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Economic and social stabilization program in Portugal: main tax measures

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published on 1 July 2020 | reading time approx. 2,5 minutes

 

The Economic and Social Stabilization Program (PEES) was approved by Council of Ministers Resolution n. º41 /2020, on 4 June 2020, and published in the Official Gazette of 6 June 2020.

 

 

PEES aim to o respond to the consequences of the COVID-19 pandemic.
 

This program foresees a wide set of measures, provisioning for several investments in education and professional training, multiple business support mechanisms and I&D incentives and finally tax measurements.
 

The measures included in this Program should be structured and implemented progressively in three distinct phases:

  1. Emergency: An emergency phase focused on the health response but also aimed to support companies and workers. 
  2. Stabilization: A stabilization phase to help families and businesses overcome the difficulties caused by the pandemic.
  3. Economic recovery: And finally, a phase of economic recovery aimed at the structural adaptation of the Portuguese economy. 

 

Tax Proposals Highlights

SPECIAL INVESTMENT TAX CREDIT

Refund of the extraordinary investment tax credit, created for investment expenses incurred in the second half of 2020 and in the first half of 2021, a deduction from the CIT collection corresponding to 20 per cent of investment expenses up to a limit of 5 million euros, to be used for a maximum period of 5 years, with the obligation to preserve jobs during the period of use of the tax credit, with a minimum of three years.


PAYMENTS ON ACCOUNT

Accordingly, with the OECD recommendations it is adjusted the rules and methods of payment for the payments on account due in the 2020 year, to the following rules:

  1. Invoicing breakdown > 20 per cent in the 1st Half of 2020 - payment limitation up to 50 per cent.
  2. Invoicing breakdown > 40 per cent in the 1st half of 2020 and housing and restaurant industry - payment limitation up to 100 per cent.

 

This measure adopted by the Portuguese government has no budgetary impact, only on the distribution of the corporate income tax revenue between 2020 and 2021, and it represents an important support to the liquid situation of companies in 2020.
 

AUTONOMOUS TAXATION

The increase in autonomous taxation due by companies with profits in previous years and that present losses in the year 2020 should be disregarded.


TAX LOSSES REPORTING PERIOD

The context of economic recession due to the COVID-19 pandemic, followed by a gradual and uncertain recovery, will lead to the tax result of companies being defined by the creation of new tax losses and the difficulty of using the tax losses already recognized.
 

In this regard, and under this program, the years 2020 and 2021 will be disregarded for the purposes of calculating the period for the use of tax losses in force on 1 January 2020.

 

Regarding tax losses for the years 2020 and 2021, the program decided to change the mandatory loss reporting period from 5 years up to 10 years, as well as to extend the deduction limit from 70 per cent to 80 per cent, when in those 10 percentage points refer to tax losses of the years 2020 and 2021.
 

MERGERS AND ACQUISITIONS IN SME's

In concentrations of small and medium-sized enterprises, the program determined the disregard of the limit of use of tax losses by the acquiring company with the rule of non-distribution of profits, for 3 years. It is also considered by the program the transferability of tax losses on acquisitions of shares in SMEs which, in 2020, became “companies in difficulties”, for the use of these losses by the acquiring company, with the rule of non-distribution of profits and the commitment to preserve jobs for 3 years.
 

THE CREATION OF AN ADDITIONAL SOLIDARITY CONTRIBUTION ON THE BANKING SECTOR

The creation of an aid of solidarity on the banking sector, the amount of 0.02 pp, whose revenue is allocated by strengthening the mechanisms of financing of the Social Security system. 
 

VAT – REFUND TO EVENT ORGANIZERS OPERATING IN THE TOURISM SECTOR

This measure provides refund to organizers of congresses, fairs, exhibitions, seminars, conferences and other similar events of the amount equivalent to the VAT deducted before the Portuguese Tax Authority, with the expenses incurred for the direct needs of the participants.

 

COMPANY CAPITALIZATION FUND

Creation of a capital fund to be managed by the development bank, for participation in capitalization operations of viable companies with high growth potential, in strategic sectors and oriented to external markets, with temporary public intervention and preferential co-investment mechanisms.

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