On October 9, the Portuguese government presented the State Budget Proposal for 2026, which will be under discussion in Parliament during the coming weeks. Beyond announcing the end of the additional solidarity contribution on the banking sector and the extraordinary contribution on the energy sector related to the distribution and storage of natural gas – both with a ‘death sentence’ outlined by the Portuguese Constitutional Court – the State Budget Proposal does not introduce significant new measures. This is unsurprising, considering other ongoing tax legislative efforts, notably those focused on addressing the severe housing crisis.
However, the State Budget 2026 Report highlights the Portuguese government’s intention to phase out the tax benefit for investment in R&D funds, known as ‘indirect SIFIDE’. This announcement sparked immediate reactions, especially as it is perceived as a potentially precipitous and unreflective end to this tax benefit.
According to the report, a reduction in corporate income tax expenditure is expected as a consequence of the termination of indirect SIFIDE, ensuring, however, that any tax credit not deducted in 2025 for corporate income tax purposes may still be carried forward to subsequent fiscal years.
Currently, taxpayers who invest in participation units of R&D funds – investment funds primarily focused on investing in companies with high R&D intensity as acknowledged by the competent authority – are granted a tax credit corresponding to 32.5% of the investment expenditure on such units that can offset the corporate income tax due in one year or over the following 12 years. In recent years, the legislation regulating this tax benefit has imposed increased reporting and control obligations to ensure a proper link between the R&D activities performed by the companies and the investment in participation units.
The pressure to revoke indirect SIFIDE intensified with a report issued by the Technical Unit for the Evaluation of Tax and Customs Policies (U-TAX) in July. According to this body, a considerable amount of the investment is currently retained within the R&D funds and has not yet been effectively allocated to R&D activities.
In the State Budget 2026 Report, the Portuguese government estimates a decrease in budgetary expenditure of €124.2 million in 2026 (€162.6 million in 2027) if this tax benefit is revoked. But could this estimate have neglected key considerations?
The real cost of ending indirect SIFIDE
It is not enough to have a direct assessment of the reduction in corporate income tax expenditure; the evaluation must be comprehensive and anticipate the effects on the economy and the ecosystem of Portuguese companies that aim to engage in R&D. Recently, a study conducted by the Nova Economics for Policy Knowledge Center at the Nova School of Business and Economics concluded that this tax benefit brings many additional advantages to the Portuguese economy that offset the fiscal expenditure.
Indeed, indirect SIFIDE is a driver that channels significant private investment into entrepreneurship, energised by venture capital. The aforementioned study highlights that the “tax expenditure” is quickly recovered through the jobs created and profits generated, both in the invested in or investing companies. Moreover, indirect SIFIDE has revealed itself as one of the primary funding sources of startups, which often have early-stage high capital consumption, positively impacting the economy by transforming it into a more innovative and technology-driven environment.
A cornerstone of Portugal’s innovation ecosystem
Certain branches of deep tech – notably in strategic sectors such as biotech, aerospace, and defence, among many others – are only now gaining momentum in Portugal. This progress is being driven by a new generation of startups and specialised investment funds, many of which were made possible by national and European initiatives over the past decade.
The country is finally developing a deeply embedded culture of entrepreneurship, startups, and venture capital. From this perspective, the proposal to end indirect SIFIDE is cause for concern – particularly when considered alongside the scheduled conclusion, in December 2025 (with a possible extension under discussion), of the Capitalisation and Resilience Fund, which is channelled into the national ecosystem via Banco Português de Fomento under the Venture Capital (fund-of-funds) and Deal-by-Deal (co-investment) programmes, as well as the diminishing relevance of golden visas.
Reform or repeal? What’s next for R&D incentives
Is indirect SIFIDE fundamentally flawed, or should it be further regulated (and potentially restructured) to ensure funds are deployed efficiently and in a timely manner in strategic R&D? Only a comprehensive analysis will determine whether, on balance, this tax benefit has a positive effect on the Portuguese economy and, if it does, whether its premature end should be prevented.
