Under the general rules, withholding of Portuguese corporate income tax (PCIT) will be levied over the aviation-related lease payments whenever the lessee is a Portuguese tax resident entity and the lessor is a non-Portuguese tax resident entity (without a permanent establishment located in Portugal to which the rental income is attributable). This withholding tax on the lease rents would be levied at a 25 per cent flat rate (domestic rate), except where a double tax treaty (DTT) entered into by Portugal applies, in which case such 25 per cent PCIT domestic withholding rate may be reduced under the applicable DTT (since income derived from the lease of commercial or industrial equipment is generally qualified as a royalty, as a rule PCIT would be withheld under the rates provided for in article 12 of the applicable DTT). To apply for the DTT benefits, some formal procedures must be fulfilled (more precisely, in the alternative, said benefit must be claimed by way of the form Mod 21-RFI, which must be duly certified by the tax authorities of the income recipient’s country of residence or a non-certified version of the form Mod 21-RFI properly filled out jointly with a tax certificate issued by the tax authorities of the country of residence attesting that the recipient of the income is a residence of such country).
The withholding of PCIT may, however, be exempt whenever the conditions provided for in EU Council Directive 2003/49/EC of 3 June 2003, applicable to interest and royalty payments made between associated companies of different member states, are met; notably, a direct minimum participation of 25 per cent between the lessor and the lessee, held for at least an uninterrupted period of two years or, where both the lessor and the lessee are held in, at least, 25 per cent by the same entity, during the two years preceding the attribution of income. Moreover, the relevant companies must have one of the legal forms listed in the Annex to the Directive and must be subject to PCIT or to an equivalent tax in their country of residence.
Additionally, an ad hoc exemption from PCIT on the lease rents may, however, be granted on public services grounds, upon formal request to be submitted by the lessee to the Portuguese Minister of Finance, provided that the lessor is a non-Portuguese resident entity without a permanent establishment located therein to which the rental income is attributable.
As for VAT, the aircraft lease agreements are qualified as supplies of services that would be located in Portugal whenever the lessee or recipient of the service is a Portuguese taxable person (the general place of supply rule for business-to-business transactions foreseen in the domestic rule equivalent to article 44 of the Council VAT Directive 2006/112/EC of 28 November 2006 would apply). This means that the VAT that may be due will have to be accounted for and paid to the Portuguese Tax Authorities by the lessee under the reverse-charge mechanism. A VAT exemption may, however, be applicable if the aircraft being leased is aimed to be used by an airline operating for reward chiefly on international routes (ie, whenever, by reference to the preceding 12 months, the percentage of turnover attributable to international air traffic or, alternatively, the number of passengers carried in international routes exceeds 50 per cent of the total turnover or passengers).
In general, a final PCIT withholding of 25 per cent would be levied over the interest component of a loan repayment whenever the debtor is a Portuguese tax resident entity and the creditor is a non-Portuguese tax resident entity (without a permanent establishment located therein to which the interest income is imputable). This withholding tax on interest may be reduced where a DTT entered into by Portugal applies (see above the formal requirements for the concession of DTT’s benefits).
Moreover, where both the creditor and the debtor are entities resident for tax purposes in the European Union, the withholding of PCIT on interest may, however, be exempt whenever the conditions provided for in Council Directive 2003/49/EC, applicable to interest and royalty payments made between associated companies of different member states, are met (see above the main conditions that must be met).
Also, regarding the payment of interest to non-Portuguese tax resident entities not having a permanent establishment located therein, to which said income is imputable, an ad hoc exemption from withholding of PCIT may be granted on public services grounds, upon formal request to be submitted by the debtor to the Portuguese Minister of Finance.
In principle, a loan repayment would not trigger any Portuguese VAT taxation, since the VAT exemption provided for financial transactions would apply to the interest component of the payments.
Whenever the entity transferring the ownership of the aircraft is not resident in the Portuguese territory, nor does it have a permanent establishment located therein to which such transaction is imputable, the transfer of the aircraft will not trigger any PCIT taxation. If, rather than transferring the ownership of the aircraft, one were to transfer the stock (or the beneficial interest) in the company that owns the aircraft (aircraft special purpose entity (SPE)), no PCIT would be due either, whenever the seller is a non-Portuguese tax-resident company without a permanent establishment located therein to which such transaction is attributable, and the aircraft SPE whose stock (or the beneficial interest) is being transferred is also not resident in Portugal.
The transfer of the ownership of the aircraft will be liable to Portuguese VAT, provided that the aircraft is put at the acquirer’s disposal in Portuguese territory (ie, the aircraft is on Portuguese soil or in Portuguese airspace at the moment it is transferred to the acquirer). Therefore, if the acquirer of the aircraft is an entity established in Portugal for VAT purposes, then the VAT that may be due would have to be accounted for and paid to the Portuguese tax authorities by the acquirer. Conversely, if the acquirer of the aircraft is an entity not established in Portugal for VAT purposes, then the reverse-charge mechanism would not apply. As a consequence, the non-established seller would have to:
- trigger a VAT registration in Portugal (and, if resident outside the EU territory, also appoint a tax representative in Portugal); and
- account for and pay any Portuguese VAT due.
Notwithstanding the above, a VAT exemption may apply provided that the aircraft being transmitted is intended to be used by airlines operating for reward chiefly on international routes (which would have to be demonstrated by the applicant - see above). In such case, the non-established seller will be dismissed from the obligation to register In Portugal for VAT purposes.
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