On 10th December 2018, Portugal published Notice no. 144/2018 in the Official Gazette, announcing the new income tax treaty with Montenegro. The treaty covers Montenegrin corporate profit tax and personal income tax and Portuguese personal income tax, corporate income tax, and surtaxes on corporate income tax. The treaty applies from 1st January 2019 and follows the general OECD model.
The Treaty introduces the following principles and rates:
Withholding Tax Rates
- 5% - of the gross amount of the dividends if the beneficial owner is a company directly or indirectly holding at least 5% of the capital of the company paying the dividends
- 10% of the gross amount of the dividends in all other cases
- 10% of the gross amount of the interest
- 5% of the gross amount of the royalties – for the use of, or the right to use any copyright of literary, artistic, or scientific work, including cinematographic films and recordings on tape or other media used for radio or television broadcasting or other means of reproduction or transmission or computer software
- 10% of the gross amount of the royalties – for the use of, or the right to use any patent, trademark, design or model, plan, secret formula, or process, or for information concerning industrial, commercial, or scientific experience.
One of the two states may tax capital gains derived by a resident of the other state in the following scenarios:
- 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 PE which a company of one state has in the other state;
- Gains derived by a resident of one state from the alienation of shares deriving more than 50 % of their value directly or indirectly from immovable property situated in the other state.
Furthermore, gains from the alienation of ships or aircraft operated in international traffic will be taxable only in the country in which the place of effective management of the company is located.
When it comes to the gains from the alienation of all properties other than referred, such gains shall be taxable only in the state where the alienator is a resident.
The treaty was concluded in English, Portuguese and Montenegrin languages. In the case of any divergence of interpretation, the English text prevails.
We advise Montenegrin companies with business ties to Portugal to carefully consider the impact the treaty may have on their operations as well as to explore potential benefits of their international group structures.