Are you ready for full EU transparency on your national and international investments?

Much has been written of late regarding the changes to the Portuguese personal income tax (PIT) introduced for the 2015 tax year. I refer specifically to private investments held by Portuguese tax residents, whether they be nationals or expats.

There are some people, quite a few in fact, who feel that because Portugal has been in the past somewhat ineffective and relaxed on tax collection, it will carry on with “business as usual”. Be very careful not to be fooled by the past and fall into a false sense of security, as the taxman has been empowered with new legislation armoury to fight a good fight.

All it took was 29 opaque words to throw a spanner into the works of a reasonably accepted method of using international arrangements to shelter one’s financial investments. As such, the use of trusts, foundations, investment companies et al, will be stringently assessed to establish that the principle uses of such structures are not employed to evade the taxman.

Another thing of the past is the taxman no longer plays fair and the once term “beyond reasonable doubt” is rendered obsolete. The once onus of proof rested with the taxman when suspecting PIT foul play has now been inverted, and the onus of proof is now the responsibility of the individual. In other words, you may find yourself under investigation without being informed, and at the taxman’s behest, your bank accounts and assets can be frozen – with or without a court order – until such time you proof the contrary.

Twenty nine words and I quote: “Distributions of income from fiduciary structures which have not been the subject of taxation by the rules of attribution of income, outside of the settlement, withdrawal or termination thereof” shall be taxed accordingly.

Accordingly, Offshore Jurisdiction Structures will be taxed at 28%, whilst Non Recognised Offshore Jurisdiction will be taxed at 35%, irrespective of it being the initial capital entrusted or the actual capital growth.

For further information about this draconian legislation, request from your accountant or your financial adviser the actual piece of law, namely the “December 17-12-2014 Fiduciary structures”, Lei n. º 82-E.

Another nail in the coffin – EU Transparency
To further impede international investments, a political agreement across the European Union was reached on January 14, 2014 on the MiFID 11 (Markets in Financial Instruments Directive, second instalment) proposals. This directive aims to integrate the EU’s financial markets and to increase the amount of cross border investments. This important measure is seen as essential to establish common rules to enable investment companies to compete with one another across the EU. Its passage through the legislative process was controversial, with objections from a number of Member States, including the UK. Its full implementation is due to be rolled out across all members states in 2017.

Although the above objective seems just and fair, MiFID 11 brings a wrath of legislative amendments to the exchange of information between the EU sovereign states. After several years of negotiations between the Commission, Parliament, and EU Council, they have reached a consensus regarding the final text to MiFID11’s mandate, summarised under three distinct narratives:

▪ Fair, efficient and transparent
▪ Reduce systemic risk
▪ Investor protection

Measures pertaining to MiFID 11 will apply to investment banks, insurance companies, portfolio managers, brokers, corporate finance firms, some derivatives, commodities and all related firms.
Ultimately, this move is just another step into fully integrating the EU’s financial markets into one cohesive seamless market.

The good, the bad and the ugly
The good prediction is that MiFID 11, in its full splendour, when fully and successfully implemented, will offer more revenue to Member States.

The bad is that private investors may be burdened with punitive tax measures, however just or not, under the exchange of information element of MiFID 11, which may drive investors away to seek better returns on their capital.

The ugly: MiFID 11 may stir enough mayhem and disparity to drive financial institutions to other less regulated financial hubs, thus throwing the baby out with the bath water.

To read more about the aforementioned EU Legislation, go to

By António Rosa

António Rosa is Regional Manager in Lisbon at Blacktower Financial Management (International) Limited
Quinta do Lago: 289 355 685 | Cascais: 214 648 220 | [email protected]
Blacktower Financial Management (International) Limited is licensed by the Gibraltar Financial Services Commission Licence 00805B.