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Portugal

1 January 2014

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New Corporate Income Tax Code published

On 16 January 2014, the Republic Gazette published Law No. 2/2014 approving the corporate income tax reform and republishing the Corporate Income Tax Code accordingly. The law applies to tax years starting on or after 1 January 2014. The main amendments to the corporate income tax are summarized below.

(a) Reduction of statutory tax rates
- Reduction of the statutory tax rate from 25% to 23%.
- Introduction of a reduced 17% tax rate applicable to the taxable income up to EUR 15,000 earned by small and medium enterprises.
(b) (Re)Introduction of a special taxation regime for small businesses
- Optional regime applicable to entities that comply with all of the following requirements:
- maximum turnover of EUR 200,000 in the previous year;
- balance sheet not exceeding EUR 500,000 in the previous year;
- not statutorily subject to mandatory audit;
- at least 80% of its share capital is held, directly or indirectly, by entities which fulfil the above-mentioned requirements;
- adoption of the accounting regime applicable to micro-entities; and
- have not opted out of the regime in any of the 3 previous years.
- The corporate income tax rate is applied on:
- 4% of the sales made and services rendered in the hotel and restaurant industry;
- 75% of the income obtained by specific professional activities;
- 10% of the remaining income obtained from the provision of services;
- 95% of royalty income (as defined in the proposal), capital gains and other gains; and
- 100% of other gains accrued gratuitously.
- have not opted out of the regime in any of the 3 previous years.
- The taxable basis referred to above is subject to a 50% and 25% reduction in the 1st and 2nd year of activity respectively.
- Exclusion of some of the autonomous taxation rules of the special advance payments.
(c) Simplification of ancillary tax obligations
- The need for prior authorization is replaced for mere reporting obligations in several operations, namely those relating to:
- adoption of different depreciation rates;
- adoption of a tax year different from the civil year;
- group taxation regime;
- the transfer pricing regime;
- deduction of the tax losses; and
- regime for the relief of economic double taxation.
(d) Reduction of tax litigation
- Clarification of the concept of tax deductible costs, broadening the scope of the definition of costs related to the business activity.
- Clarification that the proof of residence, for the purposes of applying a tax treaty, can also be made through proofing methods other than the official forms traditionally required by the Tax Administration.
(e) Harmonization of accounting and taxation rules
- Harmonization between tax and accounting concepts, namely in respect of depreciations, impairments, provisions and intangible assets.
(f) Definition of a new international tax policy
- Introduction of a new participation exemption regime for dividends and capital gains, subject to the following requirements:
- 5% minimum holding;
- participation held for a minimum period of 24 months;
- the participating entity is not covered by the Portuguese tax transparency regime;
- the distributing entity is subject to tax at a rate that is not lower than 60% of the Portuguese nominal tax rate (except in the case it meets the business-test requirement); and
- the distributing entity is not resident in a tax haven.
- Introduction of anti-mismatch rules in order to avoid double non-taxation.
- Introduction of a 5-year carry-forward period for international tax credits.
- Introduction of an exemption for income derived by foreign permanent establishments of Portuguese entities.
(g) Reduction of limitation on tax losses deduction
- Extension of the carry-forward period for tax losses from 5 to 12 years.
- Repeal of the impossibility of carrying forward tax losses in the event of changes in the entity's business or, in some cases, in the holding structure of the loss-making company.
(h) Simplification of transfer pricing rules
- Introduction of a new 20% participation threshold for transfer pricing rules to apply instead of the previous 10% requirement.
(i) Simplification of group taxation rules
- Expansion of the group taxation regime with a new minimum participation requirement of 75%, instead of the previous 90% requirement.
(j) Simplification of the tax neutrality regime
- Introduction of a new list of operations covered by the regime in accordance with the ECJ case law, including reverse mergers.

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