Effective 1 January 2023, ordinary losses can be carried forward indefinitely. Losses incurred prior to 1 January 2023 can also be carried forward indefinitely, provided the carry forward period has not expired.
However, as a general rule, losses carried forward can be used to offset the taxable income of a subsequent tax year only up to 65% (reduced from 70%, effective 1 January 2023) of such income.
The loss carry-forward period for the earlier years is as follows:
|Period in which the Loss was Incurred||Loss Carry Forward Period|
|For the year 2022||5 years (12 years for SMEs)|
|From 2017 to 2021||5 years (also see below COVID-19 Emergency Measures)|
|From 2014 to 2016||12 years|
Effective 1 January 2023, the carry-forward of losses is available indefinitely, without Ministerial approval, in the case of a change in ownership exceeding 50% of the share capital, provided tax evasion is not the main objective or one of the main objectives of the change in ownership (i.e., the change in ownership is carried out for valid economic reasons). Up to 31 December 2022, losses were not eligible for carry forward if there was a modification to the object or a substantial change to the nature of the business or if there was a change in the ownership of at least 50% of the share capital or in the majority of voting rights unless an authorization was obtained from the Minister of Finance.
With respect to capital losses, the tax code allows the deduction of only 50% of the net capital loss incurred on the sale of shares or other corporate rights.
However, capital losses are not deductible if:
- The shares were held for less than 3 years, and the shares were acquired from either associated entities or from resident entities subject to a special tax regime;
- The seller resulted from a transformation (including a modification of the corporate object) of a company that was subject to a different tax regime in relation to those losses (as it is the case with Portuguese holding companies) and less than 3 years have elapsed between the transformation and the sale of shares; and
- The shares are sold to associated companies or to entities resident in Portugal and subject to a special tax regime.
In response to the COVID-19 pandemic, the Portuguese government announced the following relief measures:
- The introduction of special loss transfer regimes for micro, small and medium-sized enterprises (SMEs) (see Sec. 8.1.) subject to various conditions, including job retention and non-distribution of profits include:
- a special regime applicable to mergers of qualifying SMEs with similar activity (i.e., at least 50% of turnover corresponds to the same activity) in the last 12 months. The regime 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. The regime also provides an exemption from state surtax within a three-year period; and
- a special regime applicable to the acquisition of a qualifying SME considered a "company in difficulty". The regime 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 related to loss forfeiture, where there is a change of ownership of more than 50% (as mentioned above);
- An extension of the carry-forward period for losses incurred in the tax years 2020 and 2021 from 5 years to 12 years;
- An increase in the allowed loss offset from 70% to 80% of taxable income for losses pertaining to tax years 2020 and 2021; and
- The time limits for the carry-forward of tax losses as on 1 January 2020 are suspended during the tax years 2020 and 2021, thereby allowing an effective extension of 2 years.