Portugal
used to offer a number of special corporate income tax
regimes by which businesses either pay reduced corporate
income tax rates, are exempted from certain taxes altogether
or are able to artificially inflate tax deductible allowances
so as to reduce taxable profits. Most of these have
been swept away by the OECD and the EU, and what remains
is the usual EU patchwork of special-interest support
schemes.
Under Decree-Law
203/2003 the Portuguese Investment Agency has the power
to negotiate tailored incentive packages with companies
developing large investment projects in Portugal, but
under the EU's State Aid rules there are strict limits
on what can be offered.
Research & Development
Allowances
The
2003 state budget created a system of tax reserves for
investment, which apply to companies principally engaged
in producing goods or services that can be traded internationally
are eligible for the scheme. The tax reserve system
enables companies to reduce their taxable earnings by
20% in return for creating a special reserve account
for investment in fixed assets (with the exception of
investment in urban properties) or research and development.
A tax credit system
for investment in technological research and development
provides benefits for resident payers of corporate tax
(IRC) that are mainly engaged in commercial, industrial
or agricultural activities, and for non-residents with
a fixed establishment in Portugal that fulfill the following
requirements: their taxable income is not determined
by indirect methods and they do not owe to the Portuguese
state or social security system any unpaid taxes or
contributions or have taken steps to guarantee that
any outstanding payments are paid.
Part of the value of
an investment in research and development that has not
been subsidized by the State can be deducted from income
subject to IRC on the basis of double percentage calculations.
The basic rate at the time of writing is 20% of the
total amount of investment made in the taxable period.
An incremental rate allows companies to deduct 50% of
the value of any investment in R&D above the average
of such investment in the previous two tax years up
to a maximum of €500,000.
Investments that cannot
be deducted in the year they were made because the company’s
taxable income is too low can be deducted within a maximum
period of six tax years.
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