Characteristics of the Tax Regime Covering the Contract

ALLIANZ LIFE LUXEMBOURG S.A. Main characteristics of the tax regime covering the contract

UPDATED: JANUARY 2021 Portugal

If the Policyholder’s country of tax residence is Portugal

This information notes describes the authorised tax adviser in order to The tax regime applicable to the main characteristics of the current have full knowledge of the tax Contract on the Date of conclu- Portuguese tax regime of life insurance regime for the Contract and to sion of the Contract is the tax and capitalisation policies taken out by seek solutions to particular system of Portugal as the an individual. situations. country of main and habitual This document is namely designed to residence of the Policyholder on subscribers and beneficiaries who are 1. “FILLING” TAX OBLIGATION the Date of conclusion of the resident in Portugal from a tax Contract. The main characteris- perspective. The Portuguese tax law does not tics of the tax regime applicable The Company strongly recommends to provide with any specific obligation to the Contract on January 2021 the Subscriber that, before taking out the to communicate the investments in are explained in this Note. Insurance policy and during the execution insurance products subscribed abroad. of the Contract, he/she should obtain advice from a qualified authorised tax In case the policyholder wishes to adviser in order to understand perfect- obtain a tax deduction for the premiums For individuals who exercise a short- ly the tax regime of the Contract and paid into a life insurance contract, he/she lived profession the premiums are to obtain answers to questions about has to disclose it in the annual income deductible against their gross income specific situations. tax return. Currently, this tax deduction is up to EUR 2.194,05. only available for short-lived professions THE POLICYHOLDER’S ATTENTION IS and disabled individuals. Please note that, in regards to the DRAWN TO THE FACT THAT: retirement benefit, the following Article 1 - Life insurance contract’s requirements must also be met : • the present Note gives only a tax treatment • The lifetime of the contract must be general explanation of the main at least 5 years and; characteristics of the tax regime Article 1.1 - Tax deductibility of • The benefit should be guaranteed applicable to the Contract, premiums after the policyholder has reached • the characteristics of the tax 55 years of age. regime applicable to the Contract Article 1.1.1 Premiums€2.808m paid in cash may change during the Contract, For disabled individuals, 25% of the • the information on the main char- Under Portuguese tax legislation, life premiums are tax deductible up to 15% acteristics of the tax regime for insurance expenses are only deducti- of the individual’s tax liability. However, the Contract (i) are given subject ble for short-lived professions (e.g., in regard to premiums which cover to changes in the regulatory and sportsmen, miners, fishermen) and retirement benefit the limit is legislative provisions in force and disabled individuals (disability of 60% 65 EUR/year (single policyholder) or (ii) have no contractual value. This or higher duly proved by a medical 130 EUR/year (married policyholder). information is communicated statement). purely as an informative guide, Article 1.1.2 Premiums paid via in the Company strongly recom- Both deductions are only applicable if specie transfers mends that the Policyholder, the coverage guarantees exclusively before signing the insurance death, physical invalidity or retirement If premiums are paid via in specie Proposal and during the execu- benefit (article 27 and 87 of the transfers, the above-mentioned tax tion of the Contract, obtains Personal Income Tax Code – PIT Code). deduction may also be available advice from a qualified and

1/4 provided that the coverage covers If the life insurance contract has no annuities, the income derived from life exclusively death, physical invalidity or fixed term, the above 35% rule has to insurance products is deemed as retirement benefits. be observed for the first half of the pension income and subject to period running from the subscription taxation at marginal rates varying Depending on the tax legislation in date to the withdrawal date. between 14.5% and 48% plus the force, in specie transfers may be referred solidarity surtax (according to subject to capital gains or income tax. The endorsement of the contract to the tax rates in force in April 2020). another policyholder does not attract Article 1.1.3 Premiums paid in any personal income taxation to the Article 1.2.3 Tax return shares policyholder, as no provision in that way is contained in the PIT code. In case of a partial withdrawal or a The fact that premiums are paid in the total surrender, the income derived form of shares does not have any con- (ii) Withdrawal in the form of from life insurance products paid out sequence on the tax treatment annuities by an entity not residing in Portugal described in section 1.1.1 and 1.1.2. In case the distribution occurs in the will have to be included in the Annex J form of annuities (monthly/ periodic of the Portuguese personal income tax Article 1.2 - Income tax treatment pension payments), the amounts return. on partial withdrawals or total received are taxable as pension surrender income (Category H of the PIT). However, should this income be paid out by a company residing Article 1.2.1 Tax base An exclusion of taxation of the premiums in Portugal or a branch of a non-resid- component included in the annuities is ing company operating in Portugal, it (i) Partial withdrawal or total applicable (whenever the amount of will be subject to a final withholding surrender premiums included in the annuities is not tax (28% according to the tax rates in The taxable income is given by the identified, it is presumed that 85% of the force in April 2020) and, therefore, it difference between the amount annuity represents capital and, therefore, should only be included in the personal received and the premiums paid only 15% of the amounts withdrawn income tax return if the taxpayer opts (Category E of the PIT – investment qualify as taxable income). to add this income to the remaining income). income in his personal income tax Pension income also benefits from a return, in order to be subject to taxa- The legislation does not discriminate specific annual deduction against the tion on the aggregate income at between the income and the capital taxable income in the amount of 4,104. marginal rates. and, instead, relies on this simple formula to tax any excess of withdrawals over Withdrawals, whether regular or not, Should the distribution occur in the premiums (as such, in case of partial sur- that do not qualify as annuities, are form of annuities, the pension income renders, the policyholder should have subject to the rules identified above for will, in all circumstances, have to be information on the capital and income partial withdrawals or total surrender. included in the Portuguese personal components to determine the taxable income (...) tax return, and is subject to income accordingly). Article 1.2.2 Tax rate the above referred marginal rates.

If at least 35% of the total premiums In case of surrender (full or partial), Article 1.3 - Income tax treatment are paid in the first half of the contrac- income derived from life insurance on switches tual period (“front ended” policies), a products is subject to autonomous tax- partial exemption of taxation applies, ation at 28%. However, the individual Switching between units occurring as follows: may opt to add such income to the re- within a life insurance contract that maining income in his personal income remains unchanged is not a taxable • 1/5 of the income is excluded from tax return, being subject to taxation on event. taxation if the payment or surrender the aggregate income at marginal occurs after 5 and before 8 years of rates varying between 14.5% and 48% Article 1.4 - Income tax treatment the contractual period (only 80% of plus a solidarity surtax (according to on underlying investment yield the income is taxable); the tax rates in force in April 2020). Article 1.4.1 Tax base • 3/5 of the income is excluded from A solidarity surtax of 2,5% and 5% is taxation if the payment or surrender also due on taxable income subject to No taxation. occurs after 8 years of the contractual marginal tax rates exceeding EUR period (only 40% of the income is 80,000 and EUR 250.000, respectively taxable). (as per the rules in force in April 2020). In case of withdrawal in the form of

2/4 Article 1.4.2 Tax rate to additional charges to INEM Upon acceptance of the application by (National Institute for Medical the Portuguese tax authorities, an indi- N/A. Emergencies). vidual may then benefit from the regime for a 10-consecutive year Article 1.5 - Tax regime of the life Premium taxes: period. insurance part, in case of death of the life-assured • INEM: 2,5% on the collected Article 3 - Main advantages of the premiums (or 2,5% on the part of the regime Article 1.5.1 Income tax treatment premium related to the upon death death risk coverage); One of the main advantages of the • Stamp Tax: Life insurance premiums regime is the possibility of being Life insurance benefits paid out upon are exempt. exempt from taxation in Portugal on death of the life-assured are not foreign source income, such as capital subject to taxation for the purposes of income, rental income and capital the individual income tax (article 2. CAPITALIZATION CONTRACTS’ TAX gains given that one of the following 12-1-b of the PIT code). TREATMENT conditions are met:

Article 1.5.2 Inheritance tax The tax treatment of the capitalization (i) Such income may be taxed in the contracts is the same as described State of source under the rules of a Life insurance benefits are not subject above for the life insurance contracts, Double Tax Treaty (DTT); or to inheritance tax. except regarding the tax deduction (ii) Such income may be taxed in the which is not permitted in these cases. State of source (”blacklisted” tax Article 1.6 - Tax regime of the The tax treatment does not depend on havens excluded) under the rules of additional death coverage the percentage of the premium related the OECD Model Tax Convention on to the death coverage (no minimum Income and on Capital (if no DTT Article 1.6.1 Income tax treatment limit). exists) and it is not regarded as arising from a Portuguese source, under Death insurance benefits paid out 3. THE NON-HABITUAL TAX RESIDENTS’ Portuguese tax rules. upon death of the insured person are REGIME not subject to taxation for the purpos- Additionally, for individuals who have es of the individual income tax (article Article 1 - An overview of the regime qualified as non-habitual tax resident 12 1-b of the PIT Code). for the tax years until 2019 and those The non-habitual tax residents’ regime registered as tax residents until 31 Article 1.6.2 Inheritance tax is a special tax regime which foresees, March 2020, who apply for the non-ha- among others, a tax exemption (with bitual resident regime, pension income Death insurance benefits are not progression) on foreign sourced earned will be exempt from subject to inheritance tax. income, namely capital income etc., taxation in Portugal, if one of the fol- provided certain conditions are met. lowing two conditions is met: Article 1.7 - Gift Tax (i) If such pensions were subject to tax The endorsement of the contract to Article 2 - Eligibility and registration under an existing DTT in the source another policyholder, is subject to gift within the regime country; tax, at the rate of 10%. or An exemption is applicable to spouses, In order to benefit from this regime, an (ii) If the pension should not be legal partners, ascendants and de- individual shall be considered as considered as obtained in Portugal. scendants in straight line. Portuguese tax resident in the year that the application is filed and must This regime would be very beneficial Article 1.8 - Wealth tax not have been considered tax resident for policyholders, as it may allow an in Portugal in the previous 5 years. exemption from taxation in Portugal Non applicable. on the income arising from surrenders If an individual meets the above crite- of life insurance policies held abroad, Article 2 - Other tax obligations: ria and qualifies as non- habitual tax whether they are made fully or partial- Premium taxes resident in a certain year, an applica- ly in form of annuities. tion shall be filed with the Portuguese Life insurance products, for which the tax authorities, until March of the year risk is located in Portugal, are subject following the one in which the individual became tax resident in Portugal.

3/4 In case of withdrawal in form of annuities, generated qualifies as interest in the the amounts received are regarded as source country, it may be exempt from pension income and whenever they are taxation in Portugal. However, if it not considered as obtained in qualifies as other capital income (e.g. Portugal, they are fully exempt from income from insurance policies), it may taxation in Portugal under the non-ha- be the case that only Portugal is bitual tax residents’ regime irrespective entitled to tax such income in which of the tax treatment in the country of case no exemption will apply. source.

Individuals who do not qualify as non-habitual tax residents in the conditions above referred, will have pension income from a foreign source subject to a 10% tax rate.

On the other hand, if surrenders are made fully or partially regarded as capital income in the source country, the possibility of exemption from taxation in Portugal will only apply if the country of source has taxation rights under a DTT signed with Portugal or under the rules of the OECD Model Tax Convention on Income and on Capital (provided the income is not regarded as arising from a Portuguese source). In general terms, if the income

I, the undersigned ______recognise that I have read the above clauses.

Executed in ______on ____ / ____ / ______

First Policyholder or sole Policyholder Second Policyholder

Signature Signature ALL- Ax_Fiscale_Portugal_sign(EN) 0421 Allianz Life Luxembourg S.A. - 14, boulevard F.D. Roosevelt - L-2450 Luxembourg Tél.: (+352) 47 23 46-1 - Fax: (+352) 47 23 46-235 www.allianz.lu 4/4