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The “Startup Visa” is an hosting program focused on foreign investors who wish to develop an enterprise or an innovative project in Portugal. Such entrepreneurs may apply for a residence authorization/visa if: 

• they have a real and effective interest in developing in Portugal an entrepreneurial project, including but not limited to the creation of innovation-based companies;
• the activity carried out through such project aims at the production of international and innovative goods and services;
• the project has potential to create qualified employment (at least 5 jobs in 24 months); and
• one or more “certified incubators” have shown interest in incubating the project.

A list of “certified incubators” will be made available to entrepreneurs on the IAPMEI’s website, during the month of February. These incubators will be responsible for validating the projects, for supporting the development of new businesses, for the provision of equipped spaces and for administrative and marketing assistance under an incubation agreement.

For each application, 5 residence authorizations/visas may be requested. The application can be submitted electronically in Portuguese or in English, to be examined by the IAPMEI. 

The benefits granted to entrepreneurs under the “Startup Visa” shall be in force until the end of the incubation agreement.

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Law 114/2017, which approved the 2018 State Budget (“2018 State Budget”), was recently published. In this newsletter we highlight the most relevant tax changes.

Personal Income Tax (PIT)
The main changes to PIT Code are as follows:

• The special surcharge (sobretaxa) of 3.5% was eliminated;
• Two new tax brackets, covering income between €7,091 and €10,700 and between €20,261 and € 25,000, were introduced and will be subject to lower rates of 23% and 35%, respectively; 
• Minimum threshold for PIT purposes is increased from €8,500 to €8,847.72, and will be linked to the Portuguese Social Support Index in 2018 onwards - business and independent professionals will start benefiting from this minimum threshold;
• Lunch allowances will be exempt up to €4.77, if paid in cash, or €7.63, if paid in “Meal Tickets”;
• "Education Tickets" granted by employers to their employees will be fully taxed as employment income;
• Lease rents paid by students (up to the age of 25) may be deducted in 30%, with certain limits (e.g. €300 per year) if students are displaced more than 50km from the permanent residence of their household;
• Business and independent professionals subject to the simplified tax regime (regime simplificado de tributação) will have to prove 15% of their business and professional expenses, as a condition for benefiting from the 25% PIT relief over their income; in addition, expenses which are only partially related to the business or professional activities, including (i) lease rents, (ii) 1.5% of the tax value of real estate assets or, in case of hotels or local accommodation, 4% of the tax value and (iii) other expenses with the purchase of goods and services, may only be considered in 25%;
• Income arising from services rendered to companies in which, for more than 183 days of the tax period, (i) the taxpayer holds, directly or indirectly, at least 5% of the respective shares or voting rights or (ii) the taxpayer, spouse or unmarried partner, and their ascendants and descendants collectively own, directly or indirectly, at least 25% of their respective shares or voting rights, will be fully taxed;
• Taxation of capital gains arising from the allocation of personal real estate assets to a leasing activity will be deferred until such activity ceases;
• Non-resident taxpayers may opt to be taxed over real estate income at the marginal rates applicable to Portuguese residents, provided that they are residents in another Member State of the European Union or of the European Economic Area subject to a tax information exchange scheme; and
• Capital gains arising from the disposal of shares or similar rights in companies or other entities without head-office or effective place of management in Portugal will be subject to PIT if:
  - During the 365 days prior to disposal, the value of the shares arises, directly or indirectly, in more than 50%, from real estate or rights in rem over real estate located in Portugal; and
  - The relevant real estate assets are not allocated to agricultural, industrial or commercial activities (other than the purchase and sale of real estate).

Corporate Income Tax (CIT)
The main changes to CIT Code are the following:

• State surcharge (derrama estadual) is increased for profits above €35,000,000 (from 7% to 9%) and, consequently, the special advance payment is also increased (from 6.5% to 8.5%);
• Autonomous taxation may not be deducted even if such deduction results from special legislation;
• Irrecoverable debts may be deducted as expense even if recognized in previous tax years;
• Pharmaceutical industry special contributions, like other special contributions, may not be deducted;
• Companies to adopt criteria in the allocation of expenses to permanent establishments located outside Portuguese territory;
• Mandatory assessment of CIT by tax authorities until 30 November in the event of non-delivery of annual tax returns (or until the 6th month after the deadline);
• Automatic extension, for periods of one year, of the option to apply the limitation on deductibility of net financing expenses on a consolidated basis;
• Extension to 2018 of the rules applicable to the taxation of internal works;
• Waiver of the delivery of annual tax returns (modelo 22) by entities that do not earn any income subject to CIT, provided that they are not subject to autonomous taxation; 
• Mandatory disclosure in the annual tax returns (modelo 22) of the buildings held by companies that are allocated to the personal use of their shareholders, members of corporate bodies or any administrative, management or supervisory bodies, or any of their spouses, ascendants and descendants;
• Capital gains arising from the disposal of shares or similar rights in companies or other entities without head-office or effective place of management in Portugal will be subject to CIT if:
  - During the 365 days prior to disposal, the value of the shares arises, directly or indirectly, in more than 50%, from real estate or rights in rem over real estate located in Portuguese territory; and
  - The relevant real estate assets are not allocated to agricultural, industrial or commercial activities (other than the purchase and sale of real estate);
• Companies will be obliged to adopt IT accounting systems and to keep the related documentation for 10 years;

Value-Added Tax (VAT)
The main changes to the VAT Code are the following:

• VAT in respect of irrecoverable debts will be recoverable if the insolvency proceeding ceases due to insufficient assets or if, after final distribution, the debt remains unpaid; 
• Real estate rehabilitation contracts entered directly with the National Urban Rehabilitation Fund will be subject to VAT at the reduced rate of 6%; and
• Threshold of the VAT exemption applicable to the transfer of goods to outside the European Union by non-resident taxpayers is reduced from €75 to €50.

Stamp Duty

The Stamp Duty Code is also amended, including:

• Increase of 0.1% in the rates applicable to consumer loans governed by Decree-Law 133/2009, on top of the increase approved in 2017; 
• Mandatory monthly reporting of transactions subject to stamp duty; and 
• Taxation of the insured, in contributory group insurance, in proportion to the premium.
  

Real Estate Transfer Tax (RETT)
The main changes to RETT Code are as follows:

• Granting of irrevocable powers of attorney for the disposal of shares in closed-end real estate investment funds will be subject to RETT; and
• Statutory limitation to the charge of RETT by tax authorities is increased from 8 to 12 years in case of taxpayers resident in a country, territory or region subject to a clearly more favorable tax regime.

RETT Additional
With regard to the additional to RETT:

• Certain buildings whose owners are housing and construction cooperatives, associations of residents or condominiums, will become exempt of RETT Additional under certain conditions; and
• Married and unmarried couple taxpayers may opt to be jointly taxed under RETT Additional until 120 days after the deadline for payment of the tax; this option will remain in force until they state otherwise.

Tax Benefits
In terms of tax benefits, the following changes should be highlighted:

• Retained/reinvested earnings: the period for reinvestment of retained earnings is increased from 2 to 3 years and the maximum amount is increased from € 5 million to €7,5 million; for micro and small enterprises, the deduction is increased from 25% to 50% of the taxable amount.

• Share capital remuneration: the 7% tax relief is extended to contributions in kind consisting of the incorporation of debts of any nature.

• Recapitalization: cash injections made pursuant to article 35 of the Portuguese Companies Code may be deducted (up to 20%) to the distributed profits and capital gains obtained by individuals in the year of the injections and in the following 5 years.

• Historical stores: buildings recognized by municipalities as establishments of local historical, cultural or social interest and which form part of the national inventory of establishments of this nature will be exempt from Real Estate Tax (RET).

• Urban rehabilitation: tax benefits will apply to urban buildings or apartments completed more than 30 years ago or located in urban rehabilitation areas; subject to certain conditions, the incentives will include, inter alia, RETT exemption, RET exemption during a certain period and flat rate of 5% over capital gains.

• Corporate reorganizations: tax benefits applicable to corporate reorganizations or cooperation agreements (e.g. RETT and stamp duty exemptions) are no longer subject to the approval of the member of the Government responsible for finances; however, companies must keep in their tax documentation files the grounds and evidence of the satisfaction of the exemption conditions.

• Corporate insolvency and recovery: the income, gains and positive variations arising from the payment in kind, the assignment of assets and rights to creditors and the sale of assets and rights of the insolvent will be exempt from PIT and CIT, if the insolvency proceeding ends in liquidation.

In addition to these changes, the Government was authorized to approve new PIT and CIT tax benefits, including (i) exemption of real estate income for taxpayers who join the affordable lease program (programa de arrendamento acessível) or (ii) lower tax rates applicable to taxpayers entering into long-term lease agreements.

By June 2018, the Government should present a bill to implement the conclusions of the report on the assessment of certain tax benefits.

Other amendments

Among other changes, we should also highlight the waiver of bonds required in installments payment schemes if the tax amount due is less than €5,000, in case of individuals, or €10,000, in case of companies.

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The Portuguese President recently ratified the Trade Agreement between Canada and the European Union (CETA), after its approval by the Portuguese Parliament on September 20, 2017.

CETA aims at (i) strengthening the close economic relationship between the parties, (ii) establishing clear, transparent and mutually advantageous rules governing investment, and (iii) reducing custom duties. European companies can now benefit from new opportunities and have secured easier access to Canadian public procurement. On the other hand, CETA creates new opportunities for farmers and food producers (including exports of Portuguese non-food goods to Canada), with an expected reduction of 90.9% in Canadian customs duties, which facilitates products exports such as wine and cheese.

Nevertheless, CETA has met the resistance of several European countries, as it provides for the establishment of arbitration courts to resolve disputes between multinationals and governments that will prevail over judicial courts, the rules of each national legislation and over EU law.

In Portugal, CETA provisionally entered into force on 21 September 2017, being still subject to the approval of all member countries of the European Union to become fully effective.

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An international public tender is expected to be published in both the Portuguese and European Union official journals on the second half of 2017 to select a private partner for the development of a new Hospital Centre in Lisbon (Hospital de Lisboa Oriental, hereinafter the “Hospital”) under a Public-Private Partnership (“PPP”).

The new Hospital intends to replace the hospital units of São José, Curry Cabral, Santo António dos Capuchos, Dona Estefânia, Santa Marta and the Alfredo da Costa Maternity.

The PPP’s project will have as scope the design, financing, construction and maintenance of the Hospital´s infrastructures. Clinical health services and heavy medical equipment shall be borne by the State.

After the publication date of the international public tender, competitors will have a six-month deadline to submit their tender proposals, being subsequently selected 2 to 3 competitors for a negotiation phase. The selection of the candidates will be based on two main criteria:

(i) Price: corresponding to the net present value, as at December 2019, of the private partner’s consideration provided at the tender proposal; and

(ii) The project’s technical quality: with 13 evaluation factors and a total of 88 specific features.

The PPP will have a 30-year term, which includes a 3-year term for the construction of the Hospital and a 27-year term for the maintenance of the infrastructure.

This project is expected to require a €300 million investment from the private partner and it shall have an estimated annual remuneration of €16 million to be paid by the State once the Hospital has been built.

The construction of the new Hospital located in the parish of Marvila is scheduled to start in January 2020, and will have a gross construction area of approximately 180,000.00m², with a total capacity of 875 beds and a 2,945 parking spaces to be operated by the private partner.

The Hospital is due to start operating in 2023.

Foreigners wishing to start a professional activity in Portugal have easier conditions to acquire a residence permit with the new Portuguese legislation enacted yesterday.

Those who do not have a valid residence visa may:

• apply for a residence permit, through the SEF website or before a SEF regional delegation; and
• apply for a residence permit only with a promised employment agreement.

Also, expelling undocumented foreigners already living in Portugal with minor children and with effective parental responsibilities (e.g. providing them support and education), even if the minors are third-country nationals, is no longer possible.

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The Portuguese Government approved Decree-Law 81-C/2017, which establishes the rules applicable to the intermediation and the provision of advisory services in consumer credit agreements .

Unlike most European Union countries, Portugal had failed to implement Directive 2014/17/EU on credit agreements for consumers relating to residential immovable property (Mortgage Credit Directive) and had not yet regulated the activity of credit intermediaries.

Under the new rules, the Bank of Portugal will play a leading role and will be responsible for the prior authorisation and the supervision of credit intermediaries and advisors.

Among other powers, the Bank of Portugal will be responsible for (i) authorising the exercise of these activities, (ii) creating and updating the credit intermediaries’ registry database, (iii) controlling compliance with the applicable rules, (iv) issuing regulations, (v) assessing consumer complaints and (vi) applying sanctions.

Under the contemplated authorisation procedure, the Bank of Portugal must take a decision within 90 days as of submission of the application. The deadline may be extended to 180 days if the Bank of Portugal requests additional information to the applicant.

Credit intermediaries will be divided into the following three categories taking into account their relationship with the creditors or the consumers and whether they carry out another activity:

• Tied credit intermediary;
• Non-tied credit intermediary; and
• Credit intermediary in an ancillary capacity.

Tied credit intermediaries and credit intermediaries in an ancillary capacity – which will include suppliers of goods and service providers – must enter an agreement with a creditor or a group of creditors, will act on their behalf and under their full responsibility and cannot receive any remuneration from consumers.

Non-tied credit intermediaries must enter into an intermediation agreement with the consumers and cannot receive any remuneration from the creditors.

The new rules will enter into force on 1 January 2018. Notwithstanding, any persons or entities that already carry out a credit intermediation activity on the date the new rules enter into force may continue exercising this activity, without an authorisation, for a period of 12 months. During this transitional period, the applicable conduct, information and assistance duties must be complied.

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A recent amendment to the Water Law stipulates that multi-municipal systems are to remain under public control and may only be granted under concession to public owned or controlled companies, while municipal systems may be managed by public-private partnerships or by private entities. Consequently, and to this extent, Portugal remains partially open to international water sector private investors.

The new rule implies the reversal of the reorganization of the water sector that resulted in the merger of 19 multi-municipal systems into 5 large companies, initiated by Mr. Passos Coelho’s social democrat government.  The current government intends to merge municipal systems serving less than 20.000 users and, for that purpose, maximize the use EU structural funds allocated to Portugal.

Portuguese multi-municipal water systems encompass the collection, purification and distribution of water and are connected to municipal systems which, in turn, link the multi-municipal systems to end users. In Portugal, the State is responsible for the multi-municipal systems and municipalities are responsible for the municipal systems. For a better understanding of the Portuguese water sector, please refer to our publication The Water Market in Portugal.

From 3 July 2017, the process of acquiring Portuguese nationality will be faster and more predictable.
The streamlining of the process is due to the measures introduced by Decree-Law no. 71/2017, of 21 June, namely: 

• The attribution to the Central Registry Office (Conservatória dos Registos Centrais) of the possibility to conclude that the applicant has ties to the Portuguese community (previously, such competence was assigned to the member of the Government responsible for justice);
• The creation of presumptions of effective connection to the Portuguese community and knowledge of Portuguese language; and  
• The waiver of presentation of the applicant’s criminal record of his country of birth or his country of nationality when the applicant has not lived there after completing 16 years.

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As from July 2017, issuers, intermediaries and management entities will be subject to new rules arising from the implementation of directives relating to transparency requirements (Directives 2013/50/EU and 2007/14/EC), prospectus (Directive 2003/71/EC) and criminal penalties for market abuse (Directive 2014/57/EU and Implementing Directive 2015/2392).

The implementation was approved by Law no. 28/2017, of 30 May, which also amended the Portuguese Securities Code (Securities Code) in order to adapt it to Regulation (EU) no 596/2014 on market abuse (Market Abuse Regulation) and appointed the Portuguese Securities Market Commission (Comissão de Mercado de Valores Mobiliários - CMVM) as the competent authority to ensure the application of the Market Abuse Regulation in Portugal.

Among other changes, new administrative offences and crimes were added, some penalties were aggravated and some duties, requirements and limitations are now cross-referred with those established in the Market Abuse Regulation, including (without limitation) regarding investment recommendations, market abuse, inside information or managers’ transactions and duty to report suspicious transactions.

As an example of the aggravation of the penalties, in a case of market manipulation the maximum penalty increased from five to eight years of imprisonment if the relevant conduct causes an “artificial” change in the regular operation of the market.

For less serious administrative offences, the applicable fines increased from 2,500€ and 5,000€ to 5,000€ and 1,000,000€, respectively.

The statutes of limitation in the case of very serious administrative offences were also increased from five to eight years and the following ancillary penalties were added: (i) suspension of dealing on financial instruments for its own account and (ii) cancellation of registration or revocation of the authorisation for the exercise of functions in entities supervised by the CMVM.

In addition to these changes, greenhouse gas emissions allowances will also be subject to Securities Code rules. As a result, transactions involving these instruments and parties to these transactions will be subject to the supervision of the CMVM, as well as to the new sanctions contemplated in the Securities Code, starting as of 2 January 2018.

Finally, benchmark indexes and spot commodity contracts will also be subject to market manipulation prohibition set out in the Market Abuse Regulation and, consequently, to the supervision of the CMVM and the sanctions now contemplated in Securities Code.

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As from today, 4 May, bearer securities will no longer be permitted in Portugal and any existing bearer securities must be converted into nominative securities within the next 6 months.

Pursuant to Law no. 15/2017, enacted today, terms applicable to the conversion of bearer securities into nominative securities will be defined under a specific regulation to be enacted within 120 days. In case this regulation is issued towards the end of this 120-day period, entities may, in practical terms, have less than 6 months to complete the required conversion.

Once the 6-month period has elapsed, transfer of bearer securities will not be permitted. In addition, rights of the holders of bearer securities to receive any dividends in respect of such securities will be suspended.

Bearer securities, such as, for example, bearer shares of a limited liability company, belong to whoever holds the relevant share certificate. Unlike nominative securities, the issuing entity is not able to identify to the owner of bearer securities nor to track transfers of ownership.

The prohibition of bearer securities now enacted aims at controlling and preventing money laundering and tax evasion by ensuring that ultimate beneficial owners of investments and assets may be identified.