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Portuguese Parliament Approves 2023 Budget — Orbitax Tax News & Alerts

Portugal's Budget Law for 2023 (Draft Law 38/XV/1) was approved in a final vote in Parliament on 25 November 2022. The final version of the law is largely in line with the draft submitted in October 2022. As previously reported, the main tax-related measures include:

  • A reduction in the allowed offset of losses carried forward from 70% to 65% of taxable profit, but with the removal of the time limit on losses carried forward, which will apply for losses incurred from 1 January 2023 as well as losses incurred prior to 1 January 2023 if the prior time limit has not yet expired;
  • A revised provision providing that the unlimited carry forward ceases to apply when there is a change of ownership exceeding 50%, unless it is concluded that the operation did not have tax evasion as its main objective or one of its main objectives, which can be considered to have occurred, in particular, in cases where the operation was carried out for valid economic reasons;
  • Changes in the optional regime that allows Portuguese companies to disregard the profits and losses allocated to a foreign permanent establishment (PE), including that the regime is not applicable in respect of profits allocated to a foreign PE up to the amount of losses attributable to that PE that have been taken into account by the Portuguese company when computing taxable income of the previous 12 years (increased from 5 years for large companies), with a 12-year period also established in relation to the exemption regime for the transformation of a PE into a company;
  • The revision of the reduced corporate tax rate of 17% for SMEs such that it applies on the first EUR 50,000 of taxable income (up from 25,000) for taxable persons carrying out directly and mainly an economic activity of an agricultural, commercial or industrial nature, that are classified as small or medium-sized companies or small-medium capitalization companies (Small Mid Cap), with similar changes made in regard to the 12.5% rate for SMEs in inland regions;
  • A transitional regime for the reduced corporate rate for SMEs, providing that the reduced rate will continue to apply for a period of two years after restructuring operations that take place from 1 January 2023 to 31 December 2026, where all companies involved in the restructuring were SMEs qualifying for the reduced rate, but the resulting (beneficiary) company does not;
  • An extraordinary support regime for electricity and gas costs, providing for a 20% increased deduction (120% total) for such costs incurred in the tax period beginning on or after 1 January 2022, which is available for resident taxpayers carrying out commercial, industrial, or agricultural activities, as well as PEs in Portugal of non-residents, but excludes companies that generate at least 50% of their turnover from:
    • production, transport, distribution, and trade of electricity or gas; or
    • manufacture of petroleum products, either refined or from residue, and of other fuels;
  • An extraordinary support regime for costs incurred in agricultural production, providing for a 40% increased deduction (140% total) for specified costs incurred in the tax periods beginning in 2022 and 2023, including costs for fertilizers, cereals, seeds, and other products suitable for livestock, poultry, and other animals, and water for irrigation;
  • A tax incentive for the capitalization of companies, providing for a deduction of an amount equal to 4.5% on a net increase in eligible equity, increased by 0.5% for SMEs (Small Mid Cap), which is deductible in the tax year in which the increase takes place, as well as in the nine following tax periods, subject to the following limits per year (excess may be carried forward):
    • EUR 2 million; or
    • 30% of EBITDA;
  • The revision of the personal income tax brackets/rates as follows, including a reduction in the second bracket rate from 23.0% to 21.0%:
    • up to EUR 7,479 - 14.50%
    • over EUR 7,479 up to 11,284 - 21.0%
    • over EUR 11,284 up to 15,992 - 26.5%
    • over EUR 15,992 up to 20,700 - 28.5%
    • over EUR 20,700 up to 26,355 - 35.0%
    • over EUR 26,355 up to 38,632 - 37.0%
    • over EUR 38,632 up to 50,483 - 43.5%
    • over EUR 50,483 up to 78,834 - 45.0%
    • over EUR 78,834 - 48.0%
  • A new provision for a 120% deduction for charges incurred that correspond to the net creation of jobs in inland regions, including remuneration and social security contributions; and
  • A tax incentive for salary appreciation until 31 December 2026, providing that the charges corresponding to an increase determined by a dynamic collective labor regulation instrument for workers with an indefinite employment contract are deducted at 150% of the respective amount, including remuneration and social security contributions, subject to certain conditions including that remuneration has increased by at least 5.1%.

In addition to the above, certain other measures were included in the final version of the law:

  • The conditions for the property transfer tax exemption on the acquisition of properties by real estate trading companies for resale are amended to provide that the exemption is available for companies that have engaged in such activities in each of the previous 2 years instead of the current 1 year
  • The turnover threshold for VAT exemption under the simplified regime is increased from EUR 12,500 to EUR 13,500; and
  • The VAT rate on the acquisition and repair of bicycles and certain foodstuffs is reduced to 6%.

The budget law must now be published in the Official Gazette to enter into force.