The Legal 500

As in past years, the 2011 Budget of the Macao Special Administrative Region (OR/2011) provided for various Tax exemptions, including for industrial tax and stamp duty, and deductions for professional tax (on work related income), urban property tax and complimentary income (on industrial and commercial income).

A special tax structure is now available to company groups that meet the following criteria: (I) all compnaies are subject to Corporate Income Tax or an equivalent income tax,

A few months before 20 December 1999, when Macau became a special administrative region within the People’s Republic of China, the governments of Portugal and Macau - which, for the purposes of the agreement, includes the peninsula of Macau and the islands of Taipa and Coloane - signed an agreement to avoid double taxation and to prevent tax evasion in the area of income tax. The agreement, which was signed in Macau on 28 September 1999 and came into force retroactively as from 1 January 1999, closely follows the Organisation for Economic Co-operation and Development’s (OECD’s) model.

In light of the ineffectiveness of tax litigation and the increased mistrust of taxpayers in relation to tax decisions, with the decision-makers very often hiding behind mere decisions of form, it is imperative that we weigh up alternative methods for resolving tax disputes, such as mediation, conciliation, and tax arbitration itself, in order to deal with disputes accumulated and arising out of relations between the State and the taxpayer, thus reversing the feeling of injustice in this area.

The 2010 State Budget Proposal is sparse in the area of tax changes, which is rare and commendable: the budget should not contain reforms or structural modifications to the tax system, since it does not guarantee the balancing of separate laws.

In light of the ineffectiveness of tax litigation and the increased mistrust of taxpayers in relation to tax decisions, with the decision-makers very often hiding behind mere decisions of form, it is imperative that we weigh up alternative methods for resolving tax disputes, such as mediation, conciliation, and tax arbitration itself, in order to deal with disputes accumulated and arising out of relations between the State and the taxpayer, thus reversing the feeling of injustice in this area.

A government bill on the 2010 budget was presented in the Portuguese parliament on 26 January.

Several countries have already introduced the concept of “temporary non-residents” into their tax orders, thus enabling them to lay down special rules regarding the taxation of income received by those who are habitually resident in these countries, but take up residence in another country for a certain period – which as a rule does not exceed 5 years and is very often a result of secondment - and subsequently return to their former country of residence.

On 27 August 2009, the Portuguese Directorate-General of Taxation (DGCI) approved Circular no. 21/2009, revoking the previous administrative instructions concerning VAT as a basis for charging Municipal Property Transfer Tax (IMT), whenever the parties waive that tax in real estate transactions.

The government has proceeded to transpose into national law Directive no. 2008/8/EC of 12 February and Directive no. 2008/9/EC of 16 December via Portuguese Decree-Law no. 186/2009 of 12 August, thereby significantly amending the Value Added Tax (VAT) Code, the VAT system for Intra- Community Transactions (RITI) and applicable supplementary legislation.

In January 2010, the decree-law that enacts the Accounting Standardisation System and repeals the Official Chart of Accounts (POC) will enter into force. This legislation was passed as part of a reform that is intended to be structural in nature and apply horizontally across the national accounting system. The reform takes shape in four different legislative instruments: the legislation that enacts the Accounting Standardisation System, the one that amends the IRC (Corporate Tax) Code, the one that sets up the new Accounting Standardisation Committee and the one that sets up the Accountants' Association.

The publication of Decree-Law 49/2009 of 26 February brings with it the compulsory addition of biodiesel to the road diesel used in Portugal in the percentage, by volume, of 6% in 2009 and 10% in 2010. Nevertheless, road diesel must comply with European standard EN 590 and thus until such time as this standard is altered, the maximum percentage of diesel that may be added is only 5%. Once again though, the national legislature has taken the initiative in the apparent hope that the country can influence the advance of the European process in respect of biofuel use.

Last June 5 was published Decree-Law No. 136-A/2009 that reduced the term of the guarantee that the taxpayers have to grant to the Tax Authorities when requesting VAT refunds, from one year to six months.

On February 2, 2008, decree-law no 363/2007 came into force and the production of energy in Portugal entered a new era. The principle behind the new law is to save energy, reduce costs and protect the environment. Indeed, consumers are now allowed to produce electricity themselves through small power plants, ie not exceeding 5.75 kW, and sell the surplus to the public network with a limit of 150 kW.

The 2009 State Budget was prepared during the second six months of 2008 and enacted by Parliament in October of last year. It was however prepared under certain assumptions which did not materialise; the eurozone went into recession in the third quarter of 2008, that is to say, there was a negative growth in GDP during the last two quarters which is expected to worsen in 2009, the Bank of England interest rates in the British pound zone reached their lowest level (1.5% in 315 years!) while the European Central Bank also lowered the euro interest rate on 15 January, drawing near to its all-time low (2%).

The very credible official German institution - the ISW - even admitted that it was possible that German GDP would decrease 3% in 2009. Production at the three largest American car manufacturers dropped between 30% and 40% in 2008. French car company Renault also saw sales fall worldwide by over 4% in 2008. In Spain, the number of cars sold fell by over 40% in 2008 while the sale of houses decreased 28% in October last year. The Bank of Portugal too announced a more pessimistic forecast.

The GDP level predicted for Portugal in 2009 was to decrease to - 0.8% while inflation in 2009 would not exceed 1% and unemployment would reach 8.6%. And that very credible German institute . the ISW - forecast inflation in the region of 0.6% and unemployment of around 8.9% for Portugal. The 2009 State Budget Bill was therefore prepared and enacted on the assumption of a growth in GDP in the eurozone of 1.3% in 2008 and 0.2% in 2009 and of a growth in Portuguese GDP of 0.8 in 2008 and 0.6 in 2009, as well as an inflation rate of 2.5% and an unemployment rate in the region of 7.6%.

The EC Treaty enshrines several economic freedoms - free movement of workers, capital and services and freedom of establishment - safeguarded by a prohibition on discrimination which, over the years, has shown huge potential for calling into question various Member-State tax provisions in the field of direct taxation.

The 2009 State Budget Bill was presented to Parliament on 15 October. The general discussion and voting on the Bill are scheduled for 5, 6 and 7 November while the special discussion and voting and final overall discussion and voting are scheduled for the 27 th and 28 th of the same month.

The recently published Decree-Law 55/2008 of 26 March has set out the regulatory provisions necessary for implementing incentive measures for the speedier recovery of areas in Portugal that suffer most from typical inland regional problems, as provided for in the Tax Benefits Statute (EBF).

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Awaiting approval by the Parliament of the Republic is a government-proposed bill aimed at reducing the normal VAT rate from 21% to 20% (and from 15% to 14% in the case of transactions deemed to take place in Madeira and the Azores), with effect from 1 July. Similarly to the previous changes in VAT rat, the entry into force of this legislative amendment will raise some practical difficulties as regards the application of the law and, as has been the norm in such situations in the past, will be regulated by government guidelines.

The Government has, recently, approved a proposal to reduce the standard rate of the Value Added Tax (VAT) from 21% to 20%, with effects from July 1 onwards.

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