Trusts in Portugal

Maria Câncio | Lawyer

Can I set up a Trust in Portugal?

It isn’t possible to set up a trust in Portugal as the legal figure of the Trust is not recognized under Portuguese civil law, except for offshore activities within the institutional framework of the Madeira International Business Centre.

Nevertheless, Portugal specifically acknowledges that distributions from fiduciary structures (like Trusts) to Portuguese residents are liable to taxation in Portugal.

Trusts are traditionally structured in common law countries (e.g., countries with this legal framework include the United Kingdom, the United States and South Africa) and have historically not been contemplated in the civil law systems predominant across continental Europe.

Nevertheless, the attractiveness of Portugal has resulted in a substantial number of new high-net-worth and ultra-high-net-worth residents. For these individuals, the taxation of Trust distributions has become a significant part of their tax planning before relocating to Portugal.

May a foreign Trust hold shares in Portuguese companies?

A foreign Trust cannot hold shares directly in Portuguese limited liability companies.

May a Trust acquire real estate in Portugal?

No. Real estate located in Portugal cannot form part of the assets of a Trust.

Can I set up a foreign Trust if I am a tax resident in Portugal?

There is no limitation in Portuguese Law for residents to set up a Trust abroad.

If I am the beneficiary of a Trust and a tax resident in Portugal, how will the Trust’s distribution be taxed in Portugal?

Regardless of whether its recipients are settlors of the Trust or not, the distribution from a Trust to a tax resident in Portugal are classified as investment income (Category E) and subject to taxation at a flat rate of 28% (or 35%, if the Trust is domiciled in a country, territory or region subject to a more favourable tax regime), unless the taxpayer opts to add such income to the remaining income and subject it to taxation at progressive tax rates (which can go up to 48% and to an additional solidarity rate of 5%). 

If I am a tax resident in Portugal and I terminate the Trust, how will I be taxed in Portugal?

The amounts received as a result of liquidation, revocation or extinction of a Trust are taxed in the following terms:

• When the recipients are Settlors of the Trust, such amounts will be classified as capital gains (Category G) and subject to taxation at a flat rate of 28% (or 35%, if the Trust is domiciled in a country, territory or region subject to a more favourable tax regime), unless the taxpayer opts to add such income to the remaining income and subject it to taxation at progressive tax rates (which can go up to 48% and to an additional solidarity rate of 5%).

• When the recipients are not Settlors of the Trust, such amounts will not be subject to IRS but will be regarded as gifts and, as such, subject to stamp tax at a flat tax rate of 10% depending on the location of the assets. Assets that are outside Portugal do not attract stamp tax. 
  

If you have further questions regarding this matter, get in touch with us and we will be delighted to assist you.