Portugal

Country Name Portugal
Country Region Western Europe

Economical and Political Environment

The Banking Environment

Banking in general

Per capita GBP is USD12,000. In common with most other EU countries, services represents 70% of GBP and industry only 28%. Agriculture is slightly above the norm at 4% of GDP.

Banco de Portugal is the Central Bank and is responsible for the regulation of financial companies & credit institutions as well as controlling money, financial and foreign exchange markets.  As an agent for the European Central Bank (ECB), Banco de Portugal is no longer autonomous in formulating monetary policy and issuing currency and is under the direction of the ECB.

Generally there are three main categories of bank in Portugal - commercial, investment & savings banks, the largest of all of these banks being the entirely state-owned Caixa Geral de Depositos

There are three leading commercial banking groups – Banco Comercial, Banco Espirito Santo, and Totta Group.

Interest-bearing Current, Deposit, Foreign Currency and Savings accounts are all available to Residents and Non-residents in Portugal.  These can be denominated in most currencies. 

Residents are permitted to hold foreign currency accounts and domestic currency accounts which are convertible into foreign currency.  Non-residents may hold accounts in either domestic or other currencies. 

Overdraft facilities are available, as well as the short-term funding and investment options listed below:

• Commercial Paper
• Local Currency Loans
• Foreign Currency Loans
• Money Market Accounts
• Short Term Government Paper
• Bank/Trade Bills

Currency

The euro

Cash Management Features

Value-dating is significantly better in Portugal if sender and receiver are within the same institution, enabling transactions to bypass the clearing, where there is float.

This fact directs one’s choice of bank towards a major domestic institution where there is a likelihood that trading counterparties may all have an account.

The domestic clearing process is very automated but there are several instruments to contend with, and no strong local electronic banking standard to enable the process to be automated with “any bank”:  the customer is totally dependent on the capabilities of the bank with which it has its accounts and on the electronic banking system to enable the customer to manage all transaction types.  There will be a separate electronic banking platform for each banking relationship.

Domestic liquidity management is complicated by withholding tax:  it is important that balances be aggregated by legal entity on a daily basis both to reduce tax paid and to minimise the number of accounts on which tax has to be recorded and accounted for.

Cross-border payments have been mitigated by the EU Regulation, but out-of-scope payments can be expensive unless there is a special arrangement in place.

Tax Considerations

The standard rate of corporate taxation is 30% with some municipalities imposing an additional surcharge of up to 10% (meaning the rate is then as high as 33%). Companies with annual turnover below EUR149,639.37 can qualify for a lower rate of 20%.

Where a Portuguese resident controls a foreign corporation based in a tax haven, the profits of that entity are taxed as if the Portuguese resident had received them as a dividend.

Withholding tax is charged at the rate of 20% to both residents and non-residents on:

• Interest on ordinary loans and credit facilities made to non-residents
• Interest from corporate/public bonds and bank deposits.

Resident shareholders are subject to Withholding Tax on dividends at 15% but the rate to non-residents is 25%. In addition a 5% substitute gift and inheritance withholding is charged where the dividend is paid by an S.A. (Sociedade Anonima), unless the recipient is in an EU state, holds more than 25% of the SA and has done so for 2 years.

The standard rate of VAT is 19%, with a 12% band  for some food and beverage items, and a 5% band for a group of services like newspapers, electricity, fresh food, water, medical services. The rates are lower in territories outside “mainland” Portugal at 13%/8%/4% respectively – i.e. in places like Madeira.
 
VAT is charged at 19% on some banking services.

Portugal has adopted the arm’s-length transfer pricing principles based on OECD guidelines.

Portugal has thin capitalisation rules. Interest ceases in principle to be deductible on loans from related non-residents where the debt:equity ratio of the Portuguese company exceeds 2:1. However, if loans can be proven to be on arm’s-length terms and to have been supportable by the borrower (i.e. not leading to overindebtedness), interest may still be deductible if debt is over 2x equity.

Stamp duty is generally charged at 4% on all banking fees and debit interest paid to banks by customers.

A Stamp Tax is payable on any loan arrangement – this applies to overdrafts, bank guarantees etc and is charged at the following rates:

<     1 year arrangement                           0.04% per month
> = 1 year arrangement                            0.50 % per month
> = 5 year arrangement                            0.60% per month
Overdraft or current account limit facility   0.04% per month

Employers are liable to the state for social contributions of 23.75% of employee remuneration with no upper limit.

Central Bank Reporting

The following transactions must be reported to the Bank of Portugal when the amount exceeds EUR12,500:

• Payments between residents and non-residents
• Payments received on or paid from non-residents’ accounts in Portugal
• Payments across residents’ accounts outside Portugal

Banks are permitted to supply simplified reporting, in which case reporting occurs monthly, or for every transaction.

Many large corporates prefer to send the reporting to the Bank of Portugal direct. The forms contain Bank of Portugal reason codes and can be sent via tape or data transmission.

Foreign Exchange Controls

None.

Payments and Collections

Payment Instruments

Card and card are the most used instruments by volume, but by value credit transfers are by far the largest.  There are still bills of exchange (“efeitos”) in small quantities, and the use of direct debits is rising.

Postal instruments have reduced in significance since the government switched its payments of pensions and social benefits to bank transfer.

The country’s various clearing systems are managed by Sociedade Interbancaria de Serviãos (SIBS) which is jointly owned by the majority of Portuguese banks.  All participants are required to hold a settlement account with the Banco de Portugal.

Cheques

Cheques under EUR 10,000 are truncated and electronic files are sent to the cheque subsystem of the SICOI for clearing. (Physical cheques are held by banks for 5 years).  85% of cheques are truncated in this way.

Cheques over EUR 10,000 are sent to the Bank of Portugal for clearing – if they are below EUR 500,000 they still clear through SICOI.  If not, they clear through SPGT.

There is validation on words and figures for dematerialised cheques, signatures are not validated. 

Cheques may be crossed (but not all are) and may be stopped.

Cheques must be for today – No forward dating of cheques is permitted

Clearing Cycle is 3 days maximum. D+3 funds are available, although funds are posted value D+1 for cheques drawn on accounts at the same bank but on D+3 for cheques drawn on accounts at other Portuguese banks.

Banks have a maximum of 3 days to return unpaid items. Unpaid items have to be protested within 30 days.

Electronic Payments

SIBS operates the RTGS system and all automated clearing systems.  It is owned by Portugal’s leading banks.

SPGT

For high value payments the Systema de Pagamentos de Grandes Transaccoes (SPGT) is a same day value RTGS (real-time gross settlement) system and is used for all payments and cheques exceeding EUR 500,000.   All participants hold an account with the Banco De Portugal, and are restricted to maintaining the account debit balance within the intra-day credit ceiling.

There are 38 participants.

Operating hours are TARGET hours:  06:00 – 16:00 Portuguese time for customer payments and until 17:00 for interbank.

SPGT uses the SWIFT Y-Copy service but the comms channel is SIBS.

SPGT is used to settle and pay the following, in addition to operations with the Central Bank and the ones that must go via TARGET:

• settlement of SLOD and SICOI balances;
• operations in the local exchanges (stock, money market);
• cheques and “efeitos” over EUR 500,000.

SLOD

Sistema de Liquidacao de Outros Depositantes (“SLOD”) is a high value, gross settlement system open to banks who cannot participate in SPGT.  There is no minimum transaction type.  It has the same opening hours as SPGT.  Intraday overdrafts are not possible:  participants have to hold enough cash on their account for their payments to clear.

ACH

All retail payments are cleared via separate sub-systems of Sistema de Compensacao Interbancaria, or  Telecompensacao (“SICOI”), which is the Automated Clearing System.

The subsystems are:

• TEI- used for credit transfers below EUR 500,000 – this can be used either for bulk or individual payments on a next day basis.  It is also possible to use this system to make individual low value payments for same day settlement.
• Cheque subsystem (for cheques up to EUR 500,000).
• Bills of exchange subsystem to clear “efeitos” up to EUR 500,000.
• Direct debit subsystem – “SDD” or “Sistema Debitos Directos”
• Multibanco – the subsystem for credit and debit card and e-purse transactions.

Most operations settle at 9.30 a.m.; however there is a second window for credit transfers which then settle at 3.00 p.m.  SIBS is available for submission of operations to clear on D up to the following times:

 TEI – 1st window - 7 p.m. on D –1
 TEI – 2nd window - 1.45 p.m. on D
 Multibanco - 8 p.m. on D –1
 Efeitos - 9.30  p.m. on D –1
 Direct debits - 10 p.m. on D –1
 Cheques - 2.30 a.m. on D

If operations are introduced into SIBS later, they will be settled in the next following period.

ACH Credits

Corporate clients use two forms of credit transfer – the standing order (fixed amount) and the variable standing order.  One-off transfers are also possible.

In principle, operations over EUR 500,000 have to be processed via SPGT.  On the other hand, it is possible to make a same-day payment in SICOI if the order is made into TEI by late morning.

ACH Debits

The ordinary direct debit is used for the normal utility bills, insurance premia and so on.  The payee has to issue a mandate according to standards defined by the Bank of Portugal.  The debit authorisation is granted electronically, usually using the Multibanco network.  The debtor has five days to reclaim each debit.

There is also the bill of exchange which clears in truncated form only through SICOI.  It has to be presented by the beneficiary.  “Efeitos” imply a strong legal backing because the beneficiary can involve short-cut legal proceedings to force payment.  They can also be discounted at the bank.  However, “efeitos” attract stamp duty.

The bill has to be submitted seven days before maturity through the drawer’s bank to the drawee’s bank by storing it in a central electronic warehouse run by SIBS.  “Domiciled” bills are debited to the drawee’s bank account, and these are more common that “non-domiciled bills”, which can be paid over bank counters or through a Multibanco terminal.  Bills over EUR 500,000 are settled in SPGT.

Cards

The Multibanco system supports ATMs and EFTPOS, and all credit and debit card transactions, as well as payment of utility, phone and many other types of bill at Multibanco terminals.  These terminals are not just in banks, but also in supermarkets, large companies, stations.

Authorisation of direct debits and motorway tolls (recorded from a magnetic tag in the vehicle without the car stopping) are done at Multibanco terminals.

The PMB system – an e-purse for amounts estimated at EUR 2 per transaction – also runs on the Multibanco system, such that it can be charged up at any terminal, and used at any terminal or EFTPOS.

Six private commercial banks have their own ATM network, but they are interoperable with Multibanco. 

Multibanco has 9,000 ATMs and the other banks 2,000.  These ATMs can be used by foreign debit card holders with cards underpinned by the main networks.  There are over 60,000 EFTPOS and 81,000 terminals, so this supports the large volume and range of operations undertaken.

Most banks issue edc/Maestro, ec/Cirrus, and Visa Electron cards.

Historically credit cards in Portugal were all issued by UNICRE, an interbank organisation with the sole right to represent foreign credit card companies.  From 1988 other banks were allowed to be issuers but they still have to use UNICRE’s acquires network.  UNICRE is also the issuer of the Unibanco card, which is linked to Visa.

Portugal Payment Volumes

Liquidity Management

The common cash management techniques are available – including domestic zero balance, notional pooling, cross-border netting/leading/lagging.  However, the usage of these vehicles by Portuguese companies is in some cases limited due to the taxation implications.

These implications affect both the debit side and the credit side of both bank-to-customer and customer-to-customer relationships.

Of course the primary requirement is then to ensure that balances on different accounts owned by the same legal entity are combined to give the smallest possible residual balance, eliminating overdrafts.

The easiest ways to achieve this are:

• hold decentralised accounts within a nationwide bank but use zero-balancing within that bank;
• Hold centralised accounts but give electronic banking access to each office that needs it.

Since one relies on proprietary electronic banking, it is again primarily the largest domestic banks that offer electronic banking systems through which it is possible to operate an account remotely.

Electronic Banking

Electronic banking is widely available in Portugal, with each bank/group having entirely separate systems.  Generally these will be used to initiate domestic transfers, view balances, check transaction reports and get stock exchange information. A few EB’s are also prepared to initiate international transfers and account enquiries.

Portugal Legal Entity Types - Mainstream

Portugal Legal Entity Types - Non-Mainstream

Other legal entity types that exist: