/
/
/
Tax Benefits for Companies subject to Corporate Income Tax

6 de March, 2023

Tax Benefits for Companies subject to Corporate Income Tax

Reading: 13 min

In partnership with BDO, we present below the main tax benefits on income and deduction available to entities subject to Corporate Income Tax (IRC), including those still applicable to the 2022 tax period. See below the topics covered in this article:

TAX BENEFITS

APPLICABLE TO THE TAX PERIOD 2023 AND FOLLOWING
– Investment Support Tax Regime (RFAI)
– Tax Incentive System for Research and Enterprise Development II (SIFIDE II)
– Incentive to the Capitalization of Companies (ICE)
– Tax Incentive to Wage Enhancement

APPLICABLE TO THE 2022 TAX PERIOD
– Fiscal Incentive to Recovery (IFR)
– Deduction for Retained and Reinvested Profits (DLRR)
– Conventional Return on Capital Stock (RCCS)

INCREASE IN ELECTRICITY AND GAS EXPENSES

INCREASE IN AGRICULTURAL PRODUCTION EXPENSES

APPLICABLE TO THE TAX PERIOD 2023 AND FOLLOWING

INVESTMENT SUPPORT TAX REGIME (RFAI)

Recipients: IRC taxpayers who exercise an activity inserted in the following codes of the Portuguese Classification of Economic Activities
(CAE-Rev.3)1:

– Extractive industry (divisions 05 to 09) and manufacturing (divisions 10 to 33);
– Accommodation (division 55);
– Catering and similar activities (division 56);
– Publishing activities (division 58);
– Motion picture, video and television programme production activities (group 591);
– Computer programming, consultancy, and related activities (division 62);
– Data processing, hosting and related activities, and web portals (group 631);
– Scientific research and development activities (division 72);
– Activities of interest to tourism (subclasses 77210, 90040, 91041, 91042, 93110, 93210, 93292, 93293, and 96040);
– Administrative and business support service activities (classes 82110 and 82910).

Scope: Deduction to the IRC collection of investment expenses in non-current assets (tangible and intangible)

Tax advantage:
1) Regions eligible under Article 107(3)(a) of the Treaty on the Functioning of the European Union2:
– 25%3 of the relevant applications, if the value of the investment made is up to the amount of €15,000,000
– 10% of the relevant applications if the value of the investment made exceeds 15.000.000

2) Regions eligible under Article 107(3)(c) of the Treaty on the Functioning of the European Union4:
– 10% of the relevant applications

Eligible investment -ceiling: The regional aid ceilings in force in the region where the investment is carried out must be respected5.

Deduction to the collection: limit 50% of the collection or up to the total competition of the same in the tax period of the beginning of the activity and in the two following periods.

Reporting period 10 years: 10 years

Eligible investment expenditures
– Tangible fixed assets acquired in new condition;
– Intangible assets, constituted by expenses with technology transfer, namely through the acquisition of patent rights, licenses, know-how or technical knowledge not protected by patent;
– Additions of tangible fixed assets or intangible assets, verified in each taxation period, which translate into additions to the investments in progress6.

Ineligible investment expenses
– Land, except in the case of mining concessions, natural mineral waters and springs, quarries, dams and sand pits in extractive industry investments;
– Construction, acquisition, repair, and expansion of any buildings, except if they are manufacturing facilities or used in tourism, audiovisual production, or administrative activities;
– Light passenger or mixed vehicles;
– Furniture and articles of comfort or decoration, except for hotel equipment used in tourism;
– Social equipment;
– Other investment goods that are not allocated to the operation of the company.

Restrictions:

– Realization of relevant investment that provides job creation and its maintenance until the end of the minimum period of 3 years, in case of micro, small or medium enterprises, or 5 years in other cases;
– Maintenance in the company and in the region for a minimum period of 3 years from the date of investment, in the case of micro, small, or medium-sized companies, or 5 years in other cases, of the goods object of the investment or, when less, for the respective minimum useful life period, determined in accordance with DR no. 25/2009, of September 14, or until the period in which the respective physical slaughter, dismantling, abandonment, or unusability takes place, observing the rules foreseen in article 31º-B of the IRC Code;
– Does not apply to companies considered to be in difficulty in accordance with the Commission communication – Guidelines on State aid for rescuing and restructuring non-financial undertakings in difficulty, published in the Official Journal of the European Union, No C 249, of 31 July 2014.

1According to Portaria n.º 282/2014, de 30 de dezembro
2.NUTS Region: North, West, Aveiro Region, Coimbra Region, Leiria Region, Viseu Dão Lafões, Beira Baixa, Middle Tagus, Beiras and Serra da Estrela, Alentejo Litoral, Baixo Alentejo, Lezíria do Tejo, Alto
Alentejo, Alentejo Central, the Autonomous Region of the Azores and the Autonomous Region of Madeira.
3.The percentage is 30% for the tax period 2023 and following
4.only part of the NUTS 3 region are eligible: Algarve (São Brás de Aportel, Alferce, Boliqueime, Cachopo, Ferreiras, Loulé (São Clemente), Loulé (São Sebastião), Mexilhoeira Grande, Monchique, Paderne,
Pechão, Quelfes, São Bartolomeu de Messines, São Marcos da Serra, Algoz and Tunes Parish Union, Conceição and Estoi and Vaqueiros Parish Union) and Lisbon Metropolitan Area (Alcochete,
Gâmbia-Pontes-Alto da Guerra, Moita, Pinhal Novo, Quinta do Anjo, Sado, São Francisco, União das Freguesias de Atalaia e Alto Estanqueiro-Jardia, União das Freguesias de Gaio-Rosário e Sarilhos Pequenos, União das Freguesias de Palhais
Parishships of Palhais and Coina, Parishships of Pegões and Parishships of Poceirão and Marateca)
5.Applicable maximum limits foreseen in article 43 of the Investment Tax Code
6.Asset additions resulting from transfers of ongoing investments carried over from previous periods are not considered, except if they are advances

ENTREPRENEURIAL R&D TAX INCENTIVES SYSTEM II (SIFIDE II)

Recipients: IRC taxpayers resident in Portuguese territory who carry out, as their main activity, an activity of an agricultural nature,
industrial, commercial and services activities and non-residents with a permanent establishment.

Scope: Deduction of Research and Development (R&D) expenses from IRC taxable income1.

Tax Benefit: Corresponding to the value of R&D expenses, on a double percentage basis
– Basic rate: 32.5% of the R&D expenses made in the period2
– Incremental Rate: 50% of the increase of R&D expenses in the period in relation to the simple arithmetic average of the two previous fiscal years, up to a limit of 1.500.000

Eligible investment – limit: 1.500.000€ in relation to the incremental rate.

Deduction to the collection – limit: 100% of the collection.

Reporting period: 8 years
– Tangible fixed assets, provided they are created or acquired in new condition and in proportion to their allocation to R&D activities;
– Expenditure on staff with a minimum academic qualification of level 4 of the National Qualifications Framework (12th year of schooling), directly involved in R&D tasks. If the expenses refer to personnel with a minimum doctoral level education, they are considered at 120%;
– Expenses with the participation of managers and executives in the management of R&D institutions;
– Operating expenses, up to a maximum of 55% of the expenses with staff with a minimum schooling level of 12th grade directly involved in R&D tasks accounted for as remuneration, wages or salaries for the year;
– Expenses related to contracting R&D activities with public entities or entities benefiting from the status of public utility or entities with recognized good standing for R&D;
– Participation in the capital of R&D institutions and contributions to public or private investment funds, aimed at financing companies dedicated mainly to R&D, whose suitability in terms of R&D is recognized by the National Innovation Agency, S. A.

Eligible investment expenditures

– Patent registration and maintenance costs;
– Patent acquisition, registration and maintenance costs that are predominantly for R&D activities (only applicable to micro, small and medium enterprises);
– Expenses with R&D audits;
– Expenses with demonstration actions arising from supported R&D projects.

Ineligible investment expenditures

– Buildings and land

1. In accordance with the provisions of the Investment Tax Code:
(a) research expenses are those incurred by the IRC taxpayer with a view to acquiring new scientific or technical knowledge
b) Development expenses are those incurred by IRC taxpayers through the exploitation of research results or other scientific or technical knowledge with a view to
discovery or substantial improvement of raw materials, products, services or manufacturing processes
2.The base rate is increased to 47.5% in the case of micro, small and medium-sized companies that have not yet completed two financial years and have not benefited from the incremental rate

INCENTIVE TO CORPORATE CAPITALIZATION (ICE)

Companies: Taxpayers who, during the period in question, exercise, as their main activity, a commercial, industrial or agricultural nature.

Scope
Deduction from taxable income of the amount corresponding to net increases in eligible equity capital, namely increases in eligible equity capital after deduction of outflows, in cash or in kind, in favor of the holders of the capital, by way of capital reduction or asset sharing, as well as distributions of reserves or retained earnings.

Tax benefit: 4.5% (or 5% in the case of micro, small or medium enterprise or Small Mid Cap) of net increases in eligible equity capital1, namely:
– Cash contributions;
– Contributions in kind (conversion of loans into capital);
– Share premiums;
– Profits for the fiscal year.

Limit: The deduction cannot exceed, in each tax period, the greater of the following limits
– 2,000,000 euros or
– 30 % of the result before depreciations, amortizations, net financial costs and taxes

Eligible capital increases resulting from cash contributions shall not be considered:
– In the context of the incorporation of companies or the increase in the capital of the beneficiary company, which are financed by increases in eligible equity capital in the sphere of another entity;
– In the context of the formation of companies or capital increase of the beneficiary company by an entity with which the taxpayer is in a special relationship, which are financed through loans granted by the taxpayer himself or by another entity with which that entity and the taxpayer are in a special relationship;
– In the context of the incorporation of companies or the increase of the capital of the beneficiary company, by an entity that is not resident for tax purposes in another EU or EEA member state or in another state or jurisdiction with which a convention to avoid international double taxation is in force.

WAGE ENHANCEMENT TAX INCENTIVE (IFVS)

Recipients: IRC or IRS taxpayers with organized accounting

Scope: Increase of the charges corresponding to the wage increase determined by a dynamic1 collective bargaining agreement for employees with an open-ended employment contract, accounted for as a cost of the tax period

Tax benefit: 50% increase in the amounts paid by the employer to the employee, as fixed remuneration and social security contributions payable by the same entity, provided that:
(a) relating to employees whose remuneration has increased by at least 5.1% between the last day of the
of the tax period of the fiscal year in question and the last day of the tax period of the previous fiscal year; and
(b) workers whose remuneration is higher than the minimum monthly guaranteed remuneration (RMMG) applicable on the last
day of the tax period of the period in question.

Benefit limit: 4 times the RMMG per worker
– Taxpayers for which there is an increase in the workers’ salary range2 in relation to the previous year
– Employees that are part of the employer’s household
– Members of the corporate bodies of the IRC taxpayer
– Employees who directly or indirectly hold no less than 50% of the share capital or
of the voting rights of the IRC taxpayer

1.The grant or renewal of a collective bargaining instrument concluded less than three years ago.
2.Salary range is defined as the difference between the annual amounts of workers’ highest and lowest fixed remuneration, ascertained on the last day of the fiscal year’s tax period.

Dynamic collective bargaining instrument:

It includes non-negotiable Collective Agreements (Portarias de Extensão), which are a way for the Government to determine that the scope of application of a given collective agreement or arbitration award in force can be applied, in whole or in part, to employers and employees within the scope of the activity and professional sector defined in that instrument.

Click here and use the tool to search for collective agreements.

APPLICABLE TO THE 2022 TAX PERIOD

RECOVERY TAX INCENTIVE (IFR)

Recipients: IRC taxpayers who primarily exercise an activity of a commercial, industrial or agricultural nature.

Scope: Deduction from IRC taxable income of investment expenses in assets allocated to operation, which are made between July 1 and December 31, 2022.
December 31, 2022.

Tax Benefit:
– 10 % of the eligible expenses incurred in the taxation period up to the amount corresponding to the simple arithmetic average of the
eligible investment expenses of the three preceding tax periods;
– 25 % of the eligible expenses incurred during the tax period in the part exceeding the limit foreseen above.

Eligible investment – limit: 5 000 000 euros.

Deduction to the collection – limit: 70% of the collection.

Reporting period: 5 years.

Eligible investment expenditures:
– Tangible fixed assets1;
– Non-consumable biological assets1;
– Development projects2;
– Industrial property (such as patents, trademarks, permits, production processes, models, or other similar rights, acquired for valuable consideration and
rights, acquired for valuable consideration and whose exclusive use is recognized for a limited period of time).

Ineligible investment expenses:
– Light passenger or mixed vehicles, pleasure boats and tourist aircraft, except when such goods are assigned to the operation of the public transport service or are intended for rental or assignment of their use or enjoyment in the exercise of the taxpayer’s normal activity;
– Furniture and articles of comfort or decoration, except when affected to productive or administrative activity;
– Construction, acquisition, repair and expansion of any buildings, except when affected to productive or administrative activities.

Restrictions:
The beneficiary may not terminate employment contracts for three years, counted from the first day of the seventh month of the taxation period in which the eligible investment expenses are incurred, under the modalities of collective dismissal or dismissal by termination of employment, provided, respectively, in Articles 359 et seq. and 367 et seq. of the Labor Code;
The beneficiary cannot distribute profits for three years, counting from the first day of the seventh month of the tax period in which the eligible investment expenses are incurred.

1.Acquired as new and which enter into operation or use by the end of the tax period beginning on or after January 1, 2022
2.Relating to intangible assets subject to depreciation

DEDUCTION FOR RETAINED AND REINVESTED EARNINGS (DLRR)

Recipients: IRC taxpayers resident in Portuguese territory who exercise, as their main activity, an activity of an agricultural, industrial, commercial and services nature and non-residents with a permanent establishment, who qualify as a micro, small or medium enterprise.

Scope: Deduction to the income tax of retained profits that are reinvested in relevant applications under the scheme (obligation to set up a reserve in the Balance Sheet that is unavailable for a period of 5 years)

Tax benefit: 10% of retained earnings that are reinvested in relevant applications

Eligible investment – limit: 12 000 000 euros

Deduction to the collection limit:
– Medium Enterprises: 25% of collection
– Micro and Small Enterprises: 50% of collection

Reporting period: Not applicable

Eligible investment expenditures:
– Tangible fixed assets acquired in new condition
– Intangible assets, constituted by expenses with technology transfer, namely, acquisition of patent rights, licenses, know-how or technical knowledge not protected by patent, as long as they are amortized for tax purposes and are not acquired from an entity with special relations
– Additions of tangible fixed assets or intangible assets, verified in each taxation period, which translate into additions to the investments in progress

Ineligible investment costs:
– Land, except when intended for the exploitation of mineral concessions, natural and spring mineral waters, quarries, clay pits and sand pits in extractive industry projects;
– Construction, acquisition, repair, and expansion of any buildings, except when affected to productive or administrative activities;
– Light passenger or mixed vehicles, except when assigned to the operation of public transport service or intended to be rented in the exercise of normal activity of the taxpayer, pleasure boats and tourist aircraft;
– Articles of comfort or decoration, except for hotel equipment used in tourism;
– Assets used for activities under concession or public-private partnership agreements with public sector entities.

1This benefit was revoked by Law 24-D/2022 of December 30 (State Budget Law 2023), so its application is limited to the 2022 tax period

CONVENTIONAL RETURN ON CAPITAL STOCK (RCCS)

Recipients: Commercial or civil companies under commercial form, cooperatives, public companies, and other legal entities under public or private law.

Scope: Deduction from taxable income of the amount corresponding to the agreed return on capital, calculated by applying a rate of 7% to the amount of contributions made;

Tax Benefit: 7% of the increase in capital stock1 as a result of:
– Cash contributions;
– Contributions in kind (conversion of credits into capital);
– Profits from the fiscal year itself.

Limit of increase: 2 000 000 euros.

Limitation:
The beneficiary company is prevented from reducing its share capital with restitution to the shareholders, either in the tax period in which the relevant contributions for the purposes of the conventional remuneration of share capital are made, or in the following five tax periods.

Deduction period: 6 years.

1.This benefit does not apply when, in the same tax period or in one of the five previous tax periods, it is or has been applied to companies that directly or indirectly hold a shareholding in the share capital of the beneficiary company, or are held, directly or indirectly, by the same company, in the part concerning the amount of the contributions made in the share capital of those companies that have benefited from this regime.
2.This benefit was revoked by Law 24-D/2022 of December 30 (State Budget Law 2023), so its application is limited to the 2022 tax period.

INCREASE IN ELECTRICITY AND GAS EXPENSES

EXTRAORDINARY SUPPORT REGIME FOR EXPENSES INCURRED WITH ELECTRICITY AND GAS

Tax Incentive
Increase in 20% (for the purposes of determining the Taxable Profit) of the expenses and losses incurred or supported related to the consumption of electricity and natural gas, exclusively in the part exceeding those of the previous taxation period, deducted of any support received
under the terms of Decree-Law no. 30-B/2022, of April 18.

Exclusions
SPs that engage in activities that represent at least 50% of the turnover in the field of:
(a) Production, transmission, distribution and trade of electricity or gas;
b) Manufacture of petroleum products, refined or from waste, and of agglomerated fuels.

INCREASE IN AGRICULTURAL PRODUCTION EXPENSES

EXTRAORDINARY SUPPORT REGIME FOR EXPENSES INCURRED IN AGRICULTURAL PRODUCTION

Tax Incentive
Increase in 40% of expenses incurred in the acquisition of goods related to agricultural production activities.

Eligible Expenditures
– Fertilizers, organic and mineral correctives;
– Flours, cereals and seeds, including mixtures, residues and wastes from food industries, and any other products suitable for the feeding of livestock, poultry and other animals, referenced in the Codex alimentarius, regardless of breed and functionality in life, intended for human consumption;
– Water for irrigation;
– Glass bottles.

Material authored by BDO, an Atlantic Bridge partner.

Facebook
LinkedIn
WhatsApp
Telegram

Author:

Atlantic Bridge

You may also like:

Portugal is the Best European Destination in 2022

Portugal was once again considered the best European destination, according to the World Travel Awards, the "Oscar" of world tourism.

Author:

Atlantic Bridge

Reading: 3 min

17 de October, 2022

Portuguese passport ranked as one of the best in the world

Discover why the Portuguese passport is one of the best in the world, offering numerous advantages to its holders.

Author:

Atlantic Bridge

Reading: 5 min

11 de January, 2024

Foreign Immigrants: problem or solution for the balance of the Portuguese Social Security System?

Author:

Atlantic Bridge

Reading: 5 min

24 de April, 2019

How to invest in property in Portugal and get above average returns

Discover how to invest in real estate in Portugal and achieve above-average returns. Find tips and useful information in this comprehensive guide.

Author:

Atlantic Bridge

Reading: 9 min

25 de July, 2019

Is it worth taking a car to Portugal?

Taking a car to Portugal may not be the most cost-effective option for you. Before making a decision, find out here how the process works.

Silvia Resende

Author:

Silvia Resende

Reading: 7 min

14 de November, 2023

Portugal among the top ten luxury destinations in the world

Portugal was ranked as one of the top ten luxury destinations in the world, according to the renowned publication Condé Nast.

Author:

Atlantic Bridge

Reading: 3 min

15 de June, 2023