The Portuguese Government presented the State Budget Proposal for 2025. It will be discussed and negotiated in the Parliament. The final vote on the State Budget proposal is scheduled for 29 November 2024.

In this newsletter, we summarise the main tax changes contemplated in this proposal.

Personal income tax

The main proposed changes to Personal Income Tax (PIT) are the following:

• PIT brackets update. The PIT brackets will be updated according to the following table (pdf above).

• Youth PIT. The Youth PIT rules, which partially exempt young people's employment income (dependent or self-employed), are amended as follows:

- Young people up to the age of 35 will now be eligible;

- The condition of completing a cycle of studies no longer applies;

- The PIT exemptions extend to the first 10 years of income, with the following limits:

• 100% in the first year;
• 75% from the second to the fourth years;
• 50% from the fifth to the seventh years; and
• 25% from the eighth to the tenth years.

- The exempted income cannot exceed 55 times the value of the Social Support Index (“SSI”) (i.e. €28.009,30).

Taxpayers who (i) benefit or have benefited from the non-habitual resident regime, (ii) benefit or have benefited from the tax incentive for scientific research and innovation, (iii) have opted for the taxation applicable to former residents or (iv) do have tax debts will not be eligible.

• Meal allowance. The value of the meal allowance that is exempt from PIT, when given through meal vouchers, is increased from €9,60 to €10,20.
• Withholding tax on supplementary work. Income from overtime work obtained in Portuguese territory by non-residents will be exempt from withholding tax in respect of the first 100 hours (instead of the 50 hours provided for in 2024), with the 25% withholding tax applying to the part that exceeds that limit or number of hours. It is also planned that withholding tax will apply to 50% (and not all) of the monthly remuneration for overtime work.
• Withholding tax on self-employment income. The PIT withholding tax rate applicable to income from professional activities is reduced from 25% to 23%.
• Autonomous taxation. The reference value of light vehicles acquisition cost for the calculation of the autonomous taxation will be increased, with the rate of 10% being applicable when the costs are less than €30,000 (instead of €20,000) and the 20% rate being applicable when the costs are higher. Vehicles powered exclusively by electricity are not subject to this taxation.
• Advance payments. The total amount of advance payments due by self-employed persons will now be 65% (instead of 76.5%) of the legal basis.
• Specific deductions from employment income and pensions. How the specific deductions from category A and H income are calculated has been changed from a fixed amount of €4,104 (updated annually according to the value of the income) to a fixed amount of €4,104 (updated annually according to the value of the income).
• Minimum subsistence amount. The reference value for the minimum subsistence has been increased to the greater of €12,180 or 1.5 x 14 x SSI.

CIT

Regarding Corporate Income Tax (CIT), we highlight the following proposals:

• Reduction of CIT rate. Reduction of the general CIT rate from 21% to 20% and, in the case of small and medium-sized companies and small and medium capitalization companies, from 17% to 16% on the first €50,000 of taxable income.
• Health or sickness insurance costs.  Expenses associated with health or sickness insurance for employees and their families will be tax deductible at a rate of 120% when assessing the taxable net income.
  • Autonomous taxation. The rates of autonomous taxation for light passenger and cargo vehicles, as well as motorcycles, will be reduced by 0.5% and the cost limits will be increased by €10,000, as follows:

- For vehicles costing up to €37,500 (instead of €27,500) the rate will be 8% (instead of 8.5%);

- For vehicles costing between €37,500 and €45,000 (instead of €27,500 to €35,000) the rate is 25% (instead of 25.5%); and

- For vehicles costing €45,000 or more (instead of €35,000) the rate is 32% (instead of 32.5%).

It is also planned to exclude entertainment expenses related to shows from the scope of autonomous taxation.

VAT

In what concerns Value Added Tax (VAT), the following proposed changes stand out:

• Extension, until December 31, 2025, of the VAT exemption (with the right to deduct the tax) applicable to transfers of certain goods, when normally used in the context of agricultural production activities, such as fertilizers and soil improvers.
• Legislative authorization for the Government to amend in 2025 item 2.18 of List I annexed to the VAT Code to apply a reduced rate to the construction or rehabilitation works on residential properties, to be defined according to criteria established by members of the Government. Properties with a value exceeding the established limit will be excluded from the scope of this rate.

SPECIAL CONSUMPTION TAXES 

Rules on special consumption taxes will also be amended as follows:

PETROLEUM AND ENERGY PRODUCTS DUTY (ISP)

• Certain oil and energy products used in facilities subject to an energy consumption rationalization agreement will now be taxed at 100% instead of 65%.

TOBACCO TAX

• The total minimum reference tax to be applied to tobacco and in force each year will now correspond to the value of the national average tobacco tax.
• The tax on cigarillos will now be 50% of the minimum tax on cigarettes instead of 100%.

VEHICLE TAX (ISV)

• A rate of 25% will be applied to passenger cars registered in another EU Member State between 2015 and 2020 and with hybrid engines.
• When the taxpayer disagrees with the provisional assessment issued by customs, the fee for requesting a recalculation is waived.

REAL ESTATE TRANSFER TAX

In what concerns the Real Estate Transfer Tax (“RETT”), the State Budget 2025 Proposal provides an update of the brackets for calculating RETT applicable to the transfer of urban buildings or autonomous fractions of urban buildings intended exclusively for residential use.

STAMP DUTY

Regarding stamp duty, we highlight the extension to 2025 of the exemption applicable to certain mortgage loan restructuring transactions, as well as transactions to temporarily fix the instalment and capitalise deferred amounts.

SPECIAL CONTRIBUTIONS

The 2025 State Budget Proposal extends the following special contributions to the year 2025:

• Audiovisual contribution;
• Banking sector contribution;
• Banking sector solidarity surcharge;
• Pharmaceutical industry contribution; and
• Extraordinary contribution to suppliers of the National Health Service of medical devices.

TAX BENEFITS

The 2025 State Budget proposal includes the following proposed changes to the Tax Benefits Statute:

• Incentives for salary increases. The costs related to salary increases for workers with a permanent employment agreement will be considered at 200% (instead of the 150% foreseen for 2024), provided that the following conditions are met:

- The increase in the average annual base salary per employee is at least 4.7% (instead of 5%); and

- An average increase of at least 4.7% in the annual base salary of employees who are paid the company's average annual salary or less.

For this purpose, the expenses related to (i) workers covered by a Collective Bargaining Agreement signed or updated less than three years ago and (ii) amounts spent by the employer on the worker by way of base salary and social security contributions will be considered. The maximum deduction from taxable income per employee is increased to five times (instead of four times) the guaranteed minimum monthly salary.

• Incentives for the recapitalisation of companies. The 20% relief provided for capital contributions in cash to a company in which a shareholding is held, applied to the gross amount of profits or capital gains resulting from the sale of that shareholding, now covers any company and not only to companies with a loss of half their share capital. However, entities subject to supervision by the Bank of Portugal or the Insurance and Pension Funds Supervisory Authority, as well as branches in Portugal of credit institutions, other financial institutions or insurance companies, are excluded from this provision.
• Incentives for the capitalization of companies. An amount corresponding to the 12-month Euribor rate plus a spread of 2% (instead of 1.5%) can be deducted when determining taxable net income. This measure will now apply to any company, instead of being restricted to small or medium-sized enterprises or small-medium capitalization companies. The relief will be increased by 50% in 2025.
• PIT and social security exemption for performance rewards. If the employer complies, in 2025, with the conditions laid down for the application of the tax incentive for salary increase, there may be an exemption from PIT and social security contributions (SS) on the amounts paid in 2025 to employees as performance and productivity rewards, profit-sharing and balance-sheet bonuses, up to a limit of 6% of the annual base salary.

The Portuguese Voluntary Carbon Market (“VCM”) aims to achieve carbon neutrality by reducing Greenhouse Gas (“GHG”) emissions and sequestering carbon. The rules governing the management of this new market’s online platform have been published in three ministerial orders, complementing the guidelines outlined in Decree-Law n. º 4/2024, establishing the VCM, enacted in January of this year.

Ministerial Order n. º 241/2024/1, sets the general requirements for the online platform, allowing promoters—individuals and public and private organizations developing GHG emission reduction or carbon sequestration projects in Portugal—to submit their proposals.

The platform will enable market participants to register by creating an account. Initial and periodic validation of projects or programs will occur through reports submitted by the promoter. In a later phase, the platform will include functions for issuing, transferring, and cancelling carbon credits. Promoters will have these credits stored in their accounts, to convert Future Carbon Credits (“FCC”) into Verified Carbon Credits (“VCC”).

Ministerial Order n. º 239/2024/1 establishes the fees to be charged under the VCM by the supervisory and management entities of the registration platform. These fees include a one-time opening fee (€500 for companies and €50 for individuals) and an account maintenance fee (€120 for companies and €10 for individuals). Additional fees apply for registering carbon programs and projects (€0.2 per transaction) and for approving methodologies proposed by market participants, which can reach up to €3,000.

Ministerial Order n. º 240/2024/1, effective at the beginning of next year, defines the qualification criteria for independent verifiers of GHG emissions mitigation projects. ADENE, the Portuguese energy agency, under the supervision of the Portuguese Environment Agency, I.P., will be responsible for determining the qualifications of these verifiers, which will vary by sector—energy, industry, agriculture, land use, wetlands, marine areas, and waste.

This complementary regulation was essential for operationalising the MVC in Portugal, although there is still no date set for the new platform to go live.

© 2024 Macedo Vitorino

The low-voltage electricity grid in Portugal ("LV") is operated by private entities awarded with a concession granted by the municipalities. The exiting concessions were to expire between 2021 and 2022 but remained effective as the new tenders were not launched.

The former Portuguese Government announced earlier this year a calendar for the new public tenders which stipulated its launch until 30 June 2025.

This calendar is no longer applicable following the announcement of the Resolution no. 122/2024, of 2 September by the ruling Portuguese Government.

A new entity named the Low Voltage Coordination Commission (“LVCC”) has now been set. It will have as its more immediate responsibility preparing until 15 December 2024 a new calendar for the launching of the tenders.

The previous calendar stipulated that municipalities were to indicate whether they intended to launch the tender for the respective concession individually or as a group with other municipalities by 31 October 2024.

This date is no longer effective and therefore the uncertainty regarding the number of future concessions remains.

© 2024 MACEDO VITORINO

Following the presentation of the Economy Acceleration Program, the New Strategy for Housing and other initiatives from the Government and other parties, several acts on tax matters have been published. In this newsletter we summarize the main changes.

PERSONAL INCOME TAX (PIT)

• Reduction of the general PIT rates applicable to the first 6 income brackets between 0.25% and 1% (Law 33/2024).
• Automatic updating of the PIT brackets according to the rate of change in the gross domestic product deflator and the rate of change in GDP per employee (Law 34/2024).
• Updating the value of the specific deductions in income categories A (income from dependent employment) and H (pensions) in line with the increase of the Social Support Index (“IAS”), from €4.0104 to €4.350,24 (Law 32/2024).
• Increase in the PIT deduction of from housing rents effective 1st January 2025 from €600 to €800 (Law 36/2024).

PROPERTY TRANSFER TAX (PTT) AND STAMP DUTY

• Exemption from PPT and Stamp Duty on the purchase of housing by young people up to and including the age of 35 (Decree-Law 48-A/2024), which will be applied when the following conditions are met:

-         The property is intended for own and permanent habitation;

-         The price or tax value, if higher, is equal to or less than € 316,771; and

-         In the year of acquisition, the buyer is not considered dependent for PIT purposes;

VAT

• Increase of the electricity consumption limit to which the reduced VAT rate applies from 100 kWh (or 150 kWh, in the case of large families) to 200 kWh (or 300 kWh, in the case of large families), with effect from 1st January 2025 (Law 38/2024).

OTHER TAXES

• Parliament authorisation for the Government to repeal the extraordinary contribution on real estate allocated to short-term rental, with retroactive effects from 31st December 2023 (Law 35/2024).

Ministerial Ordinance 176-B/2024/1 approved the Incentive Scheme for Companies named ‘Grid Flexibility and Storage’, with funds from the Recovery and Resilience Plan (“PRR”), which aims to install at least 500 MW of energy storage capacity on the electricity grid (either at transmission or distribution level) by the end of 2025 with a total investment of €99.75 million. Please find below the main features of this subvention:

• All public or private legal renewable electricity producers are eligible for a non-refundable subsidy of up to 20 per cent of the eligible costs, with a maximum amount per project of €30 million.
• Allocation of subsidies will prioritize storage projects which will connect to licensed electricity production centers.
• Investments must be for the installation of BESS at grid scale with a nominal power of at least 1 MVA and that ensures charging and discharging at maximum power for a minimum of two hours, associated with independent production centers of an installed power of more than 1MVA, using renewable energy sources directly connected to the Portuguese electricity grid.
• Eligible expenses include: (i) costs related to the electricity storage systems, (ii) construction or adaptation of infrastructure costs, including auxiliary equipment and battery management and control systems and (iii) costs of technical assistance for the project and relevant awareness actions with the target public.
• Works must begin within 6 months of signing the acceptance terms with the Environmental Fund (Fundo Ambiental) of the Portuguese Energy and Environment Ministry and must be completed by December 31, 2025.
• The acceptance terms will define the payment schedule, which must be made upon presentation of proof of the expenses associated with the project.

The Tender Notice was published on the 31st of July. Applications must be submitted at the Portuguese Environmental Fund website by the 2nd of September 2024.

The Economy Acceleration Programme, approved by the Portuguese Government, contemplates 60 economic and tax measures aiming to promote the growth of Portuguese companies, develop new financing mechanisms and foster entrepreneurship. Among these measures, we highlight the following tax measures:

• Gradual reduction of the general corporate income tax rate by 2% per year until it reaches 15% (currently 21%) and gradual reduction of the special  SMEs rate applicable to the first €50,000 of net profit from 17% to 12.5%;
• Minimum corporate income taxation of 15% applicable to multinational groups and large national groups – implementation of Directive 2022/2523;
• Creation of a VAT group framework, which will allow the netting of VAT to be delivered to the State and to be reimbursed by the State;
• Increased eligibility of the cash VAT framework, allowing access to companies that have not reached a turnover of more than €2 million in the previous year (currently €0.5 million);
• Extension of the access to the "participation exemption", reducing the minimum holding requirement to 5% (currently 10%);
• Extension of the stamp duty exemption applicable to cash pooling transactions;
• Increase of the deductibility of financing expenses incurred in merger operations, with the increase of the threshold from €1 million to €2 million;
• Tax deduction of capital gains and dividends on assessment of personal income tax up to 20% of capital contributions in all capitalisations of companies;
• Creation of a current account between the Tax Authority and the companies that will later be extended to the public administration;
• Expansion of the list of qualified professions to which the personal income tax rate of 20% will be applied on income from categories A and B (dependent and self-employment work);
• Revision of the Tax Incentive System for Business R&D (the so-called "SIFIDE");
• Revision of the tax deductibility rules applicable to goodwill assets, extending the list of assets and operations covered by the deduction.

On May 27th, 2024, the Portuguese Government published three Resolutions on important investments to be implemented in the country, establishing the following:

1. The location of the new Luís de Camões Airport, in Alcochete, and rules for its construction (Resolution No. 66/2024);
2. Measures to strengthen the traffic capacity of Humberto Delgado Airport (Resolution No. 67/2024); and
3. A calendar for the completion of studies on the third Tagus crossing and the high-speed connection between Lisbon and Madrid, by Infraestruturas de Portugal, S. A., (Resolution No. 68/2024).

New Luís de Camões Airport

Luís de Camões Airport will fully replace Humberto Delgado Airport, although both will remain in operation while the construction of the new airport is not completed, to minimize the consequences of disruption to passenger air traffic.

ANA Aeroportos has 6 months to draft the initial report and 36 months to prepare the tenders for New Lisbon Airport, including a public consultation report; an environmental impact assessment; a financial report, and a technical report. 

Reinforcement of the traffic capacity of Humberto Delgado Airport

According to the report of an Independent Technical Commission (CTI), the new airport will not be operational before 2030, requiring the reinforcement of the current capacity of Humberto Delgado Airport to accommodate the growth of passenger traffic in the coming years.

This entails investments in the airport's subsystems: such as taxiways, airstrips, aprons, terminals, and accessibility; as well as an increase in the number of air movements. The Government has set up a monitoring group to work to achieve an annual traffic volume of 40 to 45 million passengers.  It also determined that investments at Humberto Delgado Airport should be limited to only those necessary, considering the temporary nature of the solution.

Third Crossing on the Tagus and High-Speed Rail

Infraestruturas de Portugal, S.A. is obliged to anticipate the conclusion of the studies on the main topological characteristics of the third crossing of the Tagus on the Chelas-Barreiro axis, by the end of 2024, to allow a final decision by the Government.

The emerging costs must receive European funding, through the Portugal 2030 Programme, in the amount of EUR 1,980,000, with the national counterpart being supported by funds to be included in the Activity Plan and budget of Infraestruturas de Portugal, S.A.

The third crossing of the Tagus will be developed in a road-rail model, and eventually a road component.

As for the financing model, and taking into account the multimodality of this infrastructure, as well as the existence of an autonomous concession model for the various crossings of the Tagus, it should be evaluated through a management solution that includes: (i) the construction of a new crossing and (ii) the operation and maintenance of the three crossings of the Tagus, once the term of the current concession has expired.