Debt securities - Overall process for tax calculation/exemption from withholding tax - Portugal - securities held in CBF
In order to be exempt from Portuguese withholding tax on interest from debt securities, customers must:
- Segregate securities held for exempt and non-exempt investors into at least two separate securities accounts, one taxable and one exempt;
- Send a Master Instruction for each tax relief account to Clearstream Banking;
- Send the appropriate documentation per beneficial owner whose securities are held in the account specified in the Master Instruction to Clearstream Banking;
- Notify Clearstream Banking of the beneficial owner's NIF for each transfer of securities related to an exempt omnibus account (X) or to obtain a reduced tax rate in the taxable account (N);
- Report to Clearstream Banking internal transfers per beneficial owner for an exempt omnibus account (X);
- Transfer of securities from exempt omnibus account (X) to taxable account (N) in the case of non-renewal of tax certification.
1. Segregate securities held for exempt and non-exempt investors into at least two separate securities accounts, one taxable and one exempt.
Customers can hold Portuguese debt securities for:
- Exempt investors (for whom the certification procedure has been fulfilled):
- In a single “exempt” account (“S” account);
- In an omnibus “exempt” account (“X” account).
OR
- Non-exempt investors in another “non-exempt” account (“N” account) including undisclosed positions taxed at maximum tax rate (35%) or disclosed beneficiaries providing information to allow the application of the reduced tax rates (25% or 28% tax applicable, respectively, to corporates and individuals).
2. Send a Master Instruction for each tax relief account to Clearstream Banking
CBF customers must first complete a Master Instruction for each account in which the Portuguese debt securities are held and for which tax relief is required. By doing so, the customer certifies, among other things, that the debt securities held in the account specified and subject to the withholding tax regime are held exclusively for one single or several beneficial owners, that are eligible for tax exemption or applying for a reduced tax rate.
The Master Instruction is a one-time declaration per account or subaccount that remains binding for the customer and can be relied upon by CBF until it is revoked by the respective customer. If any change occurs that renders any of the details in the Master Instruction untrue, a new Master Instruction must be forwarded to CBF and the existing one must be revoked.
3. Send the appropriate documentation per beneficial owner whose securities are held in the account specified in the Master Instruction to Clearstream Banking
The documentation requirements depend on the status and residency of each final beneficial owner. A detailed list of required certification is available under the section Relief at source - eligibility, documentation, deadlines - Portuguese debt securities - CBF.
4. Notify Clearstream Banking of the beneficial owner's NIF for each transfer of securities related to an exempt omnibus account (X) or to obtain a reduced tax rate in the taxable account (N)
In addition to providing the appropriate documentation, customers must enter the NIF of the beneficial owner for an exempt omnibus account (X) and a taxable account (N) to secure application of reduced tax rate (25% or 28%).
Exempt omnibus account (X)
All transactions to or from this account must be flagged with a valid NIF recognised as tax exempted by CBF based on the certification provided for each beneficial owner before the first trade. Any incorrect/unrecognised NIF will result in the rejection of the instruction as the usage of an X account is only possible if all underlying beneficiaries are tax-exempted and certified accordingly.
Taxable account (N) to secure application of reduced tax rate (25% or 28%). If the NIF is not completed in the transaction or is not recognised as valid by CBF based on the certification provided for each beneficial owner before the first trade, the maximum tax rate (35%) will apply. The settlement instruction will not be rejected.
Note: For single exempt accounts (S) no NIF must be included in the settlement instructions
Requesting/confirming a NIF
The process of obtaining a NIF requires the following set of information depending on the status of the applicant.
Individuals:
- Complete name;
- Foreign address;
- State of residence;
- Tax Identification Number issued by the State of residence;
- Date of birth;
- Place of birth;
- Nationality;
- Gender.
Legal entities:
- Corporate name;
- Foreign address of the head office;
- State of residence;
- Tax Identification Number in the State of residence.
Requesting a NIF
Customers must send the request for NIF to CBF via the Excel file (mandatory template attached) duly completed and password protected to the email address portugaltax@clearstream.com and in addition an instruction with password by Xact Web Portal or SWIFT free-format message, including the following wording:
Attention: PTS Tax Services
Market: Portugal
Please find hereafter the password to open our NIF request sent to your attention by email on (date and time) from the email address (email address of the sender). Password: The NIF request will be processed on the PTA’s dedicated website and CBF will revert to customers (via MT568 SWIFT message) with the results of the request once they are disclosed by the PTA. It can take up to seven business days upon receipt of the request to obtain NIF from PTA. The NIF will also be visible in Xact Web Portal.
Important note: It can take up to seven business days upon receipt of the request to obtain NIF from PTA. The NIF will also be visible in Xact Web Portal.
Confirming existing NIF
For entities that already have a NIF allocated, customers must provide it to CBF by sending the same Excel file as explained above, on which the NIF must be completed in the respective column (G in current template).It can take up to seven business days upon receipt of the existing NIF to check its validity.
5. Report internal transfers per beneficial owner for an exempt omnibus account (X) to Clearstream Banking
In order to secure exemption at source from Portuguese withholding tax on debt securities, CBF customers are required to provide a daily report of all transfers of debt securities held within one exempt omnibus account from one beneficial owner to another that occurred without settlement instructions being forwarded to CBF. This report must be provided for each account on the effective settlement date of the transfers.
6. Transfer of securities from exempt omnibus account (X) to taxable account (N) in the case of non-renewal of tax certification
Customers are obliged to transfer out of their X account the holding for which tax certification is not renewed (and therefore no more valid) or upon a change of status that results in the beneficial owner no longer being eligible for tax exemption.
How Portuguese withholding tax is applied to non-exempt accounts (credit-debit mechanism)
For all non-exempt accounts the withholding tax is applied on:
• Transfer of securities;
• Coupon payment;
• Redemption proceeds that include issue discount.
Transfer of securities
Withholding tax is applied on each transfer of securities. When securities are received in a non-exempt account, that account will be credited with the tax corresponding to the income accrued pro rata temporis (that is, as from the last coupon date or closing date or from the issue, first placement or transfer, if no maturity event has occurred) up to a future coupon date (if no transfer occurs before a coupon date) or the date on which, under Portuguese law, the transfer becomes effective (if a transfer occurs before a coupon date), depending on which one occurs first.
When securities are delivered from a non-exempt account, that account will be debited with the tax on the income accrued pro rata temporis (that is, as from the last coupon date or closing date or from the issue, first placement or transfer, if no maturity event has occurred) up to or from the issue, first placement or transfer, if no maturity event has occurred) up to a future coupon date (if no transfer occurs before a coupon date) or the date on which, under Portuguese law, the transfer becomes effective (if a transfer occurs before a coupon date), depending on which one occurs first.
As a result, the beneficial owner will only have paid Portuguese withholding tax on the number of days he has actually held the securities on his taxable account (that is, the “pro rata” principle).
Coupon payment
Withholding tax is applied on each coupon payment. When a coupon payment is credited to a non-exempt account, the account is credited net of tax on the total coupon amount.
Redemption proceeds that include issue discount
Withholding tax is applied on redemption proceeds that include issue discount. Investment income includes interest accrued during the period counted from the last maturity date or, from the issue, first placement or assignment date (if no maturity event has occurred), until the date on which the securities are disposed of. This includes, for the part that corresponds to such periods, the difference between the redemption and the issue price for securities whose remuneration is partially or fully composed of such difference.
For State debt issued at a discount, namely treasury bills, the assessment it based on the interest rate provided by the Portuguese Treasury Agency (Instituto de Gestão da Dívida Pública or IGCP). For OID treasury bills, the Portuguese Treasury Agency has issued guidance according to which the amount subject to withholding should be determined based on the average interest rate obtained on the date of placement by applying the following formula:
RT = VMS * RATE * nd / 360
In this formula:
- RT = unit income subject to withholding, if applicable and not exempt;
- VMS = the average value of the subscription of each unit in the first placement of the series;
- RATE = the average interest rate of the first placement of the series (in percentage); and
- nd = the number of calendar days elapsed since the date of the first placement of the series.