2023 State Budget Law amends several tax laws
Following the publication of Law 24-D/2022, on 30 December, the 2023 State Budget Law was approved. It is effective in general as from 1 January 2023. We highlight the following tax amendments - for more detail, access PwC Portugal newsletter here:
- Crypto assets - new tax framework for the purposes of Personal Income Tax, Corporation Tax (concerning the simplified tax regime), Stamp Tax and Real Estate Transfer Tax, as well as new reporting obligations.
- Carry forward of tax losses - allowed without time limitation for Corporation Tax purposes.
- New Incentive to the Capitalization of Companies - a Corporation tax deduction is allowed against the taxable profit corresponding to an amount resulting from applying a rate of 4.5% to the net increase in eligible equity.
- Real Estate Tax - general increase of rates for certain vacant buildings as well as buildings in ruins and degraded buildings.
2023 State Budget Law published
Law 24-D/2022, of 30 December, published in the Official Gazette, approves the 2023 State Budget Law. It is effective in general as from 1 January 2023. Further details will follow.
Windfall tax on energy and food distribution
Law 24-B/2022, of 30 December, approves two temporary solidarity contributions, as follows:
- “CST Energia”, a windfall tax aiming at facing high energy prices; it applies to taxpayers liable to Corporate Income Tax (CIT) who are resident in Portugal, as well as permanent establishments in Portugal of nonresident entities; covered industry sectors are crude oil, natural gas, coal and refinery.
- “CST Distribuição Alimentar”, a windfall tax aiming at facing inflation; it applies to taxpayers liable to CIT who are resident in Portugal, as well as permanent establishments in Portugal of nonresident entities; exemptions apply as well as micro and small companies are in general out of scope; covered activities are food retail.
Both contributions apply on the excessive profits generated in the tax years starting in 2022 and 2023. Excessive profits are defined as the increase by 20%, in each tax year concerned, with reference to the average taxable profits of the four tax years starting in 2018 to 2021. The applicable rate is 33%. Both contributions are self-assessed by the taxpayer until the 20th of the 9th month following the end of the tax year concerned and paid until the last day of said month.
These contributions are disallowed as tax deductible costs for CIT purposes.
Extraordinary contribution for the conservation of forest resources
Decree-Law 88/2022, of 30 December, approves the extraordinary contribution for the conservation of forestry resources. It applies to taxpayers subject to Personal Income Tax or to Corporate Income Tax that carry out a commercial, industrial or agricultural activity in which they intensively use, incorporate or transform forest resources.
The applicable rate is 0.2% of the turnover generated by said activities. Certain deductions are allowed. The contribution is self-assessed by the taxpayers through a standard form during the 5th month following the end of the tax year concerned. Payment is due until the 5th day following the term of the deadline for assessment.
The economic activities covered shall be defined on an annual basis.
2023 State Budget Law proposal
On 10 October 2022, the Government presented the 2023 State Budget Law proposal. Download PwC Portugal's newsletter for details on the proposal - available here https://www.pwc.pt/pt/pwcinforfisco/orcamento-estado/2023/pwc-newsletter-oe23-en.pdf.
2022 State Budget Law published
Law 12/2022, of 27 June, published in the Official Gazette, approves the 2022 State Budget. It is effective from 28 June 2022 onward however certain tax provisions are effective on different dates. Download PwC Portugal's newsletter for details on the budget - available here https://www.pwc.pt/pt/pwcinforfisco/orcamento-estado/2022/pwc-newsletter-oe22-en.pdf
2022 State Budget Law proposal
Following the elections in January, on 13 April 2022 the Government presented the 2022 State Budget Law Proposal to the Parliament. While the discussion in details will now follow, being expected that some amendments are introduced to the Proposal, we highlight the most relevant tax measures proposed:
I – Personal Income Tax
Extension until 2023 of the tax regime for former tax residents
There is an extension of the tax regime applicable to former residents that returned to Portugal in 2019 and 2020. The 50% relief from taxation on employment and self employment/business income applies to taxpayers that became or will become resident in the Portuguese territory in 2021, 2022 and 2023. The relief requires that the taxpayers were resident in the Portuguese territory respectively prior to 31 December 2017, 2018 and 2019. The remaining requirements remain unchanged. Namely the taxpayers should not have been resident in the Portuguese territory in any of the 3 prior years and must have their tax situation regularized. The tax relief also applies to withholding taxes levied by paying entities.
II – Corporation Income Tax
Increased deduction under the Patent Box regime
It is proposed that the deduction to the taxable profit of the income from the transfer or temporary use of industrial property rights increases to 85% (currently, 50%).
Special payment on account extinct
It is proposed that the special payments on account are extinguished.
III – VAT / Indirect Taxes
Exemptions from VAT on expenditures related to the defence effort
The transposition of Council Directive (EU) 2019/2235 of 16 December 2019 amending Directive 2006/112/EC on the common system of value added tax and Directive 2008/118/EC concerning the general arrangements for excise duty as regards defence efforts within the Union framework, shall result in an exemption of certain supplies of goods and services utilised in the defence effort carried out for the implementation of a European Union activity.
Exemptions from VAT related with Covid-19
The transposition of Council Directive 2021/1159 of 13 July 2021 amending Directive 2006/112/EC as regards temporary exemptions on importations and on certain supplies, in response to the COVID-19 pandemic, shall result in exemptions on importations and on certain supplies, in response to the COVID-19 pandemic. It is proposed an extension until 31 December 2022 of the exemption from VAT applicable to supplies of medical devices for in vitro diagnosis of COVID-19 disease, COVID-19 vaccines and services related with those products, as foreseen in Law 4-C/2021 of 17 February.
Other indirect taxes / excise duties
The Proposal includes a generalised increase by 1% of the Tax on Vehicles, the Circulation Tax, the tax on alcoholic beverages and non-alcoholic beverages with added sugar and taxes on tobacco.
IV – Real Estate Tax
Real Estate Transfer Tax (IMT) on the allocation of real estate to unit holders of investment funds
IMT shall be levied in the case of allocation of real estate to unit holders of private issued closed-end investment funds resulting from a redemption of units or a reduction of capital of said funds. Currently, IMT is levied only in the case of allocation of real estate resulting from a liquidation of private issued closed-end investment funds.
V – Tax benefits
CIT – Tax Incentive to Recovery (“Incentivo Fiscal à Recuperação” or “IFR”)
A CIT credit will be introduced in benefit of CIT taxpayers whose tax year corresponds to calendar year, incurring investment expenses namely in the acquisition of tangible assets, non consumable biological assets and intangibles. The investment period runs from 1 July to 31 December 2022 (the investment period runs from the start of the 7th month until the end of the 12th month of the tax year, in case of entities whose tax year starts after 1 January 2022). There is an overall cap of EUR 5 million for the eligible expenses; the CIT credit available corresponds to:
- 10% of the eligible expenses incurred in the tax year concerned capped at the average of the eligible investments expenses incurred in the three previous tax years;
- 25% of the eligible expenses incurred in the tax year concerned, in the amount that exceeds the amount mentioned in a).
Taxpayers starting their activity on or after 1 January 2021 are entitled only to a tax credit of 10% on eligible expenses.
The annual tax credit is capped at 70% of the tax assessed. For companies taxed under the special regime of group taxation the tax credit applies to the tax assessed by the group capped at the individual amount that would apply to each individual company incurring the eligible expenses. The tax credit can be carried forward for 5 years in the case of insufficiency of tax assessed.
The benefit cannot cumulate with any other benefits of the same nature in respect of the same eligible investment expenses.
The taxpayer cannot distribute profits or terminate labour contracts based on collective redundancy or layoff from the commencement of the 2022 tax year and for a 3-year period.
Contractual tax benefits & Tax Regime for Investment Support (“Regime Fiscal de Apoio ao Investimento” or “RFAI”)
There is an extension until 31 December 2027 of the contractual tax benefits regime as well as the RFAI. This results from the update of the new regional aid map and is effective as from 1 January 2022 onward.
Promotion of inland regions (“Programa de Valorização do Interior”)
As in the 2020 and 2021 State Budgets, the Government is granted authorisation to introduce a tax benefits scheme to promote inland regions (“Programa de Valorização do Interior”). It shall correspond to a CIT credit of 20% of the costs incurred with the creation of jobs in inland regions that exceed the national minimum wage, capped at the CIT assessed in the tax year concerned. This legislative authorisation relies on the authorisation from the European Union to expand the regional aid scheme.
PIT / CIT - Portuguese sovereign debt issued in the Chinese market
The PIT and CIT exemptions on interest from Portuguese sovereign debt issued in renminbi in the Chinese internal debt market are maintained.
Tax treaty between Portugal and Sweden - Termination
Sweden terminated the Convention between Portugal and Sweden for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income, signed on 29 August 2002.
The termination is effective 1 January 2022, as per Article 30 of the Convention.