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.
2021 State Budget law proposal – Highlight of tax measures
The 2021 State Budget law proposal was presented to the Parliament on 12 October 2020. We highlight the following tax measures being proposed:
1 - Corporate Income Tax (IRC)
(i) Permanent Establishment
It is proposed to further clarify that the taxable profit of a PE in Portugal of a non-resident entity includes income derived from the sale of goods and merchandising made by the head office to natural or legal persons that are resident for tax purposes in Portugal, provided that such products are identical or similar to those sold through the PE.
- Extension of the concept of PE - Relevant activities, fixed installation, DAPE and preparatory/ancillary activities
A PE shall be deemed to be recognised in the following circumstances:
a) 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;
b) Installations, platforms or ships in general (currently, reference is made to drilling ships) used in prospection or exploitation of natural resources, in case the respective activity exceeds 90 days(currently, 6 months);
c) a Dependent Agent PE (DAPE), where a person that is not an independent agent is acting in the Portuguese territory on behalf of an enterprise and, in doing so:
(i) 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;
(ii) 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;
(iii) 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;
d) The use of facilities or the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of delivery (currently this is an exception to the recognition of a PE as a preparatory or ancillary activity);
e) 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, whenever:
- that place or stock constitutes a permanent establishment for the enterprise or the closely related enterprise or
- the overall activity resulting from the combination of the activities carried on by the two enterprises at the same place, or by the same enterprise or closely related enterprises at the two places, is not of a preparatory or auxiliary character.
In line with BEPS Action 7 and the OECD MC, a person or enterprise is closely related to an enterprise if, based on all the relevant facts and circumstances, one has control of the other or both are under the control of the same persons or enterprises. In any case, a person or enterprise shall be considered to be closely related to an enterprise if one possesses directly or indirectly more than 50 per cent of the beneficial interest in the other (or, in the case of a company, more than 50 per cent of the aggregate vote and value of the company’s shares or of the beneficial equity interest in the company) or if another person or enterprise possesses directly or indirectly more than 50 per cent of the beneficial interest (or, in the case of a company, more than 50 per cent of the aggregate vote and value of the company’s shares or of the beneficial equity interest in the company) in the person and the enterprise or in the two enterprises.
(ii) Autonomous taxation - Transitional provision applicable in 2020 and 2021
A transitional provision applies to cooperatives, as well as micro, small and medium sized companies. It foresees that the aggravated autonomous taxation (10%) is not applicable in the following circumstances:
- The taxpayer assessed taxable profits in one of the previous three tax years, having complied timely with the filing of the CIT return and the Annual Statement (IES) concerning the two previous tax years; or
- The activity started in 2020 or 2021, or those years correspond to the first or second year of activity.
2 - Personal Income Tax
(i) Capital gains - Transfer pricing rules
The terms and conditions of transactions carried out between a taxpayer and an entity with whom special relations exist (as foreseen in the applicable transfer pricing rules), and such transactions giving raise to capital gains or capital losses, should be identical to those of transactions taken place between independent entities, in comparable transactions (the regime foreseen in Article 63 of the Corporate Income Tax Code applies with the necessary adjustments).
(ii) Capital gains on the allocation of real estate to private or business use by individual entrepreneurs
No capital gains shall be assessed in case of allocation of real estate held privately by an entrepreneur to the respective business activity. The same applies in the opposite case, i.e. private allocation of real estate used by an entrepreneur in the respective business activity.
Any taxable capital gain shall only be assessed in case of disposal of the real estate to a third party, regardless of being used in the business activity.
In case the real estate is disposed of before three years have elapsed following the private allocation, the capital gain is taxed under Category B (business income). The relevant price of acquisition shall be the value of the real estate upon acquisition (currently, it is relevant the market value of the real estate at the time of the private allocation).
The disposal of the real estate taken place after three years following the private allocation implies the taxation of the capital gain under Category G (increase in wealth).
For the purposes of assessing the amount of the taxable capital gain, expenses with improvements in the real estate shall be disregarded if incurred while the real estate was being used in the business activity.
Latent capital gains assessed under the current regime shall be subject to the new taxation regime detailed above.
3 – Indirect Taxes
- e-Commerce rules postponed
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.
- Reduced VAT rate applicable to respiratory protective masks and disinfectant gel
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 above exemption is extended to supplies of goods to scientific and higher educational institutions.
- VAT voucher (“IVAucher”)
IVAucher aims at fostering private consumption in the hospitality, cultural and catering industry, all severely affected by the pandemic.
The amount of VAT incurred in said consumptions each quarter will grant a discount on the same type of consumptions in the following quarter.
This incentive requires consent by the private consumer, as well as communication of the respective invoices to the Tax Authorities. It shall be made by interbank settlement.
The Government shall establish the scope and specific terms of this incentive.
(ii) Other indirect taxes
- Circulation Tax (“Imposto Único de Circulação” or “IUC”)
A 50% tax relief applies to vehicles classified as Category C with gross weight above 3.500 Kg and used exclusively in the entertainment industry.
The aggravated IUC applicable to diesel vehicles classified as Categories A and B is maintained in 2021.
- Tax on Vehicles (“Imposto sobre Veículos” or”ISV”)
There is now an environmental component for the purpose of assessing the rate applicable to secondhand vehicles originating in the European Union. A new table with percentages of reduction is foreseen.
- Excise Duties (“Impostos Especiais de Consumo” or “IEC”)
Tax on oil and energy products (“ISP”)
The unit rates of ISP remain unchanged. The inflation index is not being considered.
Advanced biofuels are fully exempt from ISP provided that they are certified with the biofuel title (“Título de Biocombustível” or “TdB”). Renewable gases are also fully exempt provided that they are certified with guarantee of origin (“Garantia de Origem” or “GO”).
There is an increase of the tax rates applicable to a number of products used in the production of electricity, combined heat and power and town gas. This applies to entities having such activity as their main business, either in Portugal mainland and in the Autonomous Regions. Additional increases are also foreseen for 2022 and following years.
A number of these products if used in premises subject to an energy consumption rationalisation plan (“acordo de racionalização dos consumos de energia” or “ARCE”) shall be subject to taxation. Taxation does not apply if such products are covered by the European Emissions Trading Scheme (EETS).
The aggravated ISP applicable to gasoline and diesel is maintained.
- Alcoholic beverages
There is a reduction by 50% of the taxation spirit drinks (liquors, brandies and rum) produced in the Autonomous Regions of Madeira and of the Azores, introduced for consumption in Portugal mainland.
The computation of the minimum reference total tax is amended. It shall be linked to the weighted average price of the cigarettes introduced in consumption. Currently, such computation considers only the higher class of sales prices.
4 - Real estate Transfer Tax (“Imposto Municipal sobre as transmissões onerosas de Imóveis” or ”IMT”)
Taxation of the acquisition of shares in land rich joint stock companies
The acquisition of shares corresponding to at least 75% of the share capital of a non listed joint stock company (“sociedade anónima”) is subject to IMT. This rule applies in case of companies whose assets consist of more than 50% of real estate located in Portugal. An exception applies in case the real estate is allocated to a commercial, industrial or agricultural activity (except resale).
IMT is also triggered in case the number of shareholders is reduced to two married persons or in a non marital partnership, as well as in case of a power of attorney that grants the right to dispose of shares in the above mentioned companies.
5 - Tax benefits
In general, new tax benefits (additional deductions) applicable to donations are created, and the existing ones are maintained. Namely, donations granted by natural or legal persons to:
- Hospital institutions having the status of public enterprise;
- The celebration of the circumnavigation by the Portuguese navigator Fernão de Magalhães;
- The Mission Structure for the Presidency of the Council of the European Union, during the respective mandate;
- The Embassy of Portugal in the United Arab Emirates, for the purposes of the Portuguese participation in the Dubai World Exhibition (2021);
- The Fundação JMJ-Lisboa 2022, which is a legal entity responsible for preparing, organising and coordinating the World Youth Day 2023 in Lisbon;
- Entities engaged as their primary activity in cultural activities (theatre, opera, dance, music, organization of festivals and other artistic expression, film, audio visual and literary productions), under the existing cultural patronage regime;
(ii) 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 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.
(iii) Tax benefits scheme for R&D (SIFIDE II) – Additional requirements
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.
An additional requirement is introduced. Within five years, it is required that the investment fund effectively makes an investment 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), plus late assessment interest.
Investment funds must provide unit holders 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 time line 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 time line of 5 years. This information should be provided by the investment fund to the unit holders, for the purpose of any CIT regularisations.
Unit holders as well as the investment funds concerned must include the above mentioned statements in their tax file (“dossier fiscal”).
(iv) Job creation as additional requirement to access tax benefits schemes
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”).
6 - Stamp Tax
The 50% increase in Stamp Tax applicable to consumer credit is extended until 31 December 2021.
It is proposed to revoke the safeguard clause that excludes existing agreements from the above provision.
7 - Levies
In 2021, levies in general are maintained. Namely:
- Extraordinary levy on the energy sector;
- Solidarity surcharge for the banking sector;
- Bank levy;
- Audiovisual levy;
- Pharmaceutical industry levy;
- Extraordinary levy on suppliers of medical devices to the national health system;
- Extraordinary levy on the energy sector.
New requirements for listed companies regarding intercompany 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 intercompany transactions:
(i) 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;
(ii) for intercompany 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; and
(iii) 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 VAT taxable 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.
COVID-19 - Extension of the deadline to file the July VAT return
Order no. 330/2020-XXII, of 13 August, of the State Secretary of Tax Affairs, establishes that the July VAT return can be filed up to 20 September 2020 (10 September, as a general rule), free from any penalties or increases in the respective amount. The VAT due can be paid until 25 September 2020.
COVID-19 - Extension of VAT exemption on goods necessary to combat the pandemic
Law 43/2020, of 18 August, published in the Official Gazette, extends the VAT exemption on intra-Community transfers and acquisitions of goods necessary to combat the COVID-19 outbreak, taking place in the Portuguese territory.
This diploma establishes that the exemption applies from 30 January 2020 to 31 October 2020, thus amending Law 13/2020, of 7 May, that established the effectiveness of the measure until 31 July 2020.
Tax exemptions applicable to the UEFA Champions League 2019/2020 Finals
Law 43/2020, of 18 August, published in the Official Gazette, establishes a temporary tax regime applicable to the UEFA Champions League 2019/2020 Finals.
The regime establishes a CIT and a PIT exemption applicable to income derived by the following non-resident entities:
- Organizers and respective representatives and staff;
- Football clubs, their athletes and technical teams (coaches, medical and private security teams and other support staff, in what concerns their participation in the event).
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, as follows.
The referred exemption and partial relief are granted to employers in a business crisis situation that access the extraordinary support now published (the remaining requirements laid down in the diploma should be met). The measure benefits the following entities:
- Micro, small and medium sized companies
(i) August and September 2020: full exemption;
(ii) October, November and December 2020: partial relief of 50%.
- Large companies
(i) August and September 2020: partial relief of 50%;
(ii) October, November and December 2020: no exemption or partial relief available.
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), as follows:
I – Payments on account of CIT: temporary suspension
Cooperatives, as well as micro companies and PME are allowed not to make the payments on account of CIT foreseen in articles 105 and 107 of the CIT Code, regardless of the fact that the respective payment can be made in extended deadlines as established in Notice 104/2020-XXII of the State Secretary of Tax Affairs, of 9 March 2020.
II – Special Payment on account of CIT: temporary suspension and early refund
Cooperatives, as well as micro companies and PME are allowed not to make the special payment on account of CIT foreseen in article 106 of the CIT Code.
In 2020, these entities are also allowed to request an early refund of the special payment on account that was not deducted until 2019, without the need to observe the deadline foreseen in article 93 no. 3 of the CIT Code.
III – Deadline for refunds of VAT, CIT and PIT
The refund of withholding taxes, payments on account or VAT in excess of the amounts due is made within 15 days following the fling of the respective return by the taxpayer.
2020 Supplementary Budget gazzetted - Additional COVID-19 tax measures enacted
Law 26-A/2020, of 24 July, amends the 2020 State Budget Law. It includes the following tax measures:
I - Corporate Income Tax
(i) Tax incentives
- Incentives to SME restructuring in 2020 under the tax neutrality regime were introduced. Subject to several requirements, it is allowed the disregard, in the first three tax years, of the deduction limits on tax losses of the incorporated companies, which have been incorporated by means of a tax neutral merger.
- Introduction of a special investment tax credit scheme (“Crédito Fiscal Extraordinário de Investimento” or “CFEI II”); any taxpayer who incurs investment expenses between the 1st of July 2020 and the 30th June 2021 (or if the entity’s taxable period starts July 1st, during the 12 following months) on the acquisition of tangible fixed assets, non consumable biological assets and intangible assets, benefits from a 20% CIT deduction on investment expenses, up to EUR 5 million and capped at 70% of the CIT assessed (carry forward for 5 years is allowed in case the CIT assessed is not sufficient). Among other requirements, the taxpayer is disallowed to terminate or make redundant any employees for a period of 3 years (otherwise penalties arise).
(ii) Payments on account
- Cooperatives, micro, small and medium companies can request in 2020 the full refund of the amount of special payments on account (“Pagamento Especial por Conta” or “PEC”) that until 2019 was not yet deducted (meaning that the refund is not condition to wait for the sixth tax year following the year in which the PEC was paid).
- Introduction of an exceptional limitation on 2020 payments on account owed by CIT taxpayers, ranging from 50% to 100% of the respective amount, under certain conditions.
(iii) Tax losses
- Period for carry forward of tax losses: the deadline for carrying forward tax losses generated by large companies in 2020 and 2021 was extended to 12 tax years (currently 5 tax years), although the carry forward of tax losses generated by SME is kept at 12 tax years. In addition, there is an increase of the tax loss deduction limit from 70% to 80%, when the difference stems from tax losses incurred in 2020 and 2021. Finally, the 2020 and 2021 tax years are disregarded when calculating the deadlines for the carry forward of tax loss in 2020.
- A special regime was created allowing the transmission of tax losses of SME qualifying in 2020 as "company in difficulties" and corresponding deduction (subject to a series of requirements) of those tax losses by the acquiring company, in case the SME is
acquired by the 31st December 2020.
II - Personal Income Tax
Taxpayers under Category B (self employment income) who must make a payment on account in 2020, but do not make the first and second payments on account, may rectify the full amount owed up to the deadline for the third payment on account (20th December 2020). Such rectification will occur free of charge.
III - Additional Solidarity Levy for the Banking Sector
A Solidarity Levy for the banking sector ("Adicional de Solidariedade do Setor Bancário") was introduced. It is due by credit institutions and
branches in Portugal of credit institutions whose head office and place of effective management are not located in the Portuguese territory. It shall be levied on the amount of the liabilities, net from the liability items included in capital and the deposits covered by the Deposit Guarantee Fund and the Mutual Agricultural Credit Guarantee Fund, where applicable; and the notional amount of the financial derivatives accounted for in the off-balance sheet.
The applicable rates vary depending on the taxable base:
- The liabilities (including the liability items that are included in capital), are subject to a rate of 0.02%;
- The notional value of off-balance sheet derivative financial instruments is subject to a rate of 0.00005%.
The Solidarity Surcharge shall be self-assessed until the last day of June of the year followingwhich the accounts refer to and must be paid within that period.
A transitional regime applies in 2020 and 2021.
IV - Instalment plans for the payment of tax and Social Security debts
An exceptional regime is applicable to tax and Social Security debts incurred during the period between the 9th March and the 30th June 2020.
Amendments to existing instalment plans under the new regime do not require additional guarantees. Existing guarantees are maintained, which will be progressively reduced as prescribed in the Tax Procedures Code (‘Código de Procedimento e de Processo Tributário’).
Reportable cross border arrangements – Council Directive (EU) 2018/822 (DAC 6)
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 securitization companies, previously excluded.
COVID-19 - Additional tax measures proposed to support micro, small and medium sized companies, and cooperatives
The Parliament approved a law proposal that includes additional tax measures to support micro, small and medium sized companies (as per the definition included in EU Commission's Recommendation of 6 May 2003), as well as cooperatives, as follows.
(i) Corporate Income Tax
- Payments on account:
- temporary suspension of the payments on account of CIT as well as the special payment on account shall apply to micro, small and medium sized companies, as well as cooperatives;
- In case the amount of the payment on account assessed and paid exceeds the amount effectively due, the refund of the excess should be made within 15 days upon the filing of the respective tax return/statement.
- Special payments on account: In 2020, micro, small and medium sized companies, as well as cooperatives, can request the refund of the amounts of special payments on account that were not offset against the tax due until 2019, without the need to meet the legal deadline (as a rule, within 90 days upon the end of the 6th tax year following the one to which the special payment on account concerns);
- In case the amount of VAT assessed and paid exceeds the amount effectively due, the refund of the excess should be made within 15 days upon the filing of the respective tax return.
(iii) Withholding taxes
- In case the amount of PIT or CIT withholding taxes assessed and paid exceeds the amount effectively due, the refund of the excess should be made within 15 days upon the filing of the respective tax return/statement.
These measures are not yet in force.
COVID-19 - Postponement of deadlines
Following Orders issued by the State Secretary of Tax Affairs, the following deadlines to comply with tax obligations have been extended:
- 2019 Company's Simplified Information / Annual Statement ("IES/Declaração Anual") - can be filed until 15 September 2020; this is a second extension, as there was a first extension to 7 August:
- Personal Income Tax 2020 first payment on account - can be paid until 31 August 2020 (20 July, as a rule).
COVID-19 - VAT - Postponement of deadlines for filing of returns and payment
An Order of the State Secretary of Tax Affairs dated 24 June 2020 extends the deadlines to file VAT returns, as well as the deadlines for the payment of VAT, as follows:
I - Filing of VAT returns and payment of VAT
- May and June 2020 monthly VAT returns
- Can be filed until 17 July and 17 August 2020, respectively;
- The payment of the VAT assessed can be made until 25 July and 25 August 2020, respectively.
- April to June 2020 quarterly VAT return
- Can be filed until 22 August 2020;
- The payment of the VAT assessed can be made until 25 August 2020.
II - Replacement VAT returns
- February and March VAT monthly returns;
- January to March VAT quarterly return;
- That have been completed based on the data of the web-based invoice record (“e-Fatura”), without other supporting documentation;
- Applicable to VAT taxpayers with a turnover up to EUR 10 million (with reference to 2019), or that have started their activity on or after 1 January 2020, or that have restarted their activity on or after 1 January 2020 and had no turnover in 2019;
- Regularisation by means of replacement VAT returns to be made until 20 December 2020 (any VAT due should be paid on the same moment without any penalties).
2020 Supplementary Budget Proposal presented to the Parliament
On 9 June, the Government submitted to the Parliament the Supplementary Budget Proposal for 2020. The document includes a number of proposed tax measures, already included in the Economic and Social Stabilization Program
COVID-19 - Economic and Social Stabilization Program: main tax measures proposed
Council of Ministers’ decision 41/2020, of 4 June, published in the Official Gazette of 6 June 2020, approves the Economic and Social Stabilization Program (“Programa de Estabilização Económica e Social” or “PEES”). PEES aims to respond to the consequences of the COVID-19 pandemic. The main tax measures proposed are as follows.
I - CIT
a) 2020 Payment on Account
The rules and payment methods of the 2020 payment on account (PPC) are adjusted as follows:
- Decrease in billings of over 20% in the 1st semester of 2020 – PPC is capped up to 50%;
- Decrease in billings of over 40% in the 1st semester of 2020, along with the tourism and food sectors - PPC is capped at 100%.
b) Autonomous taxation
Aggravated autonomous taxation rates are waived for companies that show taxable losses in 2020, having assessed taxable profits in previous tax years.
c)Taxable losses generated in 2020 and 2021
- The years of 2020 and 2021 will not be relevant for the purposes of the computation of the time limit to offset existing taxable losses at 1 January 2020;
- Extension to 10 years (as opposed to the 5 years established in the existing rule, except in case of small and medium sized companies) of the time limit to carry forward taxable losses generated in 2020 and 2021;
- The cap on taxable profit to offset taxable losses generated in 2020 and 2021 is increased to 80% (as opposed to the 70% cap established in the existing rule).
d) Restructuring of Small and Medium-sized Companies (SME’s) taking place in 2020
(i) Business restructuring
It is foreseen:
- Waive on the cap concerning the use by the acquiring company of the taxable losses of the acquired companies (with reference to the assets of the companies involved in the restructuring); this measure prohibits profits distributions throughout a 3-year period;
- Waive of the State Surtax, for the same 3-year period.
(ii) Acquisitions of an SME
It is foreseen the transfer of taxable losses is allowed upon the acquisition of SME’s that are considered ‘companies in difficulty’ in 2020, ”, and respective use at the level of the acquiring entity; this measure prohibits profits distributions and requires the maintenance of jobs for a 3-year period.
e) Special investment tax credit (“Crédito Fiscal Extraordinário de Investimento” or “CFEI”)
Investment expenses made in the 2nd semester of 2020 and in the 1st semester of 2021 allow:
- A CIT credit of 20% of the total expenses incurred (capped at EUR 5 million);
- The CIT credit can be carried forward for a maximum of 5 tax years;
- The measure requires the maintenance of jobs throughout the period of the tax credit, and for a minimum of 3 years.
II - VAT – Refund to event organizers operating in the tourism sector
It is foreseen the refund of VAT deducted and included in expenses incurred in by organizers of congresses, fairs, exhibitions , seminars and similar events. The expenses concerned should relate to direct needs of the organizers related to the referred events.
III - Social Security
Further exemptions and reductions of the employer’s Social Security contributions are established. The measure implies prohibition of collective termination of jobs and profits distributions throughout the period of its effectiveness.
a) Micro and SME’s
- July 2020 – closed down companies and companies with a decrease in billings of over 40% - exemption;
- August and September 2020 – companies with a decrease in billings equal to or higher than 40% - exemption;
- October and December 2020 – companies with a decrease in billings equal to or higher than 40% - reduction by 50%;
b) Large companies
- July 2020 – closed down companies and companies with a decrease in billings of over 40% - exemption;
- August and September 2020 – companies with a decrease in billings equal to or higher than 40% - reduction by 50%;
- October and December 2020 – companies with decrease in billings equal to or higher than 40% - no reduction available.
IV – Additional solidarity tax for the banking sector
An additional solidarity tax for the banking sector will be created, amounting to 0.02 pp. It shall be owed by:
- Credit institutions with head office and place of effective management in the Portuguese territory;
- Subsidiaries in Portugal of credit institutions whose head office and place of effective management are not located in the Portuguese territory;
- Branches in Portugal of credit institutions whose head office and place of effective management are located outside the Portuguese territory.
V – Simplification measures
Several measures are foreseen, such as:
- SIMPLEX SOS – simplifications of public administration procedures, such as the simplification of notifications, of the calculation of deadlines, of the issuance of opinions, as well as the facilitating of the use of digital means for notifications and establishing contact;
- Transitional regime for the reduction of court fees, aiming at increasing the number of concluded proceedings by means of settlement, agreement or withdrawal;
- Increasing the efficiency of the administrative and tax courts by means of specialisation; expediting and allowing for greater transparency in court cases through the increased use of electronic means.
VI – Payment in instalments of tax and Social Security debts
Insolvent companies or those either with an approved business recovery plan (“Processo Especial de Revitalização” or “PER”) or under the extra judicial procedure for companies’ recovery (“Regime Extrajudicial de Recuperação de Empresas” or “RERE”), that are effectively compliant with those plans, are granted the following benefits:
- Existing recovery plans may include tax and Social Security debts which relative taxable event occurred from 9 March to 30 June 2020; these debts are subject to the same requirements as the existing plans, no additional guarantees and required, and the respective payment can me made in up to the maximum number of instalments agreed upon in the existing recovery plan;
- In case the existing instalment plan ceases before 30 December 2020, the number of instalments applicable to the new debts can be extended until the end of the referred date.
COVID-19: Reduced value-added tax (VAT) rate for disinfectant gel
Order no. 5335-A/2020, published in the Official Gazette, establishes the application of a reduced VAT rate to imports, transfers, and intra-Community acquisition of masks for respiratory protection and skin disinfectant gel. This measure is effective from 8 May 2020 to 31 December 2020.
COVID-19: Exemption and reduced VAT rate applicable to certain goods
Law no. 13/2020, of 7 May 2020, published in the Official Gazette, establishes the following temporary measures:
- Exemption from VAT on intra-Community supply and acquisitions of goods (listed in the annex to the referred Law) necessary to tackle the effects of the COVID-19 outbreak. It applies to acquisitions made by the state and other public bodies or non-profit organisations. This measure applies from 30 January 2020 to 31 July 2020.
- Application of the reduced VAT rate to imports, as well as intra-Community supplies and acquisitions, of masks for respiratory protection and skin disinfectant gel. The reduced rate applies from the 8 May 2020 to 31 December 2020.
COVID-19: Extension of tax benefits for donations to public enterprises
Order 157/2020/XXII, of 4 May 2020, of the State Secretary of Tax Affairs (Secretário de Estado dos Assuntos Fiscais or SEAF) establishes the extension, until 31 July 2020, of the corporate income tax (CIT) additional deduction (40%) relevant to costs incurred with donations granted to the entity SPMS (Serviços Partilhados do Ministério da Saúde), EPE (public enterprise or Empresa Pública Empresarial), and to medical institutions integrated in the regional health public services, all having the status of EPE.
The stamp tax exemption applicable to such donations is also extended to 31 July 2020.
COVID-19: Additional deduction of donations granted to public enterprises
Order 137/2020-XII, of 3 April 2020, of the State Secretary of Tax Affairs, establishes that, while the state of emergency is in force, donations granted by resident entities to the entity SPMS, EPE, and to hospital institutions integrated in the regional health public services, all having the status of EPE:
- are allowed as a tax deductible cost for CIT purposes for 140% of the respective amount, and
- are exempt from stamp tax.
COVID-19: Extension of deadlines to file tax statements and pay taxes
Order 153/2020-XXII, of 24 April 2020, of the State Secretary of Tax Affairs, extends the deadlines to comply with several tax obligations, as well as the deadlines for the payment of taxes.
Company’s Simplified Information (IES) / Annual Statement
The deadline to file the IES was extended to 7 August 2020.
Tax file ('dossier fiscal')
The deadline to prepare, or to file (when applicable), the tax file was extended to 31 August 2020.
Transfer pricing documentation
The deadline to prepare, or to file (when applicable), the transfer pricing documentation was extended to 31 August 2020.
- March 2020 periodic VAT return:
- Can be filed until 18 May 2020.
- The payment of the VAT assessed can be made until 25 May 2020 (eligible taxpayers can opt to pay the tax in instalments).
- VAT payers with a turnover up to 10 million euros (EUR) (with reference to 2019), or that have started their activity on or after 1 January 2020, or that have restarted their activity on or after 1 January 2020 and had no turnover in 2019, may complete the VAT return based on the data of the web-based invoice record ('e-Fatura') without the need for other supporting documentation, and, if necessary, regularised by filing a replacement VAT return until 31 August 2020 (any VAT due should be paid at the same moment).
- April 2020 periodic VAT return:
- Can be filed until 18 June 2020.
- The payment of the VAT assessed can be made until 25 June 2020 (eligible taxpayers can opt to pay the tax in instalments).
Quarterly regime: January 2020 to March 2020 periodic VAT return
- Can be filed until 22 May 2020.
- The payment of the VAT assessed can be made until 25 May 2020 (eligible taxpayers can opt to pay the tax in instalments).
VAT payers with a turnover up to EUR 10 million (with reference to 2019), or that have started their activity on or after 1 January 2020, or that have restarted their activity on or after 1 January 2020 and had no turnover in 2019, may complete the VAT return based on the data of the web-based invoice record ('e-Fatura') without the need for other supporting documentation, and, if necessary, regularised by filing a replacement VAT return until 31 August 2020 (any VAT due should be paid on the same moment).
CIT and PIT withholding taxes (WHTs)
- Assessed in April 2020: Can be paid until 25 May 2020.
- Assessed in May 2020: Can be paid until 25 June 2020.
- Assessed in April 2020: Can be paid until 25 May 2020.
- Assessed in May 2020: Can be paid until 25 June 2020.
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.
We highlight the following measures:
- Patent box regime: The existing 50% relief from taxation now applies to income from computer program copyrights.
- Deduction for reinvestment of retained earnings: The existing tax credit is allowed throughout a four-year period (previously, three years), increasing the eligible amount to EUR 12 million (previously, EUR 10 million), and covering the acquisition of intangibles. A legislative authorisation was granted to the government to increase the type of beneficiary and eligible investments under this scheme.
- Research and development (R&D) tax incentive scheme (SIFIDE II): The existing regime was extended until 2025 (previously, 2020) and now foresees stricter rules for contributions to investment funds that finance R&D companies (a five-year mandatory holding period by the unit holder and the need to provide thorough detail of the investment fund portfolio).
VAT and other indirect taxes
- Electrical and plug-in vehicles: The deduction of VAT included in expenses incurred with electrical and plug-in hybrid vehicles is allowed.
- Excise duties: Increase of 0.3% on excise duties in general (tax on alcohol and alcoholic products, tax on oil and energy products, tax on tobacco products, vehicle tax, and vehicle circulation tax).
An exemption from stamp tax applies on cash-pooling contracts when established between companies in a domain or group relationship created, being applicable to loans not exceeding a one-year period. A relationship of domain or group exists when a so-called ‘dominant company’ holds, for more than one year, directly or indirectly, at least 75% of the capital of another so-called ‘dominated company(s)’, provided that such participation grants more than 50% of the voting rights.
A stamp tax exemption now applies on the transfer of an ongoing concern (commercial, industrial, or agricultural establishments) within the context of a business restructuring.
In 2020, the 50% increase of the stamp tax rate on consumer credit is maintained and, in addition, the tax rates of consumer credit have also increased.
The exemption from property transfer tax applicable on the acquisition of real estate by credit institutions (including their subsidiaries), in case those assets are sold to related parties, has ceased to apply.
A new 7.5% rate applies on the acquisition of residential properties whose taxable basis exceeds EUR 1 million (currently the highest rate for residential properties is 6%).
COVID-19: Tax and other measures enacted (amended)
Simplification measures for completion of VAT returns and issuance of PDF invoices
Order no. 129/2020-XXII, of 27 March 2020, issued by the Secretary of State for Tax Affairs, establishes simplification procedures to adapt compliance reporting obligations to the current circumstances caused by the COVID-19 pandemic.
In case of taxable persons that meet certain requirements, the VAT returns for February 2020 can be calculated based on the data in the 'e-invoice' platform, not requiring supporting documentation. In turn, for the regularisation of the situation without any costs/penalties, the VAT returns should be replaced based on all the support documentation, provided that this replacement and respective payment/adjustment occurs during the month of July 2020.
In addition, the issuance of PDF invoices must be accepted during the months of April, May, and June 2020, and will be considered electronic invoices for all purposes provided for in the tax law.
Finally, the above-mentioned Order extends the regime of fair impediment to the fulfilment of the fiscal obligations, considering, for its application, the situations of infection or prophylactic isolation determined by a health authority, as well as the situations of fixing a health fence that interrupts the movement of taxpayers or certified accountants, provided that they have their professional or tax domicile in the aforementioned areas.
Deferral of payment of CIT and PIT WHTs and VAT
Following the publication of Decree-Law 10-F/2020, of 26 March 2020, and effective as from 12 March 2020, the payment of CIT and PIT WHTs, as well as VAT (monthly and quarterly regimes) due in April, May, and June 2020 can be deferred, as follows:
- Payment in three or six monthly instalments, upon electronic request, with no interest due or need to present a guarantee.
- The first instalment should be paid within the legal deadline foreseen; subsequent instalments should be paid in the next months, within the legal deadline foreseen.
- This measure applies to:
- Self-employed workers.
- With a turnover up to EUR 10 million euros (EUR) in 2018.
- That have started their activity from 1 January 2019 onward.
- That have reinitiated their activity from 1 January 2019 onward, not having registered any turnover in 2018.
- Which activity is included in a sector that was closed following the declaration of a state of emergency, as foreseen in Article 7 and Annex I of Decree-Law 2-A/2020, of 20 March 2020.
- Which invoicing in 2020 (as communicated through the e-invoice system or with reference to the turnover) decreases by at least 20% in the average three months prior to the month in which the taxes should paid (with reference to the same period in 2019); certification by statutory auditor or certified accountant is required.
Deferral of payment of social security contributions
Decree-Law 10-F/2020, of 26 March 2020, also establishes that the payment of Social Security contributions can be deferred, as follows:
- Social contributions due in March 2020 with reference to February 2020: Entities that did not pay the social contributions due on 20 March 2020 with reference to February 2020 can make the respective payment until 31 March 2020.
- Social contributions due in April, May, and June 2020: Deferral of payment allowed as follows:
- Payment of 1/3 of the amount of the social contributions due by the employer, to be made in the month in which they are due.
- The remaining 2/3 of the social contributions can be made in three or six monthly equal instalments, starting in July 2020, interest-free.
- It is not necessary to file a request to have access to this measure; however, in July 2020, the employer should inform the Social Security authorities which instalment period (three or six months) will be implemented.
- Entities that paid the total amount of the social contributions due in March 2020 and related with February 2020 can initiate the deferred payment in April 2020 ending in June 2020.
- This measure applies to:
- Self-employed workers.
- Private and social employers:
- With less than 50 employees.
- With 50 and up to 249 employees, that:
- Face a decrease of at least 20% of invoicing (as communicated through the e-invoice system or with reference to the turnover) in March, April, and May 2020, with reference to the same period in 2019.
- Having started their activity in less than 12 months, face a decrease of at least 20% of invoicing (as communicated through the e-invoice system or with reference to the turnover), with reference to the average of the period of activity.
- With 250 or more employees:
- That face a decrease, duly certified by joint statement of the entity and the respective certified accountant, of at least 20% of the invoicing (as communicated through the e-invoice system or with reference to the turnover) in the months of March, April, and May 2020, with reference to the same period in 2019 (average of the period of activity in case of entities that have started their activity in less than 12 months).
- A social solidarity private institution or equivalent.
- An entity which activity is included in a sector that was closed following the declaration of a state of emergency.
- An entity which activity was suspended, following legislation enacted or administrative decision.
- The number of employees considers the statement of remunerations of February 2020.
- Lack of payment of the first instalment of 1/3 implies the cease of the benefits; all instalments shall become due immediately, and interest will be charged.
Suspension of tax and social security procedures
As per Law 1-A/2020, of 19 March 2020, effective as of 13 March 2020, and Decree-Law 10-F/2020, of 26 March 2020, effective as of 12 March 2020, the following measures have been enacted:
- Suspension of ongoing compulsory tax and social security collection procedures, of ongoing tax and social security debt instalment plans, and of deadlines of tax procedures.
- Suspension of deadlines for filing tax administrative and judicial claims, and hierarchical appeals, unless these procedures are allowed by other means (conference call or videoconference).
Exemption from VAT on donations
Order no. 122/2020-XXII, of 24 March 2020, issued by the State Secretary for Tax Affairs, establishes that, during the national emergency situation related with the COVID-19 pandemic, the exemption foreseen in Article 15, no. 10 (a) of the VAT Code, is also applicable to the supplies of goods free of charge made to the state, to private social security institutions, and to non-governmental non-profit organisations, for later distribution to people in need, even if those goods remain in the ownership of those entities. The right to deduct the tax incurred applies as provided for in Article 20, paragraph 1, point (b) (IV) of the referred Code. For this purpose, people in need are also considered those who are receiving health care in the current pandemic context, who are considered victims of catastrophe.
Deferral of CIT payments and of the deadline for filing the 2019 CIT return
Following the publication of Order 104/2020-XXII, of the State Secretary of Tax Affairs, of 9 March 2020, the following measures have been introduced:
- The first special payment on account was extended from 31 March 2020 to 30 June 2020.
- The filing of the 2019 CIT return and payment of CIT, Municipal Surtax and State Surtax, if due (usually, 31 May, in case of taxpayers with a tax year corresponding to calendar year), was extended to 31 July 2020.
- The first CIT prepayment, and the first State Surtax additional prepayment, have been extended from 31 July 2020 to 31 August 2020