Portugal continues to be one of the countries with the best environment for an international company to be established.

Our country  offers national and foreign investors investment in the form of financial incentives, repayable or non-refundable, tax benefits and co-financing. We also set up a system for monitoring, facilitating and reducing bureaucracy in the implementation of projects considered to be of «potential national interest» named  PIN projects.

We recommend the companies to explore the options available and consider how these incentives can contribute to their business objectives.

FOREIGN INVESTMENT INCENTIVES IN PORTUGAL

The incentives may include:

• The «Portugal 2030»: programme for Businesses, Startups, and Foreign Investors from 2021 to 2030;
• Incentives under the scope of the «Recovery and Resilience Plan» (Plano de Resiliência e Recuperação, PRR) from 2021 to 2026, a set of reforms and investments that were build to increase the competitiveness of the economy and the digital transition of the companies;
• Different tax incentives;
• Incentive programmes designed for specific situations, such as the creation of jobs, which may include temporary reductions of the employer’s social security contributions, financial support for hiring young people, unemployed, co-funding of training costs, among others.

A proposal from the Portuguese government is being discussed by which real estate investors who invest in affordable rentals will be able to receive a tax discount on their IRS and IRC income.

TAX BENEFITS

All companies earning income in Portugal are subject to Corporate Income Tax (IRC), Social Security contributions for employees, Value Added Tax (VAT).

Also the annual municipal property tax (IMI) is charged at a rate ranging from 0.3 to 0.5% for urban properties and 0.8% for rural properties.

Additionally, stamp duty is paid during any property transaction or transfer, amounting to 0.8% or 10% of the transaction value, depending on the nature of the transaction.

Corporate Income Tax (IRC) applies to:

• profit made by companies with registered office in Portugal whose main commercial, industrial or agricultural activity is subject to the deduction of any losses or benefits from tax advantages
• sum of the income of companies with registered office in Portugal whose main activity is not commercial, industrial or agricultural, which is subject to the deduction of non-tax-exempt common expenditure or benefits from tax advantages
• profit of an establishment located in Portugal of a company without registered office in Portugal, which is subject to the deduction of any losses or benefits from tax advantages
• sum of the income obtained in Portugal from companies with no registered office or establishment in Portugal.

There are several tax benefits intended to foreign investment such as:

• Investment Support Tax Regime (RFAI)

The Investment Support Tax Regime is a tax benefit, which allows companies to deduct from the IRC up to 50% of the same, for:

• investments up to €15,000,000, deduction of 25% of the relevant investment;
• investments exceeding €15,000,000, deduction of 10% of the relevant investment.

In the case of start-ups, the deduction is made up to the total amount of IRC collection in the tax period in which the activity begins and in the two following tax periods.

Any deduction that cannot be made in full due to insufficient collection may be made, under the same conditions, until the tenth following financial year.

Exemptions from IMI, IMT and Stamp Tax are also granted in relation to buildings that constitute a relevant investment.

• System of tax incentives for research and business development (SIFIDE II)

This benefit aims to increase the competitiveness of companies by supporting their research and development efforts by deducting IRC from R&D non-refundable expenses. A notable example is the technology sector, where startups and large companies have invested heavily in R&D, benefiting from SIFIDE II to develop new solutions that are now exported globally.

SIFIDE aims to increase the competitiveness of companies by supporting their efforts in Research & Development by deducting a percentage of the respective R&D expenses from the IRC collection (in the part not reimbursed by the State or European Funds).

The tax benefit is a deduction from IRC collection corresponds to a rate between 32.5% and 82.5% of the value of eligible R&D expenses.

For SMEs which have started business less than 2 years before and which have not benefited from the incremental rate, it is applied an increase of 15% to the basic rate (47.5%).

• Impact of Tax Incentives in Portugal Industry

Tax incentives have proven to be an effective tool for attracting foreign investment and promoting the growth of national companies. Using these incentives allows companies to:

• Reduce the tax burden: Freeing up financial resources for reinvestment.
• Stimulate innovation: Investing in R&D projects that can lead to new products and processes.
• Improve competitiveness: Modernizing infrastructures and adopting cutting-edge technologies.

HOW COMPANIES CAN BENEFIT FROM TAX INCENTIVES?

To take advantage of tax incentives, companies must:

1. Identify applicable incentives: Evaluate which tax benefits are appropriate for your investment projects.
2. Fulfil legal requirements: Comply with the specific requirements of each incentive, which may include the presentation of investment plans and progress reports.
3. Submit the application: Through appropriate platforms, such as the “Portal” of the competent entities.

Tax incentives for investment represent a valuable opportunity for companies in Portugal. Harnessing these benefits can be a crucial strategic step towards growth and innovation.