SBLP 2023: Tax incentives package

1. Increase of deductible expenses in IRC

It is proposed that Electricity and natural gas expenses and losses will be increased by 20% for IRC purposes, for the tax period beginning on or after 1 January 2022, in the part that exceeds the expenses and losses that incurred in the previous tax period. Taxpayers engaging in economic activities which generate at least 50% of the turnover in the field of:

production, transmission, distribution and trading of electricity or gas; or

manufacturing of petroleum products, refined from waste, and of agglomerated fuels, are excluded from this benefit.

Additionally, for the tax periods beginning in 2022 and 2023, there is a proposal to increase by 40% the expenses and losses incurred by IRC taxpayers and IRS taxpayers with organised accounting, with the acquisition of fertilisers, soil correctives, animal feed, other animal foodstuffs, and water for irrigation, when used for agricultural production activities.

2. Changes to tax incentives for interior areas

The Government proposes to apply a reduced IRC rate of 12.5% to the first €50,000 of taxable income (this doubles the previous limit of €25,000) of companies classed as micro, small or medium-sized enterprises, or small mid-caps, which operate in interior areas of the country.

To determine the taxable profit of these companies, the costs of fixed remuneration and social security contributions corresponding to the net creation of jobs (understood as the net increase in the number of workers directly employed in the company) are increased by 20%.

However, for this purpose, only the jobs relating to employees with an open-ended employment contract residing inland territories are considered. The following are excluded from this calculation: (i) employees assigned by temporary employment agencies, (ii) employees working on a casual assignment basis, and (iii) employees working on a multi-employer basis, when the employer representing the others in the employment relationship does not meet the conditions referred to in the previous points.

3. Introduction of a tax incentive for salary increases

The Government proposes that the costs of fixed remuneration and social security contributions corresponding to salary increases determined by a dynamic collective labour regulation instrument for employees with an open-ended employment contract will be increased by 50% of the amount in question. For this purpose, the collective labour regulation instrument must have been signed or renewed less than three years previously.

Taxpayers in respect of which there is an increase in the salary range of the employees in relation to the previous year are excluded from these arrangements, and the maximum amount of the increase per employee is 4 times the minimum monthly salary guaranteed. An increase in salary range means the difference between the annual amounts of the highest and lowest fixed remuneration of the employees, ascertained on the last day of the tax period of the year in question.

The only expenses taken into account are those:

a) Relating to employees whose remuneration has increased by at least 5.1%

b) Above the minimum monthly guaranteed remuneration applicable on the last day of the tax year in question

For the purposes of the increase of expenses, the following are not considered:

a) Employees who are members of the employer’s household

b) Members of the company’s corporate bodies

c) Employees who directly or indirectly hold no less than 50% of the share capital or voting rights of the company

Incentive for the capitalisation of companies

This incentive applies to commercial companies, civil companies under commercial form, cooperatives, public companies, and other legal entities under public or private law with their registered office or effective centre of management in Portugal. For these taxpayers, the Government proposes that, in determining their taxable profit, an amount corresponding to 4.5% of the amount of net increases in eligible equity capital may be deducted. Moreover, this rate is increased by 0.5% if the taxpayer qualifies as micro, small, medium or small mid-cap.

The deduction is made in the calculation of the taxable profit for the tax period in which the net increases in eligible shareholders’ equity take place, and the following nine tax periods. This excludes the years in which the beneficiary company reduces its share capital with restitution to the shareholders, and this deduction may not exceed, in each tax period, the greater of the following limits:

a) €2,000,000, or

b) 30% of the profit before depreciation, amortisation, net financial costs and taxes. The part of the deduction exceeding this limit is deductible in determining the taxable profit of one or more of the subsequent five tax periods, after the deduction for that period.

For the purpose of these arrangements, “eligible increases in equity capital” are:

a) Contributions made in cash in connection with the incorporation of companies or the increase of the share capital of the beneficiary company

b) Contributions in kind made as part of a share capital increase corresponding to the conversion of credits into capital

c) Premiums for the issuance of shares in the company

d) Taxation profits which are applied in retained earnings or, directly, in reserves or in the increase in share capital

In contrast, “net increases in eligible shareholder equity” are increases in eligible shareholder equity after deducting outflows, in cash or in kind, in favour of the holders of the share capital, as remuneration or reduction of remuneration, or as part of asset sharing, verified during the tax period or in the previous nine tax periods.

These rules do not apply to IRC taxpayers classified as credit institutions, financial companies or other entities legally equivalent to them. Neither do they apply in situations where, in the same tax period or in one of the five previous tax periods, they have been applied to companies that (i) directly or indirectly hold a stake in the share capital of the beneficiary company, or (ii) are directly or indirectly held by the same company, in the part relating to the amount underlying the increases in eligible equity capital made in the sphere of those companies that have benefited from these rules.