We summarize in this document, the main tax amendments contained in Law No. 82/2023, of December 29, which approved State Budget for the year 2024 (LOE2024).

I. PERSONAL INCOME TAX ("IRS")

A. TAX REGIME APPLICABLE TO FORMER RESIDENTS (“EX-RESIDENTES”)

Change of requirements to benefit from tax regime applicable to former residents: exclusion from taxation of 50% of employment, business, and professional income, for a period of 5 years. It is now required that the taxpayer has not been a tax resident in Portugal in any of the preceding 5 years (and no longer 3 years) and has been a tax resident in Portugal in any period preceding the said 5-year period.

The exclusion from taxation is now capped at € 250,000. This cap is only applicable to taxpayers who become tax residents in 2024 or any subsequent year.

B. YOUTH INCOME TAX (“IRS JOVEM)

In the special regime applicable to taxpayers aged between 18 and 26 years (or 30, if completed with a PhD), there is now a full exemption from taxation income derived from employment/professional activities (category A and B) earned after the year of completion of secondary (or higher) education, in the first year of activity, with a cap of € 20,370.40 (40 times IAS).

In the following years, the income will be partially exempt from IRS, with the following caps:

a) 75% in the 2nd year, with a cap of € 15,277.80 (30 times IAS);

b) 50% in the 3rd and 4th years, with a cap of € 10,185.20 (20 times IAS);

c) 25% in the 5th year, with a cap of € 5,092.60 (10 times IAS).

C. DECLARATIVE OBLIGATIONS – IRS MODEL 3 DECLARATION

Income subject to final withholding taxes and income not subject to IRS, exceeding € 500, as well as assets held in countries, territories, or regions with a clearly more favorable tax regime, are now mandatorily reported in the IRS annual income tax return.

D. GENERAL IRS RATES AND TAX DEDUCTIONS

The caps of taxable income for each IRS bracket were updated by 3%, and the rates applicable up to the 5th bracket were also updated.

The maximum rate of 48% is now applicable to income of or exceeding €81,199 (currently €78,834).

Regarding tax deductions, 5% of the expenses with remuneration of domestic work is now tax deductible from IRS, with a global limit of € 200.

The maximum amount deductible for rents of urban buildings for permanent housing purposes is now € 600 (and no longer € 502), and € 900, for taxpayers who have a taxable income equal to or lower than € 7,703.

E. TAX BENEFITS IN FAVOUR OF WORKERS

a. Exemption, with caps, from personal income tax and social contributions of income from work in kind resulting from the use of a permanent dwelling house provided by the employer, located in Portuguese territory, , in favor of an employee (provided that he/she does not hold, directly or indirectly, more than 10% of the employer's share capital or voting rights), for the period from 1 January 2024 to 31 December 2026.

b. Exemption from personal income tax up to the value of one monthly remuneration, capped to € 4,100, of the profit share distributions in favor of employees by way of a balance sheet bonus, paid by employers that increase at least 5% of its employees fixed remuneration in 2024

F. REGIME APPLICABLE TO START-UP AND SCALE-UP EMPLOYEES

It is foreseen that employees who, on the date of entry into force of this law, keep securities generated from the gains derived from options plans, subscription plans, attribution plans or others of equivalent effect, on securities or similar rights, and have benefited from the partial exemption from taxation of the gain (at 50%), maintain such benefit of exemption from IRS taxation, as long as they keep securities for a minimum period of two years counted from the exercise of their option or subscription.

In the case of employees who have sold the securities or similar rights derived from option plans, acquired before the entry into force of this Law, and who have benefited from the partial exemption regime from IRS, the gains calculated by the difference between the transfer value and the market value on the date of acquisition of the option or right will be taxed as capital gains (Category G).

G. END OF NON-HABITUAL RESIDENT REGIME AND APPROVAL OF THE "TAX INCENTIVE FOR SCIENTIFIC RESEARCH AND INNOVATION"

With the State Budget 2024, the non-habitual resident regime, approved in 2009, was revoked.

The regime continues to apply to taxpayers who are already registered as non-habitual residents, until the 10-year period granted expires, as well as to taxpayers who on December 31, 2023, met the conditions to be qualified as tax residents in Portugal, and register by March 31, 2024.

On a transitional provision, the Law provides for situations under which taxpayer who were not tax resident in Portugal on December 31, 2023, may still become a non-habitual resident.

On the other hand, the LOE2024 approved the Tax Incentive for Scientific Research and Innovation (IFIC), a tax benefit very similar to the non-habitual resident tax regime, applicable to taxpayers who have not been tax residents in Portugal in the previous 5 years, and that will benefit from it for 10 years.

This incentive consists of taxation, at a 20% rate of employment income obtained in Portugal (category A) and business and professional income (category B), if earned by certain taxpayers .

As for income obtained abroad from employment, business and professional income, capital, property and capital increases, the exemption method will apply, except if paid or made available by entities domiciled in a country, territory, or region subject to a clearly more favorable tax regime, in which case they will be taxed at a 35% rate.

The LOE2024 provides that until the Ordinance that will define the highly qualified professions that may benefit from the regime is not approved, Ordinance No. 12/2010, of January 7, shall be considered. Also, industrial and services companies are considered those which main CAE is provided for in Ordinance No. 282/2014, of December 30.

II. CORPORATE INCOME TAX ("IRC")

A. DEDUCTIBILITY OF INTANGIBLE ASSETS

The acquisition cost of goodwill acquired in a business combination is now deductible as a tax expense for a period of 15 years (instead of 20 years). This regime applies to assets whose initial recognition occurs in the tax periods that start on or after January 1, 2024.

B. RATES

a) The reduced corporate income tax rate (of 17%), applied to the first €50,000 of taxable income, is 12.5% in the case of companies qualified as startups who cumulatively meet certain conditions .

b) Reduction of autonomous taxation rates on expenses related to passenger vehicles, some commercial vehicles, or motorcycles, as follows:

(i) 8.5% [10% until 2023] in the case of vehicles with an acquisition cost of less than €27,500;

(ii) 25.5% [27.5% until 2023] when equal to or greater than €27,500 and less than €35,000;

(iii) 32.5% [35% by 2023] when exceeding €35,000.

C. TAX INCENTIVE FOR THE RENEWAL OF THE TRANSPORT FLEETS

During the tax period starting on or after 1 January 2024, it shall be exempt from CIT the positive difference between capital gains and losses derived from transfer of freight vehicles with a gross weight of 35 tons or more, acquired before 1 July 2021 and with the first registration prior to that date, falling under IUC categories C and D, provided that the entire value of the output is reinvested in other vehicles, of the same category, that comply with Euro 6 C or E emission standards, with first registration after 1 January 2024.

D. EXTRAORDINARY SUPPORT SCHEMES FOR ELECTRICITY AND NATURAL GAS COSTS AND AGRICULTURAL PRODUCTION COSTS

These regimes will be maintained in 2024.

Thus, on one hand, costs and losses incurred in relation to electricity and natural gas consumption may be increased by 20% to the extent that it exceeds those of the tax period starting on 1 January 2021, deducted from any incentive received under the terms of Decree-Law No. 30-B/2022, of 18 April (Support for Gas-Intensive Industries Program).

On the other hand, costs and losses incurred or borne by the IRC or IRS taxpayer (cat. B – organized accounting) related to the acquisition of certain goods, when used within the scope of agricultural production activities, may be increased by 40%.

E. TAX REPORTING OBLIGATIONS

a) In compliance with the obligation to communicate inventories, the following taxpayers shall be exempt of inventory valuation: i) All taxpayers, in relation to the tax period starting on or after January 1, 2023; ii) Taxpayers who are not required to carry out a permanent inventory, for the tax period starting on or after 1 January 2024.

b) The submission of the SAF-T (PT) file related to accounting is applicable to the period of 2025 and following, to be submitted in 2026 or in following periods.

c) Until December 31, 2024, invoices in PDF file will be accepted and will be deemed as electronic invoices for all purposes provided for in tax laws.

III. STAMP DUTY

A. STAMP DUTY EXEMPTION

Operations to temporarily fix installments of loan contracts aimed for acquisition or construction of permanent housing, under Decree-Law no. 91/2023, of 11 October, will be exempt from stamp duty (paragraph 17.1 of the General Table of Stamp Duty (TGIS)). Such exemption will apply as from entry into force of the aforementioned Decree-Law.

B. TRANSFERS NOT SUBJECT TO STAMP DUTY

For the purposes of paragraph 1.2 of the TGIS, donations between spouses or de facto partners, descendants, and ascendants, up to the amount of € 5,000, will not be subject to stamp duty. Despite this provision, the exemption from Article 6(1)(e) of the Stamp Duty Code, which exempts spouses or de facto partners, descendants, and ascendants from free transfers subject to paragraph 1.2 of the TGIS of which they are beneficiaries, remains unchanged.

IV. REAL ESTATE TRANSFER TAX ("IMT") UPDATE

The amounts as from which the IMT will be levied on the acquisition of urban property exclusively for own and permanent housing, and intended exclusively for housing, have been increased to € 101,917 (value in force until 31 December 2023 was € 97,064).

V. TAX BENEFITS CODE

In addition to the tax benefits already mentioned above within the scope of IRS and IRC, the following amendments shall be considered:

A. TAX REGIME OF THE INCENTIVE TO THE CAPITALIZATION OF COMPANIES (“INCENTIVO À CAPITALIZAÇÃO DAS EMPRESAS” OR “ICE”)

The deductible amounts, relating to net increases in eligible equity, are now calculated based on the application of the 12-month Euribor rate, plus a spread of 1.5% (or a spread of 2%, in the case of SMEs or Small Mid Caps). Until the approval of the LOE2024, the deductible amounts were calculated by applying the rate of 4.5% to the amount of the net increases in eligible equity (or 5% in the case of SMEs or Small Mid Caps).

For the purposes of this deduction, the amount of the net increases in eligible equity must be calculated by reference to the sum of the amounts calculated in the financial year itself and in the six previous tax periods (instead of nine).

The maximum deduction limit is now €4,000,000 (and no longer €2,000,000).

B. RESIDENTIAL LEASES INITIATED BEFORE THE URBAN LEASE REGIME (“RAU”)

Income (Cat. F), obtained under a residential lease agreement initiated before entry into force of the Urban Lease Regime (RAU), which was not updated to New Urban Lease Regime (NRAU), is exempt from IRS taxation, for the duration of the respective contract. The buildings subject to these lease agreements are also exempt from Municipal Property Tax (“IMI”) for the same period.

IN ADDITION, THE FOLLOWING AMENDMENTS TO TAX BENEFITS CODE SHOULD BE HIGHLIGHTED:

1. Within the scope and for the purposes of the "Tax Incentive for wage increase", the concept of "wage range" was redefined, and definitions were introduced for the concepts of "wage increase", "fixed remuneration" and "guaranteed minimum monthly remuneration".

2. The taxation regime applicable to entities licensed in the Madeira Free Trade Zone as of 1 January 2015 has been extended for another year, until 31 December 2024.

VI. INVESTMENT TAX CODE

A. RELEVANT APPLICATIONS

For the purpose of calculating the tax benefits provided for in the Code, namely within the scope of Contractual tax benefits to productive investment and Tax Regime for Investment Support (“Regime Fiscal de Apoio ao Investimento” or “RFAI”), wage costs resulting from the creation of jobs are now considered as "relevant investments", when concerned to staff with educational qualifications at level 7 or level 8 of the National Qualifications Framework.

These costs correspond to the total cost borne by the beneficiary companies in relation to those jobs created, including gross salary before tax, compulsory social security contributions, insurance against accidents at work, childcare and relatives in the ascending line, as well as other costs arising from legal origin or arising from collective bargaining agreements.

Expenses with personnel with educational qualifications of minimum level 7 of the National Qualifications Framework are not cumulative for the purposes of the tax benefits provided for in the Investment Tax Code and are considered relevant applications in the order provided for by law.

VII. OTHER TAX PROVISIONS:

a) The payment of taxes to the Tax and Customs Authorities by companies must be made exclusively electronically.

b) Until 31 December 2024, tax judicial claims that have been filed until 31 December 2021 and that are pending decision at first instance in tax courts may migrate towards arbitration court (“CAAD”).

This information is provided in a general and abstract manner and is intended to be distributed among Clients and Colleagues and should not serve as a basis for any decision-making. This information may not be reproduced, in whole or in part, without the express consent of Clareira Legal.