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17 June 2020

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Draft Law for Supplementary 2020 Budget and Economic and Social Stabilization Program Submitted in Portugal's Parliament

Portugal's government has submitted draft Law No. 33/XIV in parliament for a Supplementary 2020 Budget and an Economic and Social Stabilization Program in light of the COVID-19 pandemic. Some of the key tax measures include:

  • An extension of the allowed loss carryforward period from 5 years to 10 years in respect of losses incurred in the 2020 and 2021 tax years and an increase in the allowed loss offset from 70% of taxable income to 80%, as well as the suspension of time limits for the carryforward of remaining pre-2020 losses during 2020 and 2021 (an effective two-year extension);
  • A 50% reduction of the first and second payments on account in 2020 for companies that have experienced a decrease in turnover in the first half of the year of at least 20% compared to 2019, and 100% reduction (exemption) for companies that have experienced a decrease in turnover in the first half of the year of at least 40%;
  • A 20% corporate tax credit for investment expenses incurred between 1 July 2020 and 30 June 2021, which is capped at expenses of EUR 5 million and limited to 70% of the tax due (excess may be carried forward up to five years), and subject to employment retention conditions for three years;
  • Special loss transfer regimes for SMEs, which are subject to employment retention conditions, non-distribution of profit conditions, and certain other conditions, and include:
    • A special regime for mergers of qualifying SMEs with similar activity in the last 12 months (at least 50% of turnover corresponds to same activity), which allows losses to be transferred without the standard restrictions that limit the amount of transferred losses based on the proportion of the value of net assets transferred and the total net assets of the entities involved in the merger, and provides an exemption from state surtax within a three-year period; and
    • A special regime for the acquisition of a qualifying SME considered a "company in difficulty", which allows losses of the acquired company to be transferred in proportion to the share capital held and capped at 50% of the annual taxable profits of the acquiring company, without the standard restrictions (loss forfeiture) where there is a change of ownership of more than 50%;

Further to the above, draft Law No. 33/XIV also includes the introduction of an additional solidarity bank levy to finance the social security financial stabilization fund. The levy will apply at a rate of 0.02% on the average value of certain liabilities and a rate of 0.00005% on off-balance sheet derivatives, and will be due by credit institutions whose head office or place of effective management in Portugal, as well as subsidiaries and branches in Portugal of credit institutions outside Portugal.

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