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Portuguese patent box regime extended to include registered software copyrights

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Nicole Ribeiro da Rosa of Morais Leitão explains why Portugal’s patent box regime may be one of the most attractive in Europe.

Tax systems are often oriented to promote investment in a particular area. Patent box regimes are one of the most notable examples thereof in that they aim to foster a knowledge-based economy by foreseeing reduced income tax rates to income deriving from R&D activities which produce patents, designs, models, or software rights.

In 2020, 14 out of 27 member states in the EU offered a patent box incentive, certainly with the view to encouraging and attracting the investment in innovation and value-added activities.

Portugal introduced this regime in 2014, with the reform of the Corporate Tax Code, which added Article 50-A to that legal instrument. Initially, the favourable tax treatment was only applicable to income generated through a reduced array of intangibles, namely industrial property rights (patents and industrial designs and models) and consisted in deducting 50% of the gross income deriving therefrom to the taxable profits (the regime was later changed to apply to the net income produced by covered intangibles).

With the State Budget for 2020, the scope of the regime was extended to include registered software copyrights, which made it much more inclusive and aligned with a current value creation trend in the Portuguese economy.

To benefit from the regime, companies must meet certain cumulative requirements which may not be very straightforward, such as (i) using the covered intangibles in a commercial, industrial or agricultural activity; (ii) having separate accounting records for the activities carried out in connection with the covered intangibles; and (ii) the purchaser or user of the covered rights not being domiciled in a tax haven.

In a clear demonstration that it wants to change the paradigm of Portugal as just a country of sun and sea, the Portuguese government introduced in the Budget Proposal for 2022 a very important boost to the regime by increasing the tax deduction from 50% to 85% of the income deriving from covered intangibles, which means that with a corporate tax (and surcharges) at normal effective rates between 21% and 29% this type of income can enjoy effective rates between 3.15% and 4.35%.

It is also noteworthy that Article 50-A of the Corporation Tax Code the income to which the incentive is applicable is assessed by applying the ratio between (i) the total R&D expenses incurred by the company itself, excluding expenses with acquisitions to related entities; (ii) and the total R&D expenses incurred by the company (i.e. the modified nexus approach), but the value of (i) is increased in 30% up to the point where the ratio is 1.

It may be useful to illustrate how the regime works with an example (considering the proposed change in the aforesaid Proposal):

Suppose that a company has a total income €10 million, of which €5 million from patent box qualifying activities and it has total expenses of €4 million, of which €1 million are connected with patent box qualifying activities. The results of applying the Portuguese patent box regime for this company would be:

Determination of the amount of corporation tax

Patent box regime

General regime

Gross income

Expenses from non-qualifying activity

€5 million


€5 million

- €3 million

Expenses from qualifying activity

- €1 million


Net income

Taxable income

€4 million


€2 million

€2 million

Total taxable income

€2.6 million

CIT rate - 21%


Municipal Surtax - 1,5%


State Surtax


Tax assessed


Effective tax rates


If we consider the proposed new patent box effective corporate tax rate and the rates provided for by other European countries with similar regimes, Portugal will be among those with the best effective rate (considering the rates in force in 2020):

Effective Tax Rates

< 5%

Portugal, Andorra, Belgium, Cyprus, Hungary, Luxembourg, Malta

≥5% e < 10%

Netherlands, Ireland, Lithuania, Poland


France, Italy, Turkey, Spain, Slovakia, UK


San Marino, Switzerland

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