Treatment of trusts
The 2015 PIT Reform introduced some provisions on the taxation of income and gains arising from trusts, both during their life or at their termination. The taxation of operations involving trusts was not ruled in the Portuguese tax law (before the PIT Reform), with the exception of the consideration of these structures for purposes of the application of the controlled foreign companies (CFC) legislation.
The new legislation refers specifically to fiduciary structures (estruturas fiduciárias). The reports produced by the PIT Reform Commission, which includes the reasoning for the proposed changes, makes it clear that this expression is intended to cover trusts, which are, in fact, the only type of ‘fiduciary structure’ mentioned on those reports.
Regarding the taxation of income from trusts, the new legislation provides rules to tax the following realities:
- Amounts received by individuals from liquidation, revocation, or extinction of ‘fiduciary structures’.
- Distributions made by ‘fiduciary structures’ other than as a result of any of the above operations.
According to the new rules, the amounts received as a result of liquidation, revocation, or extinction of ‘fiduciary structures’ are:
- Taxable as capital gains (Category G) whenever the recipients are settlors of the trust. Taxation arises either at 28% or at 35%, in the latter case if the structure is considered to be ‘domiciled’ (domiciliada) in a jurisdiction that is on the ’black list’ of tax havens published by the Portuguese authorities.
- Subject to stamp duty whenever the recipients are not settlors of the trust. Whenever the recipient is not a settlor, the amounts received as a result of liquidation, revocation, or extinction are regarded as transfers for no consideration/gifts and, as such, subject to stamp duty. The liability of transfers for no consideration to stamp duty follows the territorial principle, meaning that only assets that are located or deemed to be located in Portugal are subject to taxation. Taxable transfers are subject to a 10% flat rate.
Regarding the distributions paid by fiduciary structures, the amounts either paid or made available to a taxpayer from ‘fiduciary structures’, other than those arising from a liquidation, revocation, or extinction, are taxable as investment income (Category E) and subject to taxation at a flat rate of 28% or of 35% (if the trust is considered to be domiciled on a 'blacklisted' jurisdiction), regardless of whether the recipients are settlors or not.