February 1, 2022
Background
The Tax Treaty celebrated between Portugal and Sweden was revoked as of January 1st, 2022, based on Notice No. 2/2022, published today.
The Swedish Parliament’s decision was encouraged by the existence of the Portuguese non-habitual resident tax regime, more precisely, the existence of a clearly more favourable regime applicable to Swedish retirees.
Despite, recently, the Portuguese Government replaced the exemption with 10% tax rate for pensions, Sweden considered that the 10% rate is also inadequate and insufficient to avoid Swedish retirees moving to Portugal.
Practical effects from this change
From now on, on the one hand, Sweden is entitled to claim tax on all income paid out by Swedish entities and individuals to Portuguese tax residents, be it companies or individuals, and, on the other hand, Portugal is also entitled to claim tax on all income paid out to Swedish entities and individuals.
The termination of the Tax Treaty will have a negative impact not only on pensions but also on taxation for both corporates and individuals. Avoiding double taxation will soon depend entirely on domestic provisions of Portugal and Sweden, the Parent Subsidiary Directive, and the Interest and Royalties Directive. In any case, a greater administrative burden is expected.
In this regard, to avoid a double taxation, Portuguese tax law grants domestic companies and individuals residing in the country the possibility to offset, within certain limits and subject to determined conditions, the tax paid abroad to the income tax due in Portugal.
Our recommendation
Based on the above, we recommend that the implications in terms of withholding tax are analysed in relation to transactions between Portuguese and Swedish corporates or individuals. We are, of course, at your disposal, should you consider specialized support in this area necessary.
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The information presented above is not intended to be an exhaustive analysis of all the changes to the current legal regime, but rather a selection of those that we believe to be the most relevant, and does not preclude consultation of our Company and / or legislation to which it refers.
For more information contact: Catarina Breia (+351 91 7575 832 or cbreia@pt-nexia.com) from our Tax Department.
