Portuguese patent box regime extended to include registered software copyrights

International Tax Review is part of Legal Benchmarking Limited, 1-2 Paris Garden, London, SE1 8ND

Copyright © Legal Benchmarking Limited and its affiliated companies 2025

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

Portuguese patent box regime extended to include registered software copyrights

Sponsored by

sponsored-firm-mlgts.jpg
lisbon-1973531.jpg

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

€600,000

€2 million

€2 million

Total taxable income

€2.6 million

CIT rate - 21%

€546,000

Municipal Surtax - 1,5%

€39,000

State Surtax

€33,000

Tax assessed

€618,000

Effective tax rates

10.3%

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

≥10%

France, Italy, Turkey, Spain, Slovakia, UK

Variable

San Marino, Switzerland

more across site & shared bottom lb ros

More from across our site

FTI Consulting’s EMEA head of employment tax and reward tells ITR about celebrating diversity in the profession, his love of musicals, and what makes tax cool
Canadian Prime Minister Mark Carney and US President Donald Trump have agreed that the countries will look to conclude a deal by July 21, 2025
The firm’s lack of transparency regarding its tax leaks scandal should see the ban extended beyond June 30, senators Deborah O’Neill and Barbara Pocock tell ITR
Despite posing significant administrative hurdles, digital services taxes remain ‘the best way forward’ for emerging economies, says Neil Kelley, COO of Ascoria
A ‘joint understanding’ among G7 countries that ‘defends American interests’ is set to be announced, Scott Bessent claimed
The ‘big four’ firm’s inaugural annual report unveiled a sharp drop in profits for 2024; in other news, Baker McKenzie and Perkins Coie expanded their US tax benches
Representatives from the two countries focused on TP as they met this week to evaluate progress under a previously signed agreement – it is understood
The UK accountancy firm’s transfer pricing lead tells ITR about his expat lifestyle, taking risks, and what makes tax cool
Dolphin Drilling intends to discuss the final liability amount and manner of settlement with HM Revenue and Customs
Winning the case against the 20% VAT imposition was always going to be an uphill challenge for the claimants, UK tax advisers argue
Gift this article