Major Portuguese tax developments in the past 12 months

Reinforced tax benefits

On May 17th, 2023, a new legislation was published that amends several tax benefits, of which we highlight:

• It is clarified that income from contracts for the assignment or temporary use of industrial property rights may benefit from our domestic «Patent Box» even if not subject to registration (like computer programmes).
• «Patent Box» is no longer subject to the general maximum cap applicable to tax benefits under CIT (10% of the CIT that would be due without the benefit).
• It is clarified that the new Incentive Tax Regime for Corporate Capitalization (ICE) – which allows a deduction from the CIT taxable profit of an amount corresponding to 5% (SMEs) or 4.5% (non-SMEs) of relevant equity capital increases – is applicable since 2023. It is also clarified that only retained earnings that would be otherwise distributable as dividends count towards the benefit.
  

Equity-based incentive plans

On May 25th, 2023 a new tax regime for equity-based incentive plans offered by “startup” companies, or by “scaleup” companies (as defined in the legislation) that qualify as innovative companies (meaning a company with R&D or intellectual property development expenses equivalent to at least 10% of company’s total expenses or turnover) or small or medium-sized enterprises (SMEs) was enacted.

The regime aims to make Portugal more attractive for highly qualified employees wanting to work for innovative and SME companies, by allowing certain types of stock option plans to qualify for deferred taxation (up to the moment of the sale of the shares or the moment the employee ceases to be a tax resident in Portugal), as well as for a reduced effective tax rate (14%), provided certain conditions are fulfilled by both the employer and the employee (most notably, holding the shares for at least one year before its sale).

More Housing initiative

On October 6th, 2023 a new legislative package of measures aimed at tackling Portugal’s housing crisis know as More Housing Program was published.

More Housing Program has several important tax measures, most noticeably the following:

• Personal Income Tax (“PIT”) and Corporate Income Tax (“CIT”) exemptions, with some exceptions, on capital gains arising from the sale of residential properties to the State, Autonomous Regions or local municipalities. 
• If some conditions are met, AL (local accommodation) properties transformed into residential leases until December 31, 2024 will benefit from an exemption from PIT and CIT on rent.
• PIT exemption on capital gains arising from the sale permanent residence/habitual abode (when the net sale price is reinvested in the purchase of a new one) now includes two more cumulative conditions: (a) the sold property has to have been used as the taxpayer’s habitual abode or his family within the 24 months prior to the date of disposal; and (b) the taxable person has not benefited from this exclusion regime in the year in which the capital gain was realized, or in the three previous years.
• Capital gains from the sale of land or secondary residential properties until December 31, 2024 are now excluded from PIT, if (a) the net sale price is reinvested on the amortization of a mortgage loan on the taxpayer’s own permanent residence (or his descendants) and (b) such the amortization is made within three months of the date of disposal.
• Rental income from residential properties is now taxed at 25% (instead of the previous 28%), with possible further reductions down to 5% for long term lease agreements.
• The properties acquired for resale must now be sold within 1 year (instead of the previous 3 years), in order to maintain the Real Estate Transfer Tax (“RETT”) exemption.
• Also, all PIT and CIT benefits (on rent and/or capital gains) previously given to owners of properties that underwent urban rehabilitation are now revoked.
• The acquisition of land for construction intended for the construction of residential buildings to be subject to controlled rent is exempt from RETT if some requirements are met.
• A new extraordinary contribution was created which is due by local accommodation business owners and is levied at a rate of 15% over a tax basis that is computed by applying the specific economic coefficients and the urban pressure coefficient to the private gross area of the properties in question.
• The reduced VAT rate (of 6%) is now applicable to new operations, namely: (a) rehabilitation of cost controlled housing properties; (b) construction and rehabilitation contracts of housing properties for affordable rental; (c) construction and rehabilitation of equipment for collective use of a public nature, located in urban rehabilitation areas.

State Budget 2024

On December 29th, 2023 the State Budget for 2024 was published, containing very important tax measures:

• The end of Portugal’s expats regime (non-habitual residency): Portugal’s non-habitual residency regime (NHR) – special tax status that offered special tax treatment for 10 years to newly established expats – was officially terminated. Taxpayers that already hold NHR status will keep the status and its benefits until the end of the program, but newly established residents will not have access to it unless they have a relevant connection with Portugal since 2023 or before.
• Tax Incentive for Scientific Research and Innovation» (TISRI for short): In place of the NHR, the TSRI is a new expats regime targeting highly qualified workers that move to Portugal to live and work (locally). In a simplistic terms, the TRSRI allows these highly qualified workers to be taxed in Portugal at a special Persona Income Tax (PIT) rate of 20% (plus Social Security) on employment or self-employment income earned for a period of 10 consecutive years (non-extendable).
• Return to Portugal tax relief extended: Return to Portugal tax relief program – 50% tax break on employment or self-employment income for 5 years – is extended until 2026, but now with the added limitation that the eligible income cannot surpass € 250.000 per year.
• Young Workers Tax Relief 4.0: The Young Workers Tax Relief Program (which provides for a partial tax exemption of the first years of income after graduation) is further enhanced, now allowing a full tax exemption in the first year after graduation and very deep tax cuts in the following four years.
• Balance sheet bonus: Balance sheet bonuses (meaning profit distribution in favor of employees) are now exempt from PIT up to a monthly salary – as long as it does not surpass 5 x RMMG [ 5 x € 820]. However, in order for the employee to be eligible for this tax break, the employer needs to conduct a nominal increase in fixed remuneration of all employees in 2024 equal to or greater than 5%.
• Travel agencies will benefit from the reimbursement of VAT regime in place for event organizers: Last year, a new regime was enacted allowing for reimbursement of additional VAT by event organizers with CAE 82300. Under this regime, event organizers can recover and additional 50% of the VAT incurred in hospitality expenses (the other 50% is recovered via the general rules of the PT VAT Code and general VAT returns). This regime is now extended to travel agencies registered under CAE 79110.

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