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Finland-Portugal

17 November 2016

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Update - New Tax Treaty between Finland and Portugal

The new income tax treaty between Finland and Portugal was signed on 7 November 2016. Once in force and effective, it will replace the 1970 tax treaty between the two countries.

Taxes Covered

The treaty covers Finnish state income taxes, corporate income tax, communal tax, church tax, tax withheld from interest, and tax withheld at source from non-residents' income. It covers Portuguese personal income tax, corporate income tax, and surtaxes on corporate income tax.

Withholding Tax Rates

  • Dividends - 5% if the beneficial owner is a company directly holding at least 10% of the paying company's capital; otherwise 15%
  • Interest - 10%
  • Royalties - 5%

Capital Gains

The following capital gains derived by a resident of one Contracting State may be taxed by the other State:

  • Gains from the alienation of immovable property situated in the other State;
  • Gains from the alienation of movable property forming part of the business property of a permanent establishment in the other State; and
  • Gains from the alienation of shares or comparable interests deriving more than 50% of their value directly or indirectly from immovable property situated in the other State.

Gains from the alienation of other property by a resident of a Contracting State may only be taxed by that State.

Double Taxation Relief

Both countries generally apply the credit method for the elimination of double taxation. However, Finland will exempt dividends received by a Finnish company that directly controls at least 10% of the voting power in the paying company.

Limitation on Benefits

The final protocol to the treaty includes that the benefits of the treaty will not be granted to a resident of a Contracting State that is not the beneficial owner of the income derived from the other State. In addition, the benefits of the treaty will not be granted if the main purpose or one of the main purposes of any person concerned with the creation or assignment of the property or right in respect of which the income is paid was to take advantage of the benefits by means of such creation or assignment.

Entry into Force and Effect

The treaty will enter into force 30 days after the ratification instruments are exchanged and will apply from 1 January of the year following its entry into force. The 1970 tax treaty between the two countries will cease to apply and will terminate on the date the new treaty is effective.

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