Considering that the Portuguese business sector is mainly composed by micro, small and medium enterprises (SME), there is a constant concern to create tax benefits for private investment and boosting of the Portuguese economy, to promote the competitiveness of such companies. To have a general view of the tax incentives we are writing about, we highlight the following incentive measures:
- Tax Regime for Investment Support – TRIS
- Deduction for Retained and Reinvested Profits – DRRP
- Tax Incentives’ System for Research and Development – TISRD
- Agreed share capital remuneration
- Net job creation
1 – Tax Regime for Investment Support – TRIS
The Tax Regime for Investment Support (TRIS) is a tax benefit that allows companies to deduct, to their income subject to corporate income tax, a percentage of the investment in certain tangible and intangible fixed assets (relevant investments). This deduction can be of 25% or 10% of the relevant investments, depending on the region where the investments are made and their amount. This benefit ultimately reduces the amount on which the corporate tax rate will concern.
This deduction can be carried out to the limit of 50% of the income subject to corporate income tax, and, in case of investments made in the first three years of activity, it is possible to achieve, full deduction of the relevant investments.
In addition to the deduction to corporate income tax, the TRIS also grants IMI and IMT (real estate Portuguese taxes) exemptions or reductions, as well as Stamp Duty exemptions for the purchases of buildings which constitute relevant investments.
In order to benefit from the tax incentives granted by the TRIS, SME still have to cumulatively fulfill a set of requirements and comply certain conditions, including having their accounting regularly organized, no debts to the State and make significant investment that provides the creation of jobs and their maintenance until the end of the minimum maintenance period of the assets invested in.
2 – Deduction for Retained and Reinvested Profits – DRRP
The Deduction for Retained and Reinvested Profits regime (DRRP) is a measure to encourage SME that primarily pursue an activity of commercial, industrial or agricultural nature, which allows the deduction, to the income subject to corporate income tax, of retained earnings that are reinvested in relevant applications (which consist in legally foreseen tangible fixed assets, acquired in a new condition).
In this case, it is allowed the deduction to the income subject to corporate income tax of 10% of the retained earnings that are reinvested (maximum amount per taxpayer and per tax period of 5 million euros) in relevant applications, within 2 years, with the maximum annual deduction of 25% of the income subject to corporate income tax. Similar to point 1, this benefit ultimately reduces the amount on which the corporate tax rate will concern.
3 – Tax Incentives’ System for Research and Development – TISRD
The Tax Incentives’ System for Research and Development (TISRD) is a system of incentives to the research and enterprise development, in which, under certain conditions¸ some eligible costs with research and development are deductible to the income subject to corporate income tax.
These benefits allow SME that primarily pursue an activity of agricultural, industrial, commercial and services to recover a large part of the investment made in research and development in the tax periods between 1st January 2014 and 31st December 2020, in a double percentage:
– Base rate: Tax deduction applicable to the total costs in research and development in the current year – 32,5%;
– Incremental rate: 50% of the increase in costs, when compared to the average of the two previous years (maximum of one and a half million euros).
For SME that have not yet completed two years and have not benefited from the incremental rate, it is applicable an increase of 15% to the base rate (47,5%).
4 – Agreed share capital remuneration
The Agreed share capital remuneration regime foresees that an amount corresponding to 5% of the subscriptions of equity in cash by the shareholders, upon the incorporation of companies or share capital increase, can be deducted to the income subject to corporate income tax of SME, provided that the shareholders who participate in the share capital increase are exclusively individuals, venture capital companies or venture capital investors and provided that their profit is not determined by indirect methods.
5 – Net job creation
Bringing to the field of tax benefits the concern of creating jobs, a measure that was created implies that the costs resulting from the net creation of jobs for young people and long-term unemployed, hired through an employment contract for an indefinite term, are considered at 150% of the respective amount. This allows, therefore, to increase and broaden the costs of the year that are consider tax costs, reducing, the final taxable income on which the corporate tax rate will concern.
The above measures cannot be combined with other tax benefits of the same nature, except for TRIS and DRRP, which are only cumulative between each other (as long as the legal limits are not exceeded).
That said, each company must do their planning and confirm which incentive or measure will best apply to them.