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Portugal approves tax treaties with Ivory Coast and Sao Tomé and Principe

Executive summary

During the month of August, the Portuguese Parliament approved two double tax treaties, the first with São Tomé and Príncipe and the second with the Ivory Coast. The treaty with São Tomé and Príncipe, signed on 13 July 2015, was approved on 5 August 20161 and the treaty with the Ivory Coast, signed on 17 March 2015, was approved on 22 August 2016.2

This Alert summarizes the key tax provisions of each treaty.

Detailed discussion

Key treaty provisions between Portugal and São Tomé and Príncipe

  • Taxation levied on interest and royalties in the state of residence of the entity paying such income shall not exceed 10% of the gross amount of such payments, provided that the beneficial owner of the income is a resident of the other Contracting State.
  • With respect to dividends, the taxation will be limited to 10% of the gross amount of the dividends if the beneficial owner is a company that holds directly at least 25% of the capital of the company paying the dividends or 15% in all other cases.
  • In addition, gains derived by a resident of a contracting state from the transfer of shares or securities representing the capital of a company that is a resident of the other contracting state may only be taxed in the first state, with the exception of gains derived by a resident of a contracting state from the transfer of shares or similar rights of a company whose assets are composed, directly or indirectly, by more than 50% of immovable property located in the other contracting state, which may be taxed in that other state.

Key treaty provisions between Portugal and Ivory Coast

  • Dividend and interest payments made by a company that is a resident of a contracting state to a resident of the other contracting state may be taxed in the first state, but the tax shall not exceed 10% of the gross amount of the dividends or interest.
  • Royalties arising in a contracting state and paid to a resident of the other contracting state may be taxed in the state in which they arise, but the tax shall not exceed 5%.
  • Gains derived by a resident of a contracting state from the transfer of shares or securities representing the capital of a company that is a resident of the other contracting state may only be taxed in the first state, with the exception of gains derived by a resident of a contracting state from the transfer of shares or similar rights that derive more than 50% of their value, directly or indirectly, from immovable property located in the other contracting state, which may be taxed in that other state.

Entry into force

  • Both treaties would enter into force 30 days after the date of receipt of the last notification of the contracting states that the internal constitutional requirements have been met.
  • Notwithstanding the above, the effective dates of the various treaty provisions shall follow the rules and dates set forth in article 31 of both treaties.

Portugal as a hub for investments in Africa

  • With these two new treaties, Portugal has increased its tax treaty network to 76 treaties, 67 of which are already in force and 9 are signed but not yet in force.
  • Besides Ivory Coast and São Tomé and Príncipe, Portugal’s treaty network covers a wide range of other African jurisdictions, including South Africa, Algeria, Cape Verde, Ethiopia, Guinea-Bissau, Morocco, Mozambique, Senegal and Tunisia.
  • Portugal’s extensive treaty network with African countries (and other countries around the world), is aligned with Portugal’s universal participation exemption regime for dividends and capital gains derived from local and foreign subsidiaries [the main requirements are: (i) a 10% direct or direct and indirect participation; (ii) 12 months holding period; and (iii) not being tax resident in a black listed jurisdiction], makes Portugal an attractive jurisdiction to hold investments in African countries (as well as in any other country in the world).
  • Even in cases where African subsidiaries may benefit from temporary tax holidays, which is common in certain African countries, Portuguese tax authorities have already confirmed in various advanced tax clearance requests that such subsidiaries may qualify for the Portuguese universal participation exemption regime, to the extent that they are subject to tax (despite benefiting from a temporary tax exemption locally). This should always be carefully addressed in advance, as it is very fact driven.
  • As such, Portugal may be a suitable location to serve as a hub for investments in Africa.

Endnotes

1. Published in the Portuguese Parliament Resolution n. 182/2016 on 5 august 2016.

2. Published in the Portuguese Parliament Resolution n. 192/2016 on 22 august 2016.

EYG no. 02610-161Gbl

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