Recovery of company expenditure in Portugal

The complete entire world plummeted into an unexpected pandemic crisis in 2020. For the purpose of relaunching Portugal’s economic system and mitigating the damaging consequences of COVID-19, EU member states are putting in area the remaining acceptance methods for a recovery program which is anticipated to total to a overall expenditure of close to €1.8 trillion (about $2.1 trillion) to enable rebuild Europe in a publish-COVID-19 natural environment.

In its convert, the Portuguese authorities has accepted a supplementary state finances for 2020 aimed at not only adapting the state spending budget below implementation in relation to COVID-19 but also to approve more tax steps. 

As a consequence, the Extraordinary Tax Credit for Investment decision II (CFEI II), a temporary tax incentive, was authorised and applies to enterprise investments until June 30 2021. 

CFEI II

The reason of CFEI II is to mitigate the shelving of envisaged investments and incentivise firms to spend. The tremendous-credit score tax routine (CFEI I) was properly implemented in 2013 and contributed positively to the economic recovery of Portugal in the adhering to many years. 

This tax incentive is composed of a company profits tax (CIT) credit score for 20% of the investment decision built in property allocated to the company’s activity, up to 70% of CIT collection, furnished that the over-all total of eligible expenses does not exceed €5 million. This credit rating might be deductible against the CIT assortment for an additional period of time of 5 decades in specified conditions.

As a rule, any corporations liable to CIT that develop a industrial, industrial, or agricultural exercise are qualified to advantage from this tax incentive. 

For the reasons of this routine, suitable investments are the ones designed on mounted tangible property and biological property other than consumables, freshly obtained and put into use until the end of 2021. Also, qualified investments are the types built on some intangible property topic to depreciation (namely patents, trademarks, licenses, or other assimilated legal rights).

Suitable investments have to be held for a least time period of 5 a long time. In addition, the transfer of any suitable investments below the scope of a restructuring transaction benefiting from tax neutrality should be authorised by the Minister of Finance. 

Deductions shall be grounded in documents that need to contain in element the suitable investment, amount, and other pertinent information. In a scenario of non-compliance with the regulations on the eligibility of the investments, the taxpayer will have to refund the lacking volume of tax, accrued with compensatory interest improved by 15%.

This regime has a broad mother nature that should really contribute to its profitable implementation amid potential traders, stimulating the restoration of corporate expenditure in Portugal. 

Nonetheless, as end result of the 2021 point out spending plan, considering the fact that January 1 2021 substantial companies can only profit from CFEI II if the typical variety of workers remains the same right before and through the application of this incentive. 

This restriction raises several lawful challenges and may well have a unfavorable effects on the effective application of this tax incentive, taking into consideration that it adjustments the eligibility guidelines for CFEI II all through its application time period and represents a pink flag to tax certainty for probable traders. 

There are potent arguments to maintain that this limitation really should not utilize to significant businesses that were qualified for the CFEI II in 2020 even in a situation exactly where the related investments are only designed in 2021. 

In addition, the software of this restriction to substantial providers can be challenged on the grounds of a prospective violation of the Portuguese constitution, specifically the breach of the constitutional rules of proportionality and equality.

Last but not least, contemplating that a consistent financial system restoration have to be centered on a considerable enterprise investment enhance, it would be advisable to increase this tax incentive from June 30 till, at minimum, the stop of the existing financial 12 months, in order to address all corporate investments designed in Portugal in 2021.  

Paulo Núncio

Companion, Morais Leitão

João Miguel Fernandes

Affiliate, Morais Leitão

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