Dissolution and liquidation of companies in Portugal: what is the procedure?

NEWCO has several decades of experience implementing innovative investments and projects in Portugal.

However, not all investments are perpetual, and some projects inevitably come to an end.

That's precisely the process we’ll discuss in this article: the dissolution and liquidation of companies.

What is the difference between company dissolution and company liquidation?

In broad terms, dissolution is the act by which a company decides to "close down", but it is not yet the act responsible for its extinction.

Liquidation, on the other hand, is the act, or set of acts, always after dissolution, through which the liabilities of the dissolved company are paid, and the remaining assets are shared between the partners/shareholders, which, once closed, allows the company to be wound up.

Under the Commercial Registry Code, a company must appoint a representative (natural or legal person) with tax residency in Portugal for tax purposes, as well as the custodian of the commercial bookkeeping, to be kept for a period of 5 years. Usually, the representative and the custodian are the same person/entity.

Do company liquidations in Portugal have tax implications?

The liquidation of companies gives rise to direct taxation at two different levels:

• Taxation at the level of the liquidating company, relating to the profits from the activity of the financial year and the transfer of assets;
• Taxation at the level of the shareholders, based on the result of the division.

When determining the income obtained by shareholders, only the amounts attributed to them are included, whether in cash, assets, or rights, after deducting the obligations to be met in the name of and on behalf of the company.

In turn, assets and rights must be considered at market value, and the sum of the amount thus received must be deducted from the acquisition cost of the shares. The income will be qualified, either for IRC or IRS, as a capital gain or loss.

Depending on the nature of the assets to be transferred, there may also be indirect taxation, in which case, if the property is transferred, the partners will be liable to pay IMT on the higher of the taxable value or the value at which the property entered the company's assets.

Finally, we would like to emphasise that the existence of tax debts does not prevent liquidation as long as, although they exist, they are not yet due, i.e. they have not fallen due. However, the partners/shareholders become jointly and severally liable for such tax debts.

How can NEWCO assist you during the process of dissolution and liquidation of your company?

The dissolution and liquidation of any company must be accompanied by a multidisciplinary team that takes care of the corporate, accounting and tax implications of the whole process.

NEWCO can act as your company’s tax representative after the liquidation process.