SBLP 2023: Changes to the IRC tax loss carry forward rules

There is a proposal to amend the tax loss carry forward rules to uphold the principle of solidarity between tax years by abolishing the current time limits for tax loss carry forward. These are currently 5 years for most companies and 12 years for micro, small and medium-sized enterprises (SMEs). Under the proposal, the tax loss deduction will now occur without any time limit.

Despite the elimination of the time limit for carrying forward tax losses, the quantitative limit for deducting losses is reduced from the current 70% to 65% of taxable profit. However, this limit will be increased by 10 percentage points in cases where the difference results from the deduction of tax losses ascertained in the 2020 and 2021 tax periods.

The new IRC tax loss carry forward rules will apply to the deduction of taxable profits of tax periods starting on or after 1 January 2023. They will also apply to tax losses assessed in tax periods prior to 1 January 2023 for which the deduction period is still ongoing on the date the State Budget Law enters into force.

This amendment represents an alignment of the Portuguese rules on carrying forward of tax losses with most European tax systems, and it introduces competitiveness to the country’s tax system.