Portugal: New tax measures to support enterprises

Several tax measures to support employment and stimulate investment by Portuguese companies were published in recent days. The most relevant of these are as follows:

Supplementary State Budget 2020

Law no. 27-A/2020, of 24 July, makes the second amendment to the State Budget for 2020 as well as the amendment of several diplomas.

Deduction of Tax Losses generated in 2020 and 2021

• The reporting period for tax losses generated in 2020 and 2021 by companies is 12 tax periods (currently the reporting period for tax losses is 5 years, except in the case of small and medium-sized enterprises (SMEs) whose period is 12 years);
• The limit for the deduction of tax losses is increased to 80%, when the difference results from the deduction of tax losses determined in the tax periods of 2020 and 2021 (currently the limit is 70%);
• The periods 2020 and 2021 do not count towards the loss carry forward period applicable to losses in force on the first day of the 2020 tax period.

Extraordinary limit on payments on account (IRS or IRC) for 2020

1) IRS taxpayers who are holders of Category B income and who do not make the first and second payments on account in 2020 may regularize the total amount in question until the deadline for payment of the third payment on account (20 December 2020), without any burden or charge;

(2) IRC taxpayers may have total waiver of the first and second payments on account for the 2020 tax period provided that:

• the monthly average of invoicing communicated through the E-invoice for the first six months of the year 2020 shows a drop of at least 40% in relation to the average for the same period of the previous year or, for those who started the activity on or after January 1, 2019, in relation to the average of the previously elapsed period of activity; or 
• the taxable person's main activity falls within the classification of economic activity as accommodation, restaurants and the like; or
• the taxable person is classified as a cooperative or as a micro, small or medium-sized enterprise.

3) IRC taxpayers may have partial exemption (50%) of the first and second Payments on Account for the 2020 tax period if the monthly average of invoicing reported through the E Invoice for the first half of 2020 shows a drop of at least 20% in relation to the average for the same period in 2019.

The drop in turnover and the placement in accommodation, restaurants and similar activities or as a micro, small or medium-sized cooperative, must be certified by a certified accountant at the Finance Portal.

If the taxpayer finds that as a result of the total or partial reduction of the first and second PPC may no longer be paid an amount greater than 20% of what under normal conditions would have been paid, he may regularize the amount in question until the last day of the deadline to make the third payment on account, without any burden or charge, through certification by a certified accountant on the Finance Portal.

Transfer of tax losses of companies in difficulty

A scheme allowing the transfer of tax losses generated by small and medium-sized enterprises (SMEs) and the respective deduction in the sphere of the acquiring company, if the SME is acquired by 31 December 2020, has been created.

Only SMEs which, in 2020, have come to be considered as "companies in difficulty" (compared to the situation in the 2019 tax period) may benefit from this scheme.

The tax loss deduction of the acquired company is carried out by the acquiring company in proportion to the share capital of the acquired company that generated the tax loss up to 50% of its taxable income.

This deduction is subject to the verification of a number of requirements, among which:

• Acquisition of the participation that allows the direct or indirect holding of the majority of the capital with voting rights, such participation having to be maintained uninterruptedly for a period of not less than three years;
• The acquired company may not distribute profits for three years;
• The company whose participation is acquired may not terminate employment contracts for three years under the terms of collective dismissal or dismissal for termination of employment.

Exceptional regime for payment in instalments for tax debts and social security debts

An exceptional regime is established for tax debts related to tax events occurred between March 9th and June 30th, 2020 and for tax debts and debts of monthly Social Security contributions due in the same period for debtors who are already complying with an instalment plan authorized by the Tax and Customs Authority or by the Social Security without the need for additional guarantees (the guarantees are maintained).

Extraordinary Investment Tax Credit (CFEI II)

IRC taxpayers who incur in investment expenses materialized in the acquisition of assets related to exploration, namely tangible fixed assets, non-consumable biological assets and intangible assets (subject to depreciation), carried out between July 1, 2020 and June 30, 2021 benefit from a deduction from IRC collection, corresponding to 20% of investment expenses, whose maximum amount is limited to 5 million Euros.

The annual deduction is limited to 70% of the collection. In case of insufficient collection, the benefit is reportable for 5 years.

For the same investment expenses, the benefit cannot be accumulated with any tax benefits of the same nature. Investments in light passenger or mixed vehicles, furniture and comfort or decoration items and expenses with the construction, acquisition, repair and enlargement of any buildings are excluded.

The taxpayer may not, from the beginning of the scheme and for a minimum period of 3 years, terminate employment contracts under the collective dismissal scheme or by terminating the employment position.

Extraordinary support for the gradual resumption of activity in companies in a business crisis situation

Decree-law 46-A/2020 of 30 July creates extraordinary support for the gradual resumption of activity in companies in a situation of business crisis due to the COVID -19 pandemic, with a temporary reduction in the normal work period of all or some of their workers.

For companies with a turnover drop of 40% or more (in the full calendar month immediately preceding the calendar month to which the initial request for support or extension refers, compared to the same month of the previous year or the monthly average of the two months preceding that period), the reduction in the normal working period is limited to 50% in August and September 2020 and 40% in October, November and December 2020.

For companies with a turnover of 60% or more, the reduction of the normal working period is limited to 50% in August and September 2020 and 40% in October, November and December 2020.

The worker is entitled to receive compensation corresponding to the hours worked and also to receive a monthly compensation payment in the amount of 2/3 of the gross normal wage corresponding to the hours not worked, in the months of August and September 2020, and in the amount of 4/5, in the months of October, November and December 2020 (up to three times the minimum guaranteed monthly wage: EUR 1,905.00).

It also provides for total exemption and partial waiver of payment of social security contributions to the employer in such circumstances. The partial exemption or waiver of the payment of contributions for which the employer is responsible is granted on the following terms:

In the case of SMEs:

• Total exemption from contributions for the months of August and September 2020;
• 50% partial exemption from contributions in October, November and December 2020.

In the case of large companies:

• 50% partial exemption from contributions in August and September 2020.

During the reduction of the normal working period and in the following 60 days, the company may not terminate employment contracts due to collective dismissal, extinction of the job, or due to maladjustment.

Specific tax measures for Cooperatives and SMEs

On 31 July Law 29/2020 was published, establishing fiscal measures to support cooperatives and micro, small and medium-sized enterprises (SMEs) in the context of the COVID-19 pandemic:

Temporary suspension of payments on account of IRC

Cooperatives and SMEs may be exempted from payments on account of IRC. If they wish to make this payment, however, they may do so within the time limits provided for under the measures relating to the COVID-19 epidemic.

Early return of unused special payments on account

Entities classified as cooperatives or SMEs may request, in 2020, the full reimbursement of the part of the special advance payment that was not deducted until the year 2019, with a waiver of the 90-day period defined in the IRC Code.

Maximum time limit for VAT, IRC and IRS refunds

Where the amount of withholding tax, payments on account or VAT is higher than the tax due, the refund shall be made within 15 days of the submission of the respective return by the taxable person.