Do You Have A Trust In Portugal?

If you live in Portugal and have a trust, or if you are the beneficiary of one, then you need to be aware of a new tax charge on distributions from a trust. This is quite a significant change to the taxation of trusts in Portugal.

If you live in Portugal and have a trust, or if you are the beneficiary of one, then you need to be aware of a new tax charge on distributions from a trust. This is quite a significant change to the taxation of trusts in Portugal.

The new rules came into effect on 1st January 2015, and form part of the revised income tax law. It affects the taxation of distributions from fiduciary structures, such as trusts and foundations, to Portuguese residents.

So, from now on, when a distribution from a trust is paid to a resident of Portugal, it is taxed at 28%. It is the whole amount of the distribution that is taxed, regardless of how much of it was original capital and how much was income or gains.

This will affect you if you are settlor of a trust and receive payments from it, or if you are the beneficiary of a trust.

If you decide to wind up your trust, and the assets are distributed to you as the settlor, the distribution will still be taxed. The difference is that in this situation, only the gain is taxed – that is, the difference between the amount that was put into the trust and the amount received.

If, when a trust is wound up, payments are made to someone other than the settlor, then it is likely that the distribution will be considered a gift from the structure. In this case it would be liable to stamp duty (Portugal’s equivalent of inheritance tax), at a rate of 10%. Stamp duty is only payable on assets located in Portugal.

All the above only applies to distributions to Portuguese residents. So if you are resident in Portugal and have a trust, if payments are only made to beneficiaries resident outside Portugal, then the 28% Portuguese tax does not apply. There may be tax due in the beneficiary’s country of residence, but that would be the case anyway.

Trusts remain opaque structures in Portugal and still provide various estate planning benefits. If you have a trust, or were thinking of setting one up, it may still fulfil your objectives. However it does really depend on your personal circumstances – what you set up the trust to achieve; where you are resident now; where you are likely to live in the future; where your beneficiaries are resident; whether distributions are likely to be made to Portuguese residents, whether yourself or someone else; how much the 28% tax would be felt, etc.

Trusts still have a useful role to play, but you do need to review why you have your trust and how much this new tax affects yourself and your beneficiaries.

This is a specialist area, so seek professional, personalised advice. You can also take the opportunity to ask about other tax planning opportunities in Portugal, since many people are not aware of all the advantages the Portuguese tax regime has to offer.

22 January 2015

Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; an individual is advised to seek personalised advice.