Special Regime applicable to entities licensed to operate in the Free Zone of Madeira from 1 January 2007
Prorogation of the deadline for licensing entities in the Free Zone of Madeira from 31 December 2013 to 30 June 2014.
The prorogation will only take effect after its approval by the European Commission.
Municipal Property Tax exemption (“IMI) applicable to urban properties for permanent dwelling
Where the application for exemption was submitted, or the effective allocation of the property to permanent dwelling occurred, after the legal term, the exemption period only starts in the year in which the relevant notice is made to the tax office (rather than in the year following the one in which the exemption requirements were met), being the end of the exemption period maintained (i.e. the exemption ceases in the year in which it would have ceased if the allocation had taken place within the legal deadline).
Real Estate Funds, Pension Funds and Retirement Savings Funds
Properties included in open-ended Real Estate Funds, closed-end Real Estate Funds with public subscription, Pension Funds and/or in Retirement Savings Funds, set up or operating in accordance with the Portuguese law, no longer benefit from full “IMI” and “IMT” exemptions, being the applicable tax rates reduced to half.
The new rules apply to future and existing regime properties.
Reorganisation of companies as a result of restructuring operations or cooperation agreements
The transactions eligible for exemption from “IMT”, Stamp Duty, charges and other costs payable within the scope of corporate reorganisation are extended.
While it continues to apply to predefined cooperation agreements, the new regime has ceased to solely apply to the so called concentration transactions, being now applicable to restructuring transactions, thus broadening the scope of operations eligible for this regime.
Restructuring transactions are deemed to include the incorporation by a company of one or several branches of activity of another company. The applicability of the regime is no longer dependent on the allocation of share capital in the beneficiary entity, the participating companies can have different activities prior to the restructuring and, post-restructuring, the transferring company is no longer obliged to cease the transferred activity.
By way of illustration, the regime now applies to demergers by means of which a company spins-off one or several branches of activity for the purposes of incorporating a new company (under the previous regime only demergers in which the branch of activity being transferred was merged into a pre-existent company were eligible).
On the other hand, it is no longer required that the involved companies pursue the same economic activity, or economic activities included within the same product production and distribution line, that they share marketing channels or production processes, or that production processes or distribution channels of both companies have a clear similarity or complementariness .
The application for the regime needs to be documented with an economic study of the advantages of the operation, the merger or demerger project as per the Companies Code, as well as by the decision of the Competition Authority, where the operation is subject to notification in accordance with Law No. 19/2012, of 8 May.
Conversely, it will no longer be required to obtain the opinion of the ministry supervising the activity of the involved companies.
The rules on reimbursement of taxes and other costs proven to have been borne by the companies are amended, so that in the case of restructuring and cooperation acts preceding the granting of the applicable tax benefits the application for reimbursement can be made within 3 months following the notification of the order granting the tax benefits.
Properties in Business Location Areas
Extension of the "IMI” and “IMT” exemptions regime for properties acquired or concluded until 31 December 2014.
Benefit for the reinvestment of profits and reserves
In order to promote investment in small and medium-sized companies, up to 10% of the retained profits which are reinvested in eligible assets within 2 years following the period to which the retained profits relate to can be deducted to the assessed Corporate Income Tax of the tax periods beginning on or after 1 January 2014.
The maximum amount of retained and reinvested profits in each tax period taxpayer is EUR 5,000,000.00, not being possible to deduct more than 25% of assessed Corporate Income Tax.
Notwithstanding specific rules on eligible entities and assets, on the application of the tax deduction under the RETGS (special tax regime of group taxation), in respect of assets acquired under financial leasing and on ancillary obligations and penalties, the following key aspects should be noted:
- The definition of eligible entities (small and medium-sized enterprises) is the one given in the annex to Decree-Law No. 372/2007, of 6 November;
- The use of the retained and reinvested profits deduction imposes the creation of a special reserve that cannot be distributed to the shareholders before 5 years have elapsed following its creation;
- The retained and reinvested profits deduction is not cumulative with other tax benefits of the same nature;
- The deduction is excluded from the scope of article 92(1) of the corporate income tax code;
- The reinvestment in eligible assets relating to profits made in a tax period beginning on or after 1 January 2014 can be achieved in such tax period or within the 2 subsequent years.
Tax Code for Investment - SIFIDE II
Prorogation from 2015 to 2020 of the Sistema de Incentivos Fiscais em Investigação e Desenvolvimento Empresarial II (Tax Incentive Regime for Corporate Research and Development, hereafter “SIFIDE II”), being the deadline to carry forward the unused benefit due to the absence of assessed tax extended from 6 to 8 years.
Entities benefiting from the SIFIDE II are mandatorily subject to a technological audit, to be undertaken by the end of the projects.
Clarification according to which expenses incurred in connection with projects exclusively carried out on behalf of third parties, notably under contracts or the supply of Research and Development (R&D) services, are not eligible deductible.
Expenses relating to costs with the registration and maintenance of patents and with R&D audits are eligible expenses for all companies, not only for micro, small and medium-sized ones.
Expenses with personnel with minimum level 4 qualification under the National Qualification Framework and directly allocated to R&D are computed by its full amount, not being limited to 90% (as it used to apply to entities that did not qualify as micro, small or medium-sized companies).
Expenses with personnel with minimum level 8 qualification under the National Qualification Framework (Ph.D.) allocated to R&D are computed by 120% of their amount. Conversely, the 20% increase applicable to the incremental rate applicable to those expenses is revoked.
Tax incentives to financing
Stamp Duty on guarantees exemption
Guarantees for the benefit of the Portuguese State and/or for the benefit of Social Security institutions in the context of tax proceedings during 2014 are exempt.
Interest paid out of Schuldscheindarlehen loans entered into by IGCP, E.P.E., in the name and on behalf of the Portuguese State are exempt from income taxes provided that the relevant creditor is a non-resident entity without a Portuguese permanent establishment to which the income is allocated to.
Debt securities issued by non residents
Interest paid out of public and/or non public debt issued by non-resident which is considered to be obtained in Portugal is exempt from income taxes where such income is paid by the Portuguese State in its capacity as guarantor of obligations undertaken by companies of which it is a shareholder together with other Member States of the European Union. This exemption is exclusively applicable to effective beneficiaries of the income that fulfil the requirements set out in article 5 of Decree-Law No. 193/2005, of 7 November, as amended by Decree-Law No. 25/2006, of 8 February.
Repo transactions with non resident financial institutions
Gains derived by non-resident financial institutions out of repo transactions on securities with resident credit institutions are exempt from corporate income tax, provided those gains are not attributable to a permanent establishment located in Portugal.
Repo transactions on securities or similar rights carried out in the stock exchange, as well as repo transactions and purchase and sale agreements by way of guarantee entered into between financial institutions, in particular credit institutions and financial companies, with the intervention of central counterparties, are exempt from Stamp Duty.
Real Estate Funds and Companies for residential lease
Prorogation until 31 December 2015 of the deadline for setting up real estate funds and companies for residential lease (“FIIAH” and “SIIAH”, respectively), and of the deadline for the purchase of real estate, in accordance with and for the purposes of the special regime set forth in articles 102 et seq. of Law 64-A/2008, of 31 December.
For the purposes of applying the relevant “IMI”, “IMT” and Stamp Duty exemptions regime, urban properties are only considered as being aimed at permanent dwelling where the lease agreement for permanent dwelling is entered into within 3 years from its acquisition by the fund or company. The taxpayer needs to provide evidence of the lease within 30 days from the end of the said 3-year period, failing which the exemptions will expire.
The new rules are also applicable to properties purchased before 1 January 2014, in which case the 3-year period is counted from 1 January 2014.
Companies in difficult economic situation
Reinforcement of the incentives for the acquisition of companies in a difficult economic situation through the extension of the tax losses deduction regime established by Decree-Law No. 14/98, of 28 January to the processes approved by Instituto de Apoio às Pequenas e Médias Empresas (Institute of Support to Small and Medium-sized companies) and to the Investment within in the scope of the Sistema de Incentivos à Revitalização e Modernização do Tecido Empresarial (System for Business Restructuring and Modernisation-SIRME).
- Revocation of the regime applicable to capital gains and losses and underlying financial costs made with the sale of shares by Portuguese holding companies;
- Revocation of the regime applicable to capital gains and losses and to underlying financial costs made with the sale of shares by Venture Capital Companies and Venture Capital Investors;
- Revocation of the regime tax benefits applicable to investment projects in a minimum amount of EUR 250,000.00 aimed at the internationalisation of the Portuguese economy;
- Revocation of the economic double taxation relief regime for dividends distributed by subsidiaries in Portuguese-speaking African countries and in the Democratic Republic of East Timor.