Portugal’s IFICI scheme: 50% export threshold

Portugal has earned its reputation as both a lifestyle haven and a thriving centre for international business. While there are several tax incentives available, one of the most compelling for exporters is the IFICI scheme. This article zeros in on a crucial route to eligibility: applying through the 50% export option. Should your company export, or be able to, more than half of its services outside of the European Union – then you can look at applying. This pathway offers distinctive tax benefits designed to reward international ambition – making it a powerful tool for businesses seeking to optimise their tax position.

Designed to stimulate investment and job creation, the IFICI scheme delivers some of its most powerful tax advantages to export-oriented businesses. By meeting the 50% export threshold, companies can unlock significant tax exemptions and structure their operations for maximum efficiency. When paired with an international holding arrangement – such as a UK holding company – these benefits can be amplified even further.

This article provides a comprehensive overview of the IFICI scheme. We will explore how it works, the specific conditions for eligibility, and the significant tax advantages it offers. We will also detail how a UK holding company can be used to amplify these benefits and provide a clear roadmap for navigating the application process.

Key highlights

• Export-oriented incentive: the IFICI scheme is ideal for Portuguese companies that export over 50% of their turnover to markets outside the European Union.
• Significant tax exemptions: a key benefit is the exemption from corporate tax on profits and dividends received from foreign subsidiaries. Provided certain conditions are met.
• Holding company: when combined with a UK holding company, dividends can be transferred from the Portuguese company to the UK. This means zero withholding tax under the participation exemption rules, saving 28% on dividend taxes.
• Broad sector applicability: the scheme applies to a wide range of industries, including manufacturing, technology and agri-food, promoting diverse investment.
• Stimulates job creation: the incentive is linked to creating and maintaining jobs, aligning business growth with economic development in Portugal.

Understanding the IFICI scheme in detail

The IFICI scheme was established to attract productive investment into Portugal. It functions as a tax benefit, meaning eligible companies lock in specific tax advantages for a 10-year period. The core purpose is to encourage businesses that contribute to strategic sectors of the economy, foster technological innovation, and drive international exports.

To qualify, a company must make a significant investment and commit to creating a certain number of jobs. However, the most accessible and powerful element for many international businesses is the provision related to export activities.

A Portuguese company can apply for the IFICI scheme if it can demonstrate that more than 50% of its goods or services are exported; outside of the European Union. This opens the door for manufacturers, tech companies, and service providers who have a global market focus. Once approved, the company can enjoy a range of tax credits and exemptions that dramatically improve its financial efficiency.

The power of the participation exemption

One of the cornerstones of Portugal’s corporate tax system, and a feature that works in tandem with the IFICI, is the participation exemption regime. This regime is designed to prevent international double taxation on profits distributed between related companies.

Under this exemption, dividends and capital gains received by a Portuguese resident company from a domestic or foreign subsidiary are exempt from corporate income tax. For this to apply, several conditions must be met:

1. Holding requirement: the Portuguese company must hold at least 10% of the share capital or voting rights of the subsidiary.
2. Holding period: this stake must be held for a continuous period of at least 12 months.
3. Subject-to-tax test: the subsidiary paying the dividend must be subject to, and not exempt from, a corporate income tax listed in the EU Parent-Subsidiary Directive. Alternatively, the tax rate must be at least 60% of the Portuguese corporate tax rate (currently 21%).
4. Blacklist exclusion: the subsidiary cannot be located in a jurisdiction that Portugal considers a “blacklisted” tax haven.

This participation exemption is crucial. When a Portuguese company operating under the IFICI scheme receives dividends from its own foreign subsidiaries, those dividends can be received tax-free in Portugal. As long as the conditions above are met.

Structuring for success: the Portugal-UK advantage

The benefits of the IFICI scheme and the participation exemption can be significantly enhanced by establishing a well-planned international corporate structure. A particularly effective model involves using a UK company as a holding company for the Portuguese operation.

Here’s how this structure works and why it is so advantageous:

1. Create a UK holding company: a UK limited company is established, which will be the sole shareholder of a Portuguese company.
2. Establish the Portuguese Company: a company is incorporated in Portugal to conduct the primary business activities, such as manufacturing or software development.
3. Individual becomes a Portuguese tax resident: following success of the company establishments, the individuals tax residency status is updated to Portugal.
   • Should you already be a Portuguese tax resident, applying for the IFICI is dependent on your subsequent deadline. For example, if you are classified as a Portuguese tax resident from 16 October 2025 you only have until 15 January (of the following year) to apply.
4. IFICI status is applied for: once a tax resident and the company’s are established, official IFICI status can be applied for. Based on the company’s commitment to export over 50% of its turnover outside the EU.
5. Distribute profits between the companies: when the Portuguese company generates profits and wishes to distribute them, it pays dividends to its shareholder, the UK holding company.
6. Holding to the individual shareholder: once profits are in the UK holding company, dividends can be paid to the individual Portuguese tax resident. Under the IFICI these dividends are exempt from taxation in Portugal.

The dividend flow

This is where the tax efficiency becomes clear. Due to the EU Parent-Subsidiary Directive and the provisions of the Portugal-UK double taxation treaty. Dividends paid from the Portuguese subsidiary to its UK parent company are not subject to any withholding tax in Portugal. The participation exemption applies.

Tax treatment in the UK: upon receipt in the UK, these dividends are typically exempt from UK corporation tax. The UK has its own substantial shareholding exemption (SSE) and dividend exemption rules. Which mean that most dividends received by a UK holding company from its foreign subsidiaries are not taxed.

The result is a seamless and tax-free flow of profits from the operational company in Portugal to the UK holding company. This structure avoids the potential 28% dividend tax that might otherwise be levied, creating enormous value for the shareholders. The shareholder of the UK company, who is a tax resident of Portugal, can then receive dividends. Through the IFICI, dividends from a foreign company are exempt from tax in Portugal. Again, provided the company is not in a blacklisted location and a double tax treaty exists between the two countries.

Beyond dividends: other benefits of the IFICI scheme

While the dividend exemption is a major draw, the IFICI scheme offers other valuable tax incentives for qualifying investment projects. These can include:

• Corporate tax credits: a tax credit of up to 25% of the eligible investment amount can be applied against the company’s future corporate tax liability.
• Property tax exemptions: exemption from Municipal Property Tax (IMI) and Property Transfer Tax (IMT) on properties acquired for the investment project.
• Stamp duty exemption: exemption from stamp duty on various contracts, deeds, and financial operations related to the investment.

These contractual benefits are negotiated with Portuguese tax and investment authorities (AICEP). And are formalised in a contract that provides legal certainty for the duration of the agreement. Often lasting up to a decade.

Navigating the application process

Applying for the IFICI scheme requires careful planning and a detailed submission. The process generally involves:

1. IFICI eligibility review: assess if the IFICI is a viable option for your company. Considering its 50% export turnover, and the type of work it will conduct based on the IFICI activity options.
2. Strategic discussion: planning out the necessary steps, gathering financial projections, and understanding all required considerations.
3. Onboarding process: formalise your service sign-up with RHJ Accountants. The initial step will be the establishment of a holding company in the UK.
4. Tax residency update: following company incorporations, RHJ Accountants will assist in updating the relevant individual’s tax residency status to Portugal (if it’s not already established).
5. IFICI Application: with all preliminary steps complete, RHJ Accountants will proceed with the formal application for IFICI status. Specific to the individual Portuguese tax resident.

This process is intricate and requires a deep understanding of the IFICI process, to make sure nothing goes wrong. Our team will of course be happy to help from start to finish.

How RHJ Accountants can help

Navigating the complexities of the IFICI scheme requires ongoing support. At RHJ Accountants, we provide support for businesses and individuals looking to leverage the opportunities Portugal offers. And even other countries.

Our expertise also covers cross-border tax planning, advising on profit repatriation, dividends, and overall tax optimisation – for more than Portuguese and UK systems. We also advise shareholders on their personal tax position in Portugal, ensuring efficiency for both company and individual. With RHJ Accountants, our team can focus on making your international expansion a success. Turning complex tax rules into clear, beneficial strategies.

Frequently asked questions

Why should I consider living and setting up a business in Portugal?

Portugal offers a unique combination of a high quality of life, a stable political environment, and a business-friendly ecosystem. It boasts excellent infrastructure, a skilled workforce, and strategic access to multiple markets. Combined with tax incentives like the IFICI, it presents a compelling package for entrepreneurs and investors.

How do I apply for the IFICI scheme?

Our team at RHJ Accountants can help with the entire process, here’s a page to review further information. Whether you’re interested in the 50% company export option, or not, we can help with the entire application.

What are the main benefits the IFICI scheme provides?

Based on the 50% export option, you’d be able to receive dividends from a holding company on a regular basis. Which are exempt from tax in Portugal, through the IFICI scheme.

Are there deadlines to apply for the IFICI scheme?

Yes. To put things into an example, whenever you become a Portuguese tax resident you can only open for the IFICI until 15 January, of the following year.

How difficult is it to prove that 50% of goods are exported outside the EU?

This requires meticulous record-keeping. Your company must be able to demonstrate through invoicing that the majority of its sales come from clients based outside the EU. This is a key compliance point that will be monitored by the Portuguese tax authorities.

Can a service-based company qualify for the IFICI scheme?

Yes, the scheme is not limited to companies exporting physical goods. Any type of company can apply, provided it meets one of the company activity options – for the IFICI.