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6 August 2020

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Portugal Publishes Law for Supplementary 2020 Budget and Economic and Social Stabilization Program

Portugal published Law No. 27-A/2020 in the Official Gazette on 24 July 2020, which entered into force on 25 July and provides for the 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 to 12 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% for losses calculated in 2020 and 2021, 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 of at least 20% in the first six months of 2020 as compared to the same period in 2019 (for those that started activity on or after 1 January 2019, comparison is made to the average in the previous period);
  • A 100% reduction (exemption) of the first and second payments on account in 2020 for companies that have experienced a decrease in turnover of at least 40% in the first six months of 2020 as compared to the same period in 2019, or when the main activity of the taxable person falls under the classification of economic activity of accommodation, catering and similar, or the taxable person is classified as a cooperative or as a micro, small, and medium-sized enterprise;
  • 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%.

Measures are also provided to exclude offshore entities from the support measures provided by the law where an entity's headquarters or effective management is in a country, territory, or region with a clearly more favorable tax regime. Companies controlled by such offshore entities are also excluded.

Further to the above, Law No. 27-A/2020 also provides for the introduction of an additional solidarity bank levy to finance the social security financial stabilization fund. The levy applies at a rate of 0.02% on the average value of certain liabilities and a rate of 0.00005% on off-balance sheet derivatives. The levy is payable by credit institutions whose head office or place of effective management is in Portugal, as well as subsidiaries and branches in Portugal of credit institutions outside Portugal.

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