State Budget Law Proposal for 2023 Main taxation proposals and other changes

On 10 October, the Government submitted the State Budget Law Proposal for 2023 Parliament Bill 38/XV/1st to the Portuguese Parliament. 

This budget proposal comes in a demanding economic environment that is characterised by high inflation and the prospects of a slowdown in most economies. Under the proposal, the main government priorities for 2023 are (i) to reinforce income, (ii) to mitigate the impact of price and interest increases, (iii) to accelerate energy and climate transition, (iv) to invest and innovate, and (v) to guarantee budgetary credibility.

In terms of taxes, as expected and in line with European Union recommendations, the Government is proposing a new taxation framework for cryptoassets.
The proposal is for cryptoasset transactions to be taxed as business and professional income, or as an increase in assets (capital gains), depending on the case. A rate of 28% will apply to capital gains on cryptoassets held for less than one year (however, the option of aggregation also applies), while capital gains on cryptoassets held for more than 365 days will be exempt from taxation. In Corporate Income Tax “IRC” (Imposto sobre o Rendimento das Pessoas Coletivas), some issues regarding the taxation of cryptoasset‑related activities are also clarified.
In Stamp Duty, there is a proposal to tax gratuitous transfers of cryptoassets at a rate of 10% and to tax commissions charged for intermediation of cryptoasset transactions at a rate of 4%.

In the area of Personal Income Tax “IRS” (Imposto sobre o Rendimento das Pessoas Singulares), the highlights are: (i) the extension of the IRS Jovem (a special scheme of reduced income tax for young people) (ii) the increase of the IRS deduction as from the second child (iii) the option to lower the IRS withholding rate for some taxpayers with mortgages, and (iv) the slight adjustment of the IRS brackets in line with the reference value for wage increases in 2023: 5.1%. In the taxation of companies, the highlights are: (i) the simplification of procedures regarding net financing costs and tax losses, (ii) the elimination of the deadline for carrying forward tax losses as well as the reduction of the amount of tax losses deductible from 70% to 65% of taxable profit for the year, (iii) extending the scope of the reduced rate applicable to SMEs, (iv) adjustments to autonomous taxation on plug-in hybrid passenger cars and electric cars, (v) the support scheme for electricity and natural gas expenses, and (vi) the support scheme for agricultural activity.

In the area of tax benefits, the highlights are (i) the extension of the reduced IRC rate scheme and the increase in salary costs for companies in the interior of Portugal, (ii) the creation of a tax benefit to improve salaries, and (iii) the creation of the Incentive to Capitalise Companies. In practice, the latter merely merges and simplifies the tax schemes currently contemplated in the Deduction for Retained and Reinvested Profits and in the Conventional Remuneration of Share Capital (the revocation of which is also provided for in the Proposal).

In terms of tax procedure and process, there is once again no response to the problem of the number of cases pending before the tax courts. Finally, and although not included in the Draft State Budget, the implementation of the Temporary Solidarity Contribution (CTS), commonly known as the Windfall Tax, has already been announced. This announcement comes against the backdrop of the European Council Regulation (Council Regulation (EU) 2022/1854 of 6 October 2022), on extraordinary profits, at a minimum rate of 33% in the crude oil, natural gas, coal and refining sectors.

In short, this is a conservative budget proposal without significant structural measures, which is intended to face up to a global context of great uncertainty in 2023. Many people considered that the macroeconomic scenario on which this proposal was based was too optimistic, especially regarding the inflation rate. Therefore, we cannot exclude the possibility that a rectifying budget will have to be approved in the future. In any case, this budget proposal includes some tax measures that we will now highlight and that we will, naturally, provide our clients with greater detail on all these points in the future.

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