

The interest paid by the national banks is subject to a definitive witholding tax of 23%, on the mainland and Madeira, or 22,4% for taxpayers resident in the Autonomous Region of the Azores. This tax is withheld by the bank when the interest is paid and, therefore doesn’t need to be included in the Annual IRS Declaration.


If it is a term deposit, where the invested capital is tied up for a minimum period of 5 years, and the remuneration is due at the end of the contract period, the following situations are not subject to be tax:

1/5 of the income (or 20%), if the repayment takes place between the fifth and eighth year of the contract;

3/5 of the income (or 60%), if the repayment is made after the first eight years of the duration of the contract.

Where to declare?

If they are term deposits of a national entity, and if it has opt for aggregation, you must declare them in Annex E, Table 4B, using the Code E20.

Placeholder

If you don’t opt for aggregation, you don’t have to declare them on IRS Template 3.

International Term Deposits

The interest on term deposits from international bank accounts is usually taxed in the country of origin. For this reason, the Portuguese taxpayer may request a loan for the tax withheld abroad. For this purpose, they must present a document issued by the tax authority of the country of origin, which certifies the interest received and the taxes paid.


They may also be subject to a tax of 35% if they are paid by not-resident entities without a permanent establishment in Portugal, domiciled in a tax haven according to the official list.

Where to declare?

You must declare this interest in Annex J, Table 8A, selecting the appropriate code.

Anexo J quadro 8A

They are subject to a definitive withholding tax of 35% on the interest received by non-resident entities without a permanent establishment in Portugal and domiciled in a country, territory, or region that benefits from a more favorable tax regime that appears in the official list of tax havens.


It is obligatory to declare in the income statement the existence and identification of deposit/securities accounts created in a financial institution not established in Portugal or in a branch, established outside Portugal, of a financial institution, of which the declarants are holders, beneficiaries or authorized to transfer.
For this reason, the accounts must be identified in the Table 11 of Annex J.

Quadro 11 Anexo J

NOT RESIDENT

National Term Deposits

The accrued interest is subject to a final withholding tax of 28%.


If the interest holder is a resident of a country that has signed a Double Taxation Agreement (DTA) with Portugal, the withholding tax provided for in the DTA may be applied. For this purpose, the non-resident holder must comply with the formalities established in the DTA for the application of a reduced tax.


Check here the OFFICIAL LIST OF DOUBLE TAXATION AGREEMENTS SIGNED BY PORTUGAL (official version updated in 2022)

For the application of the treaties, a proof of residence must be provided until the end of the period established for the delivery of the tax that should have been withheld. The proof of residence has a validity of one year, starting from the certification by the competent authority of the State where the holder of the income lives. In this case, the deduction can’t exceed the tax paid abroad in the terms provided by the treaty.

If the country in which the holder resides has a treaty with Portugal that allows taxation in the country of residence and in accordance with the legislation in force in that country, the interest will be taxed in the country of residence at the rate applicable there, without prejudice to the withholding tax of 28% in Portugal. In order to avoid double taxation, the holder of the income has the right to a tax loan for international double taxation, which is deductible until it reaches the part of the taxable income proportional to the net income.

For this purpose, the bank must inform the Tax Authority and Customs of the identity and residence of the non-resident holder, the identity and address of the bank, the account number of the holder and the amount of interest. The Tax Authority and Customs will foward this information to the tax authorities of the country where the holder resides in order to ensure that taxation takes place in that country.

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