21 Oct 2020

State Budget Proposal 2021

On October 12, the proposed Portuguese State Budget for 2021 was submitted to the parliament. With this proposal, the Portuguese Executive intends to fight the pandemic, protect its citizens, support the economy and employment, as well as strengthen measures to combat tax evasion. Therefore, we present the main amendments proposed by the Portuguese State Budget for 2021:

AMENDMENTS TO THE CORPORATE TAX CODE (CIRC): EXTENSION OF THE CONCEPT OF PERMANENT ESTABLISHMENT

The new state budget provides for some changes to the concept of Permanent Establishment (PE). This concept now applies to:

The provision of services, including consulting services, by a company, through its own employees or other persons hired by the company to carry out such activities in Portuguese territory, provided that such activities are carried out during a period or periods which, in total, exceed 183 days in a 12-month period beginning or ending in the tax period in question;
The facilities, platforms or ships (previously, drilling boats) used in the prospecting or exploration of natural resources if the duration of their activity exceeds 90 days (previously, six months);
A building, installation or assembly site, as well as the related coordination, fiscal and supervision activities, when the duration of such site or the duration of such activities exceeds six months;
A person who, not being an independent agent, acts in Portugal on behalf of a company and regularly plays a determining role in the conclusion of contracts that bind the company routinely and without substantial changes, or who has a warehouse here for the delivery of such goods or merchandise on behalf of the company (even if he does not habitually conclude contracts for such goods or merchandise nor has any intervention in the conclusion of such contracts).

The taxable profit of a PE now includes income derived from the sale, by the non-resident entity, to persons or entities with Portuguese residence, head office or effective management in Portugal of goods or merchandise identical or similar to those sold through that PE.

AUTONOMOUS TAXATION OF SMEs

The State Budget for 2021 includes a transitional rule for autonomous taxation applicable to cooperatives, micro, small and medium-sized enterprises (SMEs). The Executive proposes not to apply the increased tax rate of 10 percentage points for taxpayers who present tax losses in the period in question, if they meet both the following requirements:

the taxable person has obtained taxable income in one of the three previous tax periods and the reporting obligations relating to the submission of Model 22 and the Simplified Corporate Information (IES) for the two previous tax periods have been met;
the tax periods of 2020 and 2021 correspond to the beginning of activity or one of the two following periods.

CHANGES TO THE SYSTEM OF TAX INCENTIVES IN RESEARCH AND BUSINESS DEVELOPMENT (SIFIDE)

SIFIDE, created in 1997, intends to encourage business sector investment in R&D areas. In 2011, SIFIDE II was approved, continuing with tax incentives for investments in these areas. Thus, investments in shares or contributions to investment funds, public or private, that make equity and quasi-equity investments become eligible.

EXTRAORDINARY AND TRANSITIONAL INCENTIVE REGIME FOR JOB MAINTENANCE

In the course of next year, large companies (excluding SMEs) that have recorded a positive net result in 2020 and want to benefit from public support and tax incentives will only be able to do so if they maintain their employment level in 2021.

INCENTIVE TO EXTERNAL PROMOTION EXPENSES OF MICRO AND SMEs

The State Budget 2021 aims at creating a tax benefit for external promotion expenses of micro and SMEs (in the form of joint participation). This incentive manifests itself in an 110% increase in the above-mentioned expenses.

CHANGES TO THE MUNICIPAL TAX ON ONEROUS REAL ESTATE TRANSFERS (IMT):

An extension of IMT taxation to indirect transfers of real estate by public limited companies is proposed. As a result, the acquisition of holdings representing at least 75 % of the share capital of a public limited company whose assets comprise more than 50 % of real estate located in Portugal that is not engaged in real estate buying and selling is now subject to IMT payment.