In order to make Portugal more competitive in respect of corporate taxation, thereby attracting domestic and foreign investors, creating new jobs and boosting all economic activity, the Portuguese Government has created a Corporate Income Tax (CIT) Reform Commission.
Now that the Commission has presented its proposals and recommendations, here are some of the most important points:
- A progressive reduction of the nominal rate of CIT in force in Portugal until a range of between 17% and 19% is reached in 2018 (not applicable to IBC companies who will continue to benefit from the reduced rate of 5% until the end of 2020)
- Simplification of the accessory obligations that exist in the regimes of transfer pricing, loss relief, elimination of double taxation and the certification of items, such as RFIs
- The negotiation or renegotiation of conventions with Portugal’s main trade partners to avoid double taxation
- Introduction of a participation exemption regime for the purpose of eliminating economic double taxation of a universal nature, applicable to profits resulting from investment in shareholdings, independently of the geographical area in which they are materialised, with the exception of tax havens, as long as:
- the qualifying shareholding has been held for one year
- the company in which the shares are held is subject to, and not exempt from, income tax at a rate which is not less than 10%
- Creation of a tax credit to eliminate international economic double taxation on the profits of qualified shareholdings to which the exemption referred to in the previous paragraph does not apply, and which shall not be applicable when the company in which the shares are held is domiciled in a tax haven
- Deadline for using the tax credit for international double taxation to be extended to five years
- The creation of an optional exemption regime for the profits and losses of permanent establishments abroad, which shall not be applicable to permanent establishments located in tax havens
- Establishment of a 15-year tax loss reporting period, applicable only to losses occurring after 1 January 2014
- Special tax regime for certain incomes from intellectual property originating abroad (patent box) and creation of a regime whereby patents, models and industrial designs developed internally are considered at only half their value
If these measures proposed by the Commission are approved, they will also be applicable to IBC companies, leading to even greater competitiveness.
NEWCO will be keeping its clients and contacts informed of the developments of this reform.