Religious Legal Entities and Economic Activity Code (CAE) in Portugal: What They Are and Their Obligations
In Portugal, religious legal entities are subject to a special legal framework under Law n. 16/2001, of June 22, which governs their structure, rights, and obligations. But what exactly are these organizations? How do they differ from companies or associations? And when do they require a CAE (Economic Activity Code)? Let’s clarify these points in a simple and straightforward way.
What Is a Religious Legal Entity?
A religious legal entity is an organization established to carry out activities related to religion or worship in an organized and stable manner. Its primary purpose is to enable religious groups to exercise their freedom of religion and promote practices such as worship, spiritual events, charity, or religious education.
Examples of religious legal entities include:
- Churches or religious communities;
- Religious orders, such as monasteries or congregations of monks and nuns;
- Institutions offering social, educational, or cultural services connected to a religion.
To be recognized as a religious legal entity, the organization must be registered with the Registry of Collective Persons. This registration ensures compliance with the law and confirms that the entity has the appropriate structure to achieve its religious objectives.
What Is a CAE, and When Is It Required?
If a religious legal entity only engages in spiritual or worship activities, it does not need a CAE or tax registration with the Portuguese Tax Authority (Autoridade Tributária), as it is not conducting economic activities.
The CAE (Economic Activity Code) is a classification system used by the Tax Authority to identify the economic activity of an organization. For example, a construction company would have a CAE related to construction, while a cultural association would have a CAE for cultural activities.
For religious legal entities, a CAE is only required if the organization engages in economic activities, such as:
- Selling religious books, liturgical objects, or other products;
- Providing services, such as hosting paid events or renting out space for commercial purposes;
- Managing schools or care homes linked to the religious organization.
Differences Between Religious Legal Entities, Companies, and Associations
Although all of these are legal entities, there are important differences between religious legal entities, companies, and associations.
Companies
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- Purpose: Operate for profit by conducting economic activities.
- Obligations: Subject to Corporate Income Tax (IRC), Value Added Tax (VAT), and must maintain organized accounting.
- Registration: Required to have an updated permanent certificate and comply with commercial obligations.
Associations
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- Purpose: Non-profit organizations, such as sports clubs or cultural and social associations.
- Obligations: Depending on their activities, they may be required to pay taxes if they engage in economic activities.
- Legal Framework: Governed by the Civil Code and the general regime for associations.
Religious Associations
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- Purpose: Promote religious activities but are not legally recognized as religious legal entities.
- Obligations: Treated as regular associations, with requirements such as organized accounting and tax registration if conducting economic activities.
Religious Legal Entities
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- Purpose: Engage exclusively in religious activities or those connected to religion.
- Special Status: Enjoy unique tax and administrative exemptions under Law no. 16/2001.
- Obligations: Not required to maintain organized accounting or an updated permanent certificate unless engaging in economic activities.
Why Are Religious Legal Entities Different?
Religious legal entities benefit from a special legal framework because the State recognizes their importance in promoting religious freedom. For this reason, they are granted various exemptions and simplified rules:
Exemption from Organized Accounting
Religious legal entities are not required to maintain organized accounting unless they regularly engage in economic activities. This exemption is outlined in Article 12, n. 2, of Law no. 16/2001. However, Article 12, n. 3 specifies that if they conduct ancillary economic activities, such as selling products or providing services, they must comply with the applicable tax regime and organize the accounting for these specific activities.
Exemption from Permanent Certificate
Religious legal entities are not required to maintain a permanent certificate unless they engage in economic activities requiring fiscal or commercial registration. This exemption is implied by their special legal status under Law n. 16/2001 and the fact that they are not subject to the same obligations as companies or civil associations. However, Article 12, n. 3 makes registration necessary if regular economic activities are conducted.
Tax Registration Only for Economic Activities
According to Article 12, n. 1, of Law no. 16/2001, religious legal entities are exempt from tax obligations as long as they do not conduct economic or commercial activities. In this case, they do not need tax registration with the Portuguese Tax Authority or a CAE. However, if they engage in activities like product sales, property management, or service provision, they must register and comply with the corresponding tax obligations, as stated in Article 12, n. 3, of the same law.
Tax Exemptions
Religious legal entities enjoy significant tax exemptions under Article 12 of Law no. 16/2001, such as:
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- Exemption from Corporate Income Tax (IRC) on income directly related to their religious purposes, such as worship or spiritual activities.
- Exemption from VAT on transactions directly linked to their religious purposes, as provided in Article 9, paragraph b), of the VAT Code.
If these entities engage in economic activities unrelated to their religious purposes, they may lose these exemptions for the income derived from such activities, as specified in Article 12, n. 3, of Law n. 16/2001.
Practical Example
Imagine a church that only conducts worship services and religious ceremonies. In this case:
- It does not need tax registration or a CAE.
- It is exempt from maintaining organized accounting.
- It does not pay Corporate Income Tax (IRC) or VAT.
Now, suppose this same church starts selling books or renting out a hall for events:
- It will need to register with the Tax Authority and obtain a CAE, such as CAE 94910 (“Activities of Religious Organizations”) or others relevant to the specific economic activity.
- It must comply with the tax obligations for these activities.
Conclusion
Religious legal entities in Portugal operate under a unique legal and tax framework that reflects their spiritual and non-profit nature. They differ significantly from companies and associations, as they are not required to maintain organized accounting, tax registration, a CAE, or a permanent certificate unless they engage in economic activities.
This simplified regime respects their primary mission, allowing them to focus on religious practices without the same administrative burdens imposed on for-profit entities. However, if any doubts arise regarding their legal or tax obligations, it is advisable to consult a lawyer or accountant specialized in religious organizations.
