Portugal: Super tax credit for 2013 and upcoming CIT reform
Tiago Cassiano Neves
The government has recently approved a Growth, Employment and Industrial Development Strategy package which it hopes will serve as a stimulus to re-launch private productive investment in Portugal. The package includes a Draft Bill (already presented to Parliament) for a special investment tax regime for qualified investments made in financial year 2013, which is drawing attention from taxpayers because of its very beneficial conditions.
In general terms, the super tax credit is equal to 20% of eligible investments made between June 1 2013 and December 31 2013 up to a maximum investment amount of €5 million ($6.6 million) per taxpayer, which may then be set off against 70% of the tax due, as long as such investment is operating – or being used – until the end of the fiscal year beginning on January 1 2014.
The super tax credit may be carried forward for five years, when a taxpayer is unable to (partially or fully) credit this amount because there is insufficient tax due.
Another interesting feature is that the super tax credit is excluded from the minimum corporate tax liability mechanism – which determines that the final tax due cannot be less than 90% of the CIT (corporate income tax) payable in the absence of certain listed tax incentives.
As a general rule, for investments to qualify as eligible for the super tax credit, they must consist of tangible fixed assets and depreciable intangible assets, acquired in new condition. There are a number of exclusions from the eligible investments, including land, certain vehicles, non-productive assets and intangible assets acquired from related parties. Eligible investments should be maintained for a five-year period subject to a recapture rule.
The super tax credit will be open to all corporate taxpayers (companies or branches) whose profits are not determined under indirect methods and have their tax and social security situation duly regularised.
A corporate taxpayer with eligible investments of €5 million with a potential CIT payable of €1 million will claim a super tax credit of €700,000 for 2013, reducing its effective tax rate from 25% to 7.5% (excluding surtaxes). This is rather favourable when benchmarked with other similar investment tax credits in place.
The Draft Bill, though technically still subject to minor changes during the legislative process, is expected to be approved rather swiftly and enter into force in July.
Also within the context of the government's push for growth and investment, further details on the cornerstones of the CIT reform for financial year 2014 were released.
Those cornerstones include a progressive reduction of the standard tax rate to set the rate closer to the European average; overall simplification of CIT namely for reporting obligations; strengthening of certain tax incentives to attract foreign direct investment; review of the group taxation regime and participation exemption (dividends and capital gains); changes to the loss carry-forward time limit to bring the time period in line with the best international practices; measures to reduce excessive corporate indebtedness; and further alignment of the corporate income tax with accounting.
The timetable is ambitious, with a first draft of the project expected by June 30 2013, followed by a public consultation period of two months and a final reform project presented to Parliament by October 2013.
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