• Jaime Carvalho Esteves

Tax news from Portugal: The proposal for 2020 Revised Budget Act

Following a recovery action plan disclosed the 4th June (PEES), a proposal for the revision of the Budget Act for 2020 was filed at Parliament last June 9 and should now be discussed and then voted globally the next 19 June. A detailed discussion and vote will follow and the approved final version should be published and enter into force during July.

Super tax credit

The super tax credit (CFEI) available during 2013 will be renewed (CFEI II). Taxpayers would be able to deduct to their CIT 20% of relevant investment expenses (with exceptions, including tangible, biological and intangible assets) incurred from 1st July 2020 up to 30th June 2021, capped at 5 million euro (thus with a maximum impact of one million euro and also capped at 70% of the annual income tax computed).

Unused tax credits are expected to be carry forward during 5 taxable years, thus being inconsistent with the extension of the tax losses carry forward timeframe.

Tax losses

Tax losses of taxable years starting on 2020 and 2021 would be allowed to be carried forward for 10 years (instead of 5 in 2019 or 12 years in certain cases that will remain unchanged).

The amount of the annual taxable profit that can not be shield by prior tax losses is reduced from 30 to 20%, provided the difference arises from the use of tax losses relating to 2020 or 2021. Considering tax losses are used on a FIFO basis, the allocation of tax losses for this purpose still needs to be refined.

The tax years of 2020 and 2021 are not relevant for the computation of the time limit of prior tax losses still available to be carried forward at the beginning of the taxable year starting on 2020.

The proposal does not go so far as to accept the carry back of tax losses, nor its monetization, but it introduces already a limited form of tax losses assignment, in case of acquisition of control (from 1st July up to 31st December 2020) of micro or SMEs in economical difficulties.

In such cases the acquired company (depending on certain conditions) can surrender to the acquiring nonrelated micro, SME, small or mid cap company its tax losses, in the proportion of the share capital held and capped at 50% of the acquiring company annual taxable profits.

In case of tax neutral mergers of non related companies with similar activities (measured as 50% of their turnover), tax losses available to be carried forward by the merged company can also be offset by the beneficiary company against its taxable profits. Furthermore, the additional surtax shall not be due during the 3 taxable years following the merger effects.

On account payments

Contrary to sound expectations, additional on account payments remain unchanged. However special rules are introduced to regular on account payments due under CIT or PIT.

If the 1st semester monthly turnover average shows a minimum 20% reduction against the same precedent period (or the previous monthly average if activities started on or after 1stJanuary 2019), the taxpayer can waive up to 50% of the 1st and 2nd on account payments. And such payments can even be totally waived if the turnover reduction is not lower than 40% (and the same, without conditions, if more than 50% of turnover of the prior year resulted from hospitality and restaurant activities or alike).

Taxpayers should face compensatory interest counting from the deadline for the 3rd instalment payment if the balance still due following the final assessment exceeds 20% of the on account payments not paid but that otherwise would have been due.

Thus the payment postponement up to the deadline of the 3rd instalment should not lead to compensatory interest. As a general rule, the 3rd payment can be waived if the taxpayer has reasons to believe the payments already done are not lower than the final tax amount that will actually be due.

Taxes and social security contributions

Companies under certain Court debt restructuring programs can include in the already agreed debt instalments the unpaid taxes and social security contributions relating to the period between 9th March and 30th June 2020, with a minimum payment period up to 31st December 2020.

Additional banking levy

A new charge (of dubious legality) on the average value of certain liabilities (with a tax rate of 0,02%) and off-balance sheet derivatives (with a tax rate of 0,00005%) will be due each year to finance the social security system.

For 2020 such new tax will be based on the average relevant values computed during the first semester of 2020 (and will be due on 15 December 2020). For 2021 the tax will be based on similar average computed during the second semester of 2020, being payable up to 15 December 2021. From 2022 onwards the tax basis will be assessed taking the annual average of the monthly values of the precedent year into consideration. It will then be due up to 30 June of each year (unclear if starting on 2022 or 2023).

It is also uncertain if this levy will be accepted by the Courts, namely because:

- It increases an already discriminatory levy with more than 10 years now;

- The provisory rules for the two initial years show its non temporary nature;

- Its motivation (the incomplete VAT exemption) seems to be contradictory and arbitrary, is also discriminatory vis a vis other activities (medical services, for example) and appears to be in contradiction with the EU VAT system.

Furthermore the levy also seems to be retroactive relating to 2020 (as it is based on the average of the 1st semester) and it should be accepted as a tax cost for CIT purposes.

Autonomous taxations

Although included in the action plan published the 4th of June the proposed Draft Law filed at Parliament 5 days after does not include (yet) the non applicability of higher rates of autonomous taxation on certain expenses if the taxpayer shows tax losses, provided it presented taxable profits during the prior years (minimum number still to be defined).

Public expenditure, investment and co-investment

The action plan indicates the Government will to start a number of relevant public expenditures to boost the economic activity.

A number of relevant measures to increase the financing capability and the level of equity are also expected, including State investment and co-investment with private investors, are also expected.


The current exceptional regime will be postponed up to July and the proposal includes an authorization for the Government to introduce a new special lay-off regime to be in force from August up to the end of the current calendar year.

This new regime is expected to apply to companies with a minimum turnover reduction of 40% (if higher than 60%, additional concessions are expected).

Macro economy background

The Government now forecasts a GDP contraction of 6.9% (increase of 4,3% in 2021), a deflation of 0,2% (inflation of 0,4% in 2021) and an unemployment rate of 9,6% (8,7% in 2021).

June 10, 2020

For generic information purposes only

Specific advise must be obtained before any decision is taken

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Jaime Carvalho Esteves

Tel. (+351) 917 612 372


© 2020 by JCE

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