Regulation on carbon taxes published
Order 38/2021, of 16 February, published in the Official Gazette, imposes a carbon tax on air and sea travels. It aims at compensating the emission of polluting gases and other negative environmental impacts caused by these means of transport.
These carbon taxes are levied on the issuance of transport tickets in respect of:
Passenger commercial flights departing from airports and airfields located in the Portuguese territory.
Landing of passenger vessels on terminals located in the Portuguese territory, in respect of fuelling, repair, embarking and disembarking of passengers.
This regime shall become effective from 1 July 2021 onward.
2021 State Budget law – Main tax measures
The 2021 State Budget Law, approved by Law no. 75-B/2020, of 31 December, includes the following tax measures of relevance (for more information, please visit PwC's analysis of the key aspects of the 2021 State Budget):
Permanent establishment (PE)
The concept of PE is now in general aligned with BEPS Action 7 on Permanent Establishment Status, the OECD Model Tax Convention on Income and on Capital (OECD MC) as it read on 21 November 2017, and respective Commentaries, as well as with the Portuguese position on the Multilateral Convention. The amendments introduced also follow the UN Model Convention.
Article 3 of the CIT Code already includes a limited force of attraction principle on matter of PE however it is now further clarified that the taxable profit of a PE in Portugal of a non resident entity includes income derived from the sale of goods and services made by the head office to natural or legal persons that are resident for tax purposes in Portugal, provided that such goods and services are identical or similar to those sold through the PE.
Article 5 of the CIT Code now reflects an extension of the concept of PE is respect of relevant activities, fixed installation, DAPE and preparatory or ancillary activities. Alongside with the situations already foreseen in domestic tax law, a PE shall be deemed to be recognised in the following circumstances:
- Business activities derived from services, including consulting services, performed by an enterprise, through its own staff or subcontractors hired with the purposes of carrying such activities in the Portuguese territory; provided that such activities are performed for a period or periods exceeding in the aggregate 183 days in any twelve month period starting or ending in the relevant tax year;
- Installations, platforms or ships in general used in prospective or exploitation of natural resources, in case the respective activity exceeds 90 days;
- A PE may also be deemed to exist in case of a person (a dependent agent), that is not an independent agent, acts in the Portuguese territory on behalf of an enterprise and, in doing so:
- habitually has an authority to intermediate and conclude contracts that are binding for the enterprise, within the scope of the respective activities, namely contracts:
- in the name of the enterprise, or
- for the transfer of the ownership of, or for the granting of the right to use, property owned by that enterprise or that the enterprise has the right to use, or
- for the provision of services by that enterprise;
- habitually concludes the contracts mentioned previously, or habitually plays the principal role leading to the conclusion of such contracts that are routinely concluded without material modification by the enterprise;
- maintains in the Portuguese territory a stock of goods or merchandise for delivery in the name of the enterprise, even if it does not conclude contracts in respect of such goods or merchandise or has any intervention in the conclusion of such contracts.
- habitually has an authority to intermediate and conclude contracts that are binding for the enterprise, within the scope of the respective activities, namely contracts:
- The use of facilities or the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of delivery;
- A fixed place of business or stock of goods or merchandising used or maintained by an enterprise if the same enterprise or a closely related enterprise constitute complementary functions that are part of a cohesive business operation and carries on business activities at the same place or at another place in the Portuguese territory, in order to prevent the fragmentation of activities between related parties.
For the purposes of the amendments now introduced in Article 5 of the CIT Code, there is the adoption of the definition of a "person or enterprise closely related to an enterprise" in line BEPS Action 7 and the OECD MC.
Exclusion from public support of entities related with clearly more favourable tax regimes
The following entities are excluded from public support measures created within the context of the extraordinary and temporary COVID.19 pandemic measures:
- Entities with head office or place of effective management in countries, territories or regions with a more favourable tax regime, included in the list approved by Decree 150/2004, of 13 February 2004.
- Companies under the domain (within the meaning of Article 486 of the Company’s Code) of entities (including all sort of fiduciary structures) with head office or place of effective management in countries, territories or regions with a more favourable tax regime, included in the list approved by Decree 150/2004, of 13 February 2004; the same applies in case the respective beneficial owners is domiciled in such countries, territories or regions.
Reduced VAT rate: The VAT Code shall include a provision according to which the reduced VAT rate applies to respiratory protective mask and disinfectant gel.
Exemption on the supply of goods to combat the pandemic: the supply of medical devices and equipment to combat the pandemic is exempt from VAT until 30 April 2021. Law 13/2020 of 7 May lists said devices and equipment, as well as the acquiring entities. The exemption is extended to supplies of goods to scientific and higher educational institutions.
e-Commerce: the entry into force of the new rules applicable to e-commerce with individuals was postponed to 1 July 2021. E-commerce operators intending to apply the special VAT regimes foreseen in the relevant legislation can register electronically with the Tax Authorities, from 1 April to 30 June 2021.
Real Estate Transfer Tax (IMT)
Uniformization of taxation for all legal types of companies
The previous distinction between Private Limited Liability Companies (“Sociedades por Quotas” or “Lda.)) and joint stock companies (“Sociedades Anónimas” or “SA”) ceases to exist. Real Estate Transfer Tax applies at 6.5% in the following cases: a) acquisition of shares in non-listed companies whose assets consist of more than 50% of real estate located in Portugal; b) when such real estate is not directly allocated to a commercial, industrial or agricultural activity (except resale), and c) by virtue of such acquisition, redemption of shares of any other facts, one of the shareholders owns at least 75% of the sharecapital (or the number of shareholders is reduced to two married persons or in a non marital partnership).
Indirect ownership by offshore entities
Entities held directly or indirectly by offshore entities are not entitled to the suspension of IMI applicable in case of resale; aggravated IMI and IMT rates (7.5% respectively 10%) also apply in case of indirect ownership by offshore entities. I.e., in case of real estate owned by a company under the direct or indirect domain or control (within the meaning of the Company’s Code) of an entity resident in an offshore territory.
Transitional tax incentive scheme for external promotional activities
Costs incurred in 2021 and 2022 with joint external promotional activities are allowed as tax deductible for 110% of the respective amount. This measure applies to micro, small and medium sized companies resident for tax purposes in Portugal, as well as permanent establishments in Portugal of non resident entities in the same conditions. It is also required that the beneficiaries of this incentive carry out directly and primarily agricultural, commercial or industrial activities.
Eligibility conditions and expenses are defined in the proposal. Eligible expenses include costs with participation in fairs and exhibitions outside Portugal, specialised consultancy services rendered by outsourced consultants, as well as activities aiming at internationalisation.
Depending on the nature of the eligible expenses, this benefit is subject to European Union de minimis rules and on matters of state aid.
Tax benefits scheme for R&D (SIFIDE II)
The eligibility for the R&D tax benefits scheme (“Sistema de incentivos fiscais em investigação e desenvolvimento empresarial II” or “SIFIDE II”) of equity investments in R&D institutions or contributions to private or public investment funds will require effective investment in equity or quasi-equity of R&D companies.
It is clarified that a “company mainly dedicated to R&D activities” corresponds to a company with a recognition in the technological area.
In addition to the mandatory period of maintenance of the investment in an investment fund, an additional requirement is introduced. Within five years, it is required that the investment fund effectively makes an investment of at least 80% in the so-called companies dedicated to R&D activities, and these effectively invest in R&D activities. Otherwise, the CIT liability of the tax year concerned is increased by the amount of unpaid CIT resulting from the misuse of the tax benefit (proportionally if applicable).
Investment funds must now provide unitholders a statement of the investment effectively made in R&D companies in the previous tax year. This statement must be provided by the end of the 4th month following the end of the tax year concerned. If applicable, the same statement must mention any lack of investment, and respective amount, within the mandatory timeline of 5 years.
The R&D companies mentioned above are also required to provide to the investment funds a statement detailing the investment made in eligible expenses in the previous tax year. This statement must be provided by the end of the 4th month following the end of the tax year concerned. If applicable, the same statement must mention any lack of investment, and respective amount, within the mandatory timeline of 5 years. This information should be provided by the investment fund to the unitholders, for the purpose of any CIT regularisation.
Unitholders as well as the investment funds concerned must include the above mentioned statements in their tax file (“dossier fiscal”).
Extraordinary and transitional regime of job maintenance
In 2021, access to certain tax benefits and public support measures will depend on job maintenance. This shall apply to entities engaged mainly in agricultural, commercial or industrial activities (micro, small and medium sized companies are excluded) that assess positive net profit in 2020.
Among the tax benefits and public support measures covered are credit facilities with state guarantee, the regime of convencional remuneration of share capital (“Remuneração Convencional do Capital Social”), the tax regime for investment support (“Regime Fiscal de Apoio ao Investimento” or “RFAI”), the SIFIDE II and the extraordinary regime for investment (“Crédito Fiscal Extraordinário ao Investimento II” or “CFEI II”).
Further regulation is expected from the competent Government members (finance and social security).
Levy on plastic, aluminium or other disposable packages used on take away meals
A levy amounting to EUR 0.30 per package shall be levied on disposable packages used on take-away meals including those with home delivery composed by plastic or aluminium or composed by other materials that include plastic or aluminium. This levy applies: from 1 January 2022 onward in case of plastic packages and packages with other materials that include plastic; from 1 January 2023 onward in case of aluminium packages and packages with other materials that include aluminium. Further regulation is expected from the competent Government members (finance and environment).
DAC 6 – Guidelines published
The Tax Authorities published detailed guidelines regarding the obligation to report domestic and cross border mechanisms with tax relevance, under DAC 6.
2021 State Budget law published
Law no. 75-B/2020, of 31 December, published in the Official Gazette, approves the 2021 State Budget Law. It is effective in general from 1 January 2021 onwards. Details on the most relevant tax measures introduced shall follow.
Amendment to the list of countries, territories and regions with favourable tax regimes – Andorra is removed
Following the publication of Decree no. 309-A/2020, of 31 December, Andorra is no longer included in the list of countries, territories and regions with favourable tax regimes. This is effective from 1 January 2021 onwards.
DAC 6 - Form published
Ordinance no. 304/2020, of 29 December, published in the Official Gazette, approves standard form 58 and respective filling instruction, under DAC 6. This form shall be used to communicate to the tax authorities reportable domestic and cross-border mechanisms with tax relevance, as provided for by Law no. 26/2020 of 21 July, that transposed DAC 6 into domestic tax law.
Portugal - Kenya tax treaty approved and ratified
The tax treaty concluded between Portugal and Kenya was approved by a Resolution of the Parliament (no. 88/2020) and ratified by President's Decree (no. 60/2020) both published on 23 November 2020.
The tax treaty provides for the following limitations on the taxation at the source State:
- Dividends: 7.5% in case of ownership of at least 10% for 365 days (including the date of payment); 10% in all other cases.
- Interest: 10%.
- Royalties: 10%.
- Technical services: 10% (includes services of a technical, managerial or consultancy nature).
This tax treaty is not yet in force.
DAC 6 - Deadlines postponed
Following an Order issued by the State Secretary of Tax Affairs, on 19 November, the deadline for the intermediary to notify the relevant taxpayer was postponed to 15 January 2021. This concerns the obligation to report cross-border arrangements which had their first step implemented between 25 June 2018 and 30 June 2020, as foreseen in Article 22 of Law 26/2020, of 21 July (transposition of DAC 6), as amended by Decree-Law 53/2020, of 11 August.
New requirements for listed companies regarding inter-company transactions
Law 50/2020, of 25 August 2020, published in the Official Gazette, transposes into Portuguese legislation the Directive (EU) 2017/828 of the European Parliament and of the Council of 17 May 2017 (Directive) regarding listed companies long term shareholders rights.
The transposition of the Directive, which establishes new transparency requirements, has resulted in amendments to the Securities and Exchange Code (Código dos Valores Mobiliários or CVM), to the legal requirements governing collective investment undertakings (Regime Geral dos Organismos de Investimento Coletivo) and to the Legal Framework of Credit Institutions and Financial Companies (Regime Geral das Instituições de Crédito e Sociedades Financeiras); Law 28/2009, of 19 June, was revoked.
With regards to CVM, among other amendments, the following obligations were introduced for listed companies in relation to certain inter-company transactions:
- The creation of an internal procedure approved by the administrative body, with the prior opinion of the supervisory body, through which transactions of the company with related parties are periodically reviewed in order to establish whether these were carried out within the scope of the company's normal activity and in line with market conditions.
- For inter-company transactions that do not comply with the requirements above, these will be subject to deliberation of the administrative body, preceded by the opinion of the supervisory body, and public disclosure of their detailed information, when their amounts are equal to or greater than 2.5% the company's assets, unless an exemption applies.
- The public disclosure requirement equally applies to transactions entered into between a related party of the company and a subsidiary of the company when the transactions do not comply with the requirements above and their amounts are equal to or greater than 2.5% of the company's consolidated assets, unless an exemption applies.
Transposition of VAT quick fixes to the national legal system
Law 49/2020, of 24 August, transposes Council Directives (EU) 2018/1910 of 4 December 2018 and 2019/475 of 18 February 2019. It also amends the VAT Code, the Regime for Intra-Community Transactions (RITI) and the Excise Duties Code.
The amendments focus essentially on the following:
- VAT treatment of chain transactions within the European Union, by introducing rules regarding the allocation of transport in this type of operation.
- Simplification of the system of call of stock in intra-Community operations.
These changes are effective as from 1 January 2020.
The diploma also establishes that VATable persons may comply with the tax obligations arising from these changes, namely the submission of substitution of the recapitulative statement referred to in Article 23(1)(c) of the Regime for Intra-Community Transactions (RITI), until 31 December 2020.
QR code and single document code to be included in invoices and other tax relevant documents
Order no. 195/2020, of 13 August, regulates the requirements for the creation of bidimensional bar code (QR code) and a single document code (ATCUD). From January 2021 onward, these are to be included in all invoices and other fiscally relevant documents.
DAC 6 – Filing of information on reportable domestic and cross-border arrangements: postponement of deadlines
Decree-Law 53/2020, of 11 August, transposes into national law Council Directive (EU) 2020/876, of 24 June 2020, that amends Directive 2011/16/EU, of 15 February, on administrative cooperation in the field of taxation.
The Decree-Law postpones the deadlines to file information on reportable domestic and cross-border arrangements, foreseen in Law 26/2020, of 21 July, as follows:
- Information on reportable cross-border arrangements the first step of which was implemented between 25 June 2018 and 30 June 2020: To be filed by 28 February 2021.
- Reportable domestic or cross-border arrangements made available for implementation or ready for implementation, or where the first step in its implementation has been made between 1 July 2020 and 31 December 2020 (also applicable to intermediaries having provided, directly or by means of other persons, aid, assistance or advice concerning a reportable arrangement): The period of 30 days for filing information to begin by 1 January 2021.
- Situations covered by legal or contractual secrecy involving the filing of information on reportable domestic or cross-border arrangement made available for implementation or ready for implementation, or where the first step in its implementation has been made between 1 July 2020 and 31 December 2020: The period of 5 days to inform the taxpayer to begin by 1 January 2021.
- Domestic and cross-border marketable arrangements: First periodic report to be filed by the intermediary by 30 April 2021.
COVID-19 – Social security: Exemption and partial relief of employer’s contributions
Decree-Law 46-A/2020, of 31 July, published in the Official Gazette, establishes the extraordinary support to the gradual recovery of the activity of companies in business crisis situation, with temporary reduction of the standard working hours. It also foresees the exemption and partial relief of social security contributions due by the employer (for further information, please visit PwC's Tax Flash title COVID-19 – Social Security: Exemption and partial relief of employer’s contributions).
COVID-19 – Additional extraordinary tax measures for cooperatives, micro, small, and medium-sized companies
Law 29/2020, of 31 July, published in the Official Gazette, establishes COVID-19 pandemic related tax measures to support cooperatives as well as micro, small, and medium-sized companies (SME). For further information, please visit PwC’s Tax Flash titled COVID-19 – Tax measures for cooperatives, micro, small and medium sized companies.
2020 Supplementary Budget gazetted - Additional COVID-19 tax measures enacted
Law 26-A/2020, of 24 July, amends the 2020 State Budget Law. For further information, please visit PwC's analysis of the key aspects of the Supplementary Budget 2020.
DAC 6 - Reportable cross border arrangements – Council Directive (EU) 2018/822
Law 26/2020, of 21 July, published in the Official Gazette, transposes Council Directive (EU) 2018/822, of 25 May 2018. It determines the obligation to report to the tax authorities certain internal and cross border tax arrangements.
Hybrid mismatches – Anti Tax Avoidance Directive (ATAD) transposed
Law 24/2020, of 6 July, published in the Official Gazette, transposes the Anti Tax Avoidance Directive (ATAD) as regards hybrid mismatches with third countries.
Following the transposition, the CIT Code now includes Article 68-A (Definitions), Article 68-B (Hybrid Mismatches), Article 68-C (Reverse Hybrid Mismatches) and Article 68-D (Tax Residency Mismatches).
This Law further amends no. 11 of Article 67 of the CIT Code, regarding limitation on the tax deductibility of financial expenses. These rules now apply to credit securitisation companies, previously excluded.
2020 State Budget published
Law no. 2/2020, of 31 March 2020, published in the Official Gazette, approved the State Budget for 2020, having entered into force on 1 April 2020. For further information, please visit PwC's analysis of the key aspects of the 2020 State Budget.