Portugal: Tax-Efficient Sectors
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 32.5% 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 EUR1.5m. An enhanced rate of 70% up to a maximum of EUR1.8m is available to companies for expenses incurred in the hiring of PHDs for the purpose of carrying out R&D.
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.