Fiscal Transparency Regime: What You Need to Know
In a context where tax compliance is becoming increasingly demanding, it is essential to understand the special regimes that may apply to certain companies. One such regime is the Fiscal Transparency Regime, provided for under Article 6 of the Corporate Income Tax Code (Código do IRC). This article aims to explain clearly and objectively what this regime involves, who it applies to, and its main implications.
What is the Fiscal Transparency Regime?
The Fiscal Transparency Regime allows certain companies not to be taxed directly under Corporate Income Tax (IRC). Instead, the profits (or losses) calculated are attributed to the partners or members, who include them in their Personal Income Tax (IRS) or Corporate Income Tax (IRC), depending on whether they are individuals or legal persons. This attribution occurs even if profits are not actually distributed.
The regime is applied automatically when the legal criteria are met — it does not depend on a choice made by the company.
When Does It Apply?
The conditions for applying the regime are verified on the last day of the tax period, generally the end of the financial year. The company declares the regime when submitting the Model 22 Corporate Income Tax return, as there is no formal registration in the tax register nor in the declaration of commencement of activity.
Which Entities Are Covered?
The regime applies to the following entities with their head office or effective management in Portuguese territory:
- Civil companies not formed under commercial law – which carry out non-commercial activities and are governed by the Civil Code.
- Professional partnerships – in which the partners carry out professional activities listed in Article 151 of the IRS Code.
- Asset management companies – that focus on managing assets such as property or securities.
- Complementary Business Groupings (ACE)
- European Economic Interest Groupings (EEIG)
What Are Professional Partnerships?
These are companies set up to carry out a specific professional activity (e.g. medicine, law, architecture). They may take various legal forms but must meet certain conditions to qualify under the regime, such as:
- All partners must carry out the professional activity concerned;
- Or at least 75% of the income must derive from that activity;
- The company must have no more than five partners;
- At least 75% of the share capital must be held by professionals practising in the company;
- None of the partners may be a public entity.
What About Asset Management Companies?
These companies are limited to managing assets (such as property) kept for use, rental, or maintenance. They may fall under the regime if:
- The majority of the share capital is held by a family group for more than 183 days in the financial year;
- Or the share capital is held by up to five partners, none of whom are public entities.
Moreover, the company’s actual activity must predominantly be asset management. Thus, more than 50% of income, on average over the last three years, must derive from such activity.
And the ACEs and EEIGs?
In these cases, profits or losses are directly attributed to the members. This differs from the other entities, where only the taxable income is attributed. These groupings exist to support the activities of their members and not to generate profits for themselves.
How Is the Attribution Made?
The distribution of income or losses to the partners is done:
- According to the company’s founding document;
- Or, if silent on the matter, in equal shares.
For individual partners, the attributed income is taxed under Category B of the IRS.
However, it is important to note that losses are not attributed to the partners (except in ACEs and EEIGs). Only profits are. Losses remain with the company and may be carried forward to offset future profits, subject to the rules of the Corporate Income Tax Code.
Conclusion
The Fiscal Transparency Regime was created to ensure fairer, more direct and efficient taxation, especially for small, family-run or professional businesses. By taxing income directly at partner level, it avoids double taxation and strengthens the link between the profits generated and those who actually benefit from them.
It is a regime with specific rules and significant implications, so anyone involved in such entities should be well informed and, whenever possible, seek professional support — in particular from a certified accountant.
