When several companies belong to the same corporate group, Portuguese tax law provides for a special scheme that allows this group of companies to be treated as a single economic entity for tax purposes. This scheme is known as RETGS – Special Taxation Regime for Corporate Groups.
This mechanism allows the results of the different companies within the group to be considered jointly for corporate tax purposes, enabling more efficient tax management.
How RETGS works
Under the standard tax regime, each company is taxed individually. Thus, if one company makes a profit and another incurs a loss, the profitable company pays tax, regardless of the situation of the others.
Under RETGS, the results of the group’s companies can be consolidated. This means that the profits of one company can offset the losses of another, with tax being calculated on the group’s overall result.
This mechanism can lead to greater tax efficiency, particularly in business groups comprising several companies engaged in complementary activities.
Requirements for applying the scheme
For a group of companies to be eligible to apply the RETGS, there must be a parent company and one or more subsidiary companies.
The parent company must hold, directly or indirectly:
• at least 75% of the share capital of the subsidiary companies
• more than 50% of the respective voting rights
In addition, the companies forming part of the group must meet certain requirements, namely:
• have their registered office and place of effective management in Portugal
• be subject to the general corporate tax regime
• have the same tax year
An optional regime
The application of the RETGS is not automatic. It is an optional regime, so it is up to the group to decide whether or not to opt into this tax framework.
Before opting for the regime, it is important to assess the existing corporate structure, the tax situation of the companies and the potential benefits or implications of its application.
The role of the parent company
Under the RETGS, the parent company plays a central role in the group’s tax management.
Its responsibilities include, amongst other things:
• calculating the group’s consolidated taxable profit
• filing the group’s corporation tax return
Despite this tax consolidation, each company retains its legal autonomy and continues to file its own individual tax return.
Liability for tax payment
Another relevant aspect is that the companies within the group may be jointly and severally liable for the payment of tax due.
This means that, should the tax not be paid, any company within the group may be called upon to settle the respective payment.
A strategic decision
The use of the RETGS can be an important tool for tax planning and business organisation, enabling more efficient management of results within a group of companies.
However, the application of this regime should always be analysed on a case-by-case basis, taking into account the group’s structure, the companies’ activities and the business’s strategic objectives.
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