The distribution of dividends by commercial companies in Portugal is regulated by the Portuguese Companies Code (“CSC”), enacted under Decree-Law No. 262/86 of 2 September, as subsequently amended. This legal framework establishes precise rules regarding the allocation of profits to shareholders, thereby safeguarding the financial stability of the company and protecting the interests of its creditors.
Pursuant to Article 32(1) of the CSC, dividends may only be distributed from profits effectively ascertained for the financial year, provided that the corresponding legal reserves, representing at least 20% of the share capital, have been duly constituted. This limitation is intended to preserve the company’s equity, acting as a safeguard for creditors and ensuring the financial stability of the enterprise.
The authority to deliberate on dividend distribution generally rests with the General Meeting of Shareholders, in accordance with Article 31(1) of the CSC.
As a rule, dividends are distributed in proportion to each shareholder’s participation in the share capital, pursuant to Article 22(1) of the CSC. Notwithstanding the foregoing, shareholders may unanimously agree on a distribution that departs from strict proportionality, even if such deviation is not provided for in the company’s bylaws. For example, it is permissible for one shareholder to receive an amount exceeding or falling short of their proportional entitlement to the share capital.
In the case of public limited companies (sociedades anónimas), unequal distribution is only permitted where expressly provided for in the bylaws, such as in the creation of non-voting preferred shares (Article 341 of the CSC).
From a fiscal perspective, the regime applicable to the distribution of dividends by Portuguese companies varies according to the type of shareholder — individual or corporate — and their tax residence.
For individual’s resident in Portugal, dividends are subject to withholding tax at the final rate of 28%. However, the taxpayer may elect to aggregate such income in their personal income tax return (IRS), which may be fiscally advantageous for those in lower tax brackets, thereby reducing the effective tax burden on received dividends.
For non-resident individuals, withholding tax is similarly final and, as a rule, is levied at 28%. This rate may, however, be reduced or eliminated where a Double Taxation Agreement (DTA) exists between Portugal and the country of residence of the beneficiary. In such instances, the applicable rate is that stipulated in the agreement, typically upon presentation of a valid certificate of tax residence, thereby preventing double taxation of the same income and promoting the competitiveness of foreign investment in Portugal.
For resident corporate shareholders, the legislation generally provides for withholding tax at 25%. Nevertheless, the participation exemption regime or the mechanism for eliminating economic double taxation under the Corporate Income Tax Code (Código do IRC) may apply, provided certain conditions are met, including the holding of at least 10% of the distributing company’s share capital for a minimum period of one year. When this regime is applicable, dividends are exempt from taxation, preventing profits previously taxed at the corporate level from being taxed again upon distribution.
For non-resident corporate shareholders, dividends paid by Portuguese entities are similarly subject to 25% withholding tax, unless a more favorable DTA applies or the provisions of the EU Parent-Subsidiary Directive are applicable. The Directive aims to exempt dividends and other forms of profit distribution paid by subsidiaries to their parent companies from withholding tax, thereby eliminating double taxation at the corporate level. Provided the requirements of the Directive are met, including a minimum 10% shareholding and effective taxation in the parent company’s state of residence, dividends may be exempt from withholding tax, promoting the free movement of capital within the European Union and preventing economic double taxation.
Belzuz Abogados S.L.P. – Branch in Portugal provides comprehensive legal advisory services, assisting companies throughout the entire dividend distribution process: from (i) the proposal for the allocation of profits, (ii) approval at the General Meeting, (iii) drafting of the minutes, to (iv) compliance with fiscal obligations. Such support ensures full legal compliance, protection of the company’s equity, and tax optimization, providing security and peace of mind for shareholders and company management.