Last January 10th, 2024, Council Regulation (EU) 2024/223 of December 22, 2023 ("Regulation 2024") amended and extended the rules in Council Regulation (EU) 2022/2577 of December 22, 2022 ("Regulation 2022") for the granting licenses for renewable energy production.
These are the main highlights of this new regulation:
(1) Member States must ensure that, for projects of overriding public interest, priority is given in the licensing procedure to the construction and operation of renewable power plants and the development of related grid infrastructure;
(2) For other power production projects to benefit from the prevailing public interest there can be no alternative or satisfactory renewable solutions;
(3) Licensing for the repowering of renewable energy plants in renewable energy zones and of the related grid infrastructure necessary to integrate renewable energy into the electricity system cannot exceed 6 months. If the plant’s capacity increase does not surpass 15%, the permit-granting process for the grid infrastructure is reduced to 3 months;
(4) The process of licensing the installation of solar energy equipment and co-located energy assets in existing or future structures may not exceed 3 months, provided that the main purpose of such structures is not the production of solar energy. The installation of such solar equipment is exempt from a case-by-case decision to carry out an environmental impact assessment.
Regulation 2024 will have, once in full force and effect (1st July 2024), an impact on the Portuguese regulatory framework, because:
a) The time DGEG (the Portuguese energy ministerial department) has now to amend the permits of a project to allow its repowering as set out in the National Electricity System Law (Decree-Law no. 15/2022), including the obtaining of the required opinions of external entities, cannot exceed 6 months;
b) Solar energy projects’ not reaching the mandatory thresholds (generating capacity ≥50 MW or the area occupied by panels and inverters is ≥100ha, or, in case it is installed in sensitive areas, has a generating capacity ≥20 MW or the area occupied by panels and inverters is ≥10ha) cannot now be required by DGEG or by APA (the Portuguese environmental agency) to conduct a case-by-case environmental impact assessment, no matter their potential environmental impact and location of the project.
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Portugal took the first relevant step in setting up the Voluntary Carbon Market ("VCM") with the publication of Decree-Law 4/2024 (“VCM Regulation”), following a public consultation between 8 February and 11 April 2023. The creation of this market aims to prevent greenwashing in the acquisition of carbon credits and to increase investor confidence when the European Union is developing its proposal for regulating VCMs. The VCM Regulation, although already incorporating EU principles, contemplates the eventual need for adaptation to new European legislation that may be approved. To register projects in the VCM, promoters of greenhouse gas ("GHG") emission reduction projects or carbon sequestration projects in Portugal must submit them at an online platform, which has yet to be created, with a report detailing (i) the start and minimum duration of the project, (ii) the method used to quantify GHG emissions or carbon sequestration, (iii) the identification of possible externalities and the conditions for monitoring GHG emissions. Each project must also be validated by a duly qualified independent verifier using criteria yet to be defined by Ministerial Order. According to the VCM Regulation, credits are generated by reducing GHG emissions or sequestering carbon, whereby reducing emissions, or sequestering 1 ton of CO2 generates 1 carbon credit. In turn, those unable to reduce their emissions can voluntarily purchase carbon credits. In this way, they compensate for their emissions by financing GHG emission reduction projects. Credits can take two forms:
Projects submitted to the Portuguese VCM cannot be submitted to other similar national or international trading systems. The Portuguese VCM start of operation is expected in 2024 once the online platform and ancillary legislation are in place, but the current political outlook makes it difficult. |
PERSONAL INCOME TAX
Regarding Personal Income Tax (PIT), the Parliament approved the following changes in addition to the changes contained in the Government's proposal:
- Statement of foreign income and assets. The 2024 State Budget establishes that the income subject to flat rates or not subject to PIT, more than €500, must be reported in the annual tax return, as well as the assets held in countries, territories, or regions with a clearly more favorable tax regime.
- Partial deduction of domestic worker's remuneration.The 2024 State Budget establishes a tax relief equal to 5% of the amount paid by any member of the household as remuneration for domestic work, with an overall cap of €200.
- Increased deduction of rents. The tax relief in respect of rents paid for permanent residence property, relating to lease agreements entered under the Urban Lease Framework, will be subject to a cap of €600 instead of the current cap (€502).
- Non-habitual residents. Despite the revocation of this regime, the 2024 State Budget allowed the registration as a non-habitual resident until 31 December 2024, provided that the non-resident submits one of following documents:
- Promissory employment agreement signed by 31 December 2023;
- Visa or residency permit valid until 31 December 2023;
- Visa application submitted by 31 December 2023;
- Lease agreement in respect of a property located in Portuguese territory signed until the 10th of October 2023;
- Reservation contract or promissory agreement for the acquisition of real estate located in Portuguese territory signed until the 10th of October 2023; or
- Enrolment or registration for dependents in an educational establishment domiciled in Portuguese territory completed until the 10th of October 2023.
- Progressive withholding tax rates applicable to independent workers.The 2024 State Budget requires the Government to implement the necessary software changes to apply progressive withholding tax rates to independent workers. However, for the time being, the current withholding tax rates will remain the same.
CORPATE INCOME TAX
Concerning Corporate Income Tax (CIT), no changes have been approved between the proposal and the 2024 State Budget.
VALUE ADDED TAX
As to Value Added Tax (VAT), the following additional changes were approved:
- VAT refund in congress, fair and exhibition organization activities. Entities whose main economic activity is the organization of fairs, congresses, and other similar events and/or travel agencies can now benefit from a total or partial refund of the VAT paid. This refund will only apply to expenses relating to the organization of congresses, fairs, exhibitions, seminars, conferences, and similar events.
- No duplication of VAT refunds. VAT refunds to private social solidarity institutions, the Armed Forces, security forces and services and firefighters will only occur in the following cases, to avoid duplication of benefits:
- The input VAT is not deductible; and
- The equivalent amount has not been refunded under another tax scheme.
SPECIAL CONSUMPTION TAXES
Concerning Special Consumption Taxes, we highlight the following changes:
- Products used in the production of electricity, electricity and city heat or gas (except biofuels, biomethane, green hydrogen, and other renewable gases): Products falling within CN code 2707 99 99, consumed in the Autonomous Regions of the Azores and Madeira and used in the production of electricity, electricity and heat (cogeneration), or city gas, by entities that carry out these activities as their main activity, will also be taxed at a rate corresponding to 75% of the ISP rate and with a rate corresponding to 75% of the additional charge over CO2 emissions. It is also set to rise to 100% on 1 January 2025.
- Tax on alcoholic beverages. Regarding the tax for consumption in the Autonomous Region of Madeira on spirits, the increase in the tax to 1,379.07 euros/hl was eliminated.
IUC
Regarding the Single Circulation Tax (IUC), the Parliament revoked the Government’s proposal foreseen for passenger cars and mixed-use vehicles registered between 1981 and June 2007 and for motorbikes, mopeds, tricycles, and quadricycles registered since 1992 due to carbon emissions as well as the maximum ceiling for the annual increase in category "A" and "E" taxes of €25.
RETT and MPT
Regarding the Real Estate Transfer Tax (RETT) and the Municipal Property Tax (MPT), no changes were made to the Government’s proposal.
STAMP DUTY
Regarding Stamp Duty, we highlight the following changes:
- Donations between family members. Donations between spouses or civil partners, descendants, and ascendants, up to the amount of €5,000, are now expressly excluded from the taxable basis of stamp duty. However, the exemption applicable to gratuitous transfers (donations and heritages) between spouses or civil partners, descendants, or ascendants, will remain regardless of the amount.
- Stamp duty exemptions on State transactions. The State will be exempt from stamp duty on transactions carried out through the General Directorate for Treasury and Finance, regardless of who is liable for the tax.
SPECIAL CONTRIBUTIONS
In what concerns the Special Contributions, the final version of the 2024 Budget State establishes that transport operators that are part of economic groups that operate in the refining or storage of crude oil or petroleum products will be subject to the extraordinary levy on the energy sector regardless of the percentage of total annual turnover.
TAX BENEFITS
Regarding Tax Benefits, we highlight the following changes:
- Incentive to companies’ capitalization. The deduction ceiling of €2,000,000 was increased to €4,000,000.
- Incentive to scientific research and innovation. Taxpayers who become tax residents and have not been residents in any of the previous five years may benefit from a flat rate of 20% over employment and self-employment for a 10-year period provided they are:
- Employees or members of corporate bodies in legal entities recognized as centres of technology and innovation;
- Members of corporate bodies in companies that benefit from investment contractual benefits;
- "Highly qualified" employees in (i) companies with relevant investments that benefit or have benefited from investment tax benefits and (ii) industrial and service companies that export at least 50% of their turnover;
- Qualified employees and members of corporate bodies in entities that carry out economic activities recognized by AICEP, EPE, or IAPMEI, IP as relevant to the national economy;
- Personnel whose costs are eligible under the R&D tax incentive system;
- Employees and members of corporate bodies in start-ups; and
- Employees or other professionals developed in the autonomous regions, to be defined by the respective regional governments.
- Benefits Applicable to the Entities Licensed in the Madeira Free Trade Zone. These benefits will be extended for one year, covering the income earned between 1 January 2015 and 31 December 2024, continuing to be taxed at a rate of 5% until 31 December 2028.
- Incentive to the Sale of Property to the State. The PIT and CIT exemption will apply not only to the capital gains from the sale of the property to the Portuguese State, autonomous regions, public housing companies, and local authorities, but also to the sale of land for construction to these entities.
For more information on the other tax changes introduced by the 2024 State Budget, click here.
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Portugal has recently transposed Directive (EU) 2019/2121, of 27 November 2019 ("Directive") on cross-border conversions, mergers and divisions of commercial companies, that amended Directive 2017/1132, of 14 June 2017 ("Directive (EU) 2017/1132"), on mergers and divisions of public limited liability companies at national level and cross-border mergers of limited liability companies at European level. This has been done through Decree-Law no. 114-D/2023, of 5 December ("Decree-Law") which made changes to the rules of the Commercial Companies Code, to the Commercial Registry Code and to Decree-Law no. 24/2019 on cross-border transformations, mergers and divisions, to be applicable within the European Union; removed restrictions on the exercise of freedom of establishment, and added protection to employees, creditors and shareholders in those actions. Of those changes, we highlight the following:
This Decree-Law will enter into force on 4th January 2024. |
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The Portuguese Energy Secretary of State, on November 28, 2023, issued the Ministerial Ordinance 397/2023 disclosing the model documents for the public tender procedures to award low-voltage ("LV") electricity distribution concessions in Portugal. The Decree-Law 15/2022 of 14 January 2022, known as the Portuguese Electricity System Law, empowers municipalities to manage low-voltage (LV) electricity distribution through concession contracts lasting for a period of 20 years. The Ordinance provides the instruments that municipalities must use when launching tenders for such concessions. The tender procedures will be divided into two phases: first, a qualification phase for the submission of applications; and a second phase for the submission of proposals by the candidates who have qualified in the initial phase. Regarding the award criteria, tenderers will be evaluated based on the criterion of the most economically advantageous tender for the contracting authorities, so no base price has been established. The discussion on the size of the concessions has a long history. Law 31/2017, of 31 May 2017, established that a territorial delimitation criterion will determine the number of competitive procedures to be launched. In 2019, the Energy Services Regulatory Authority ("ERSE") proposed a territorial delimitation in three regions of the country (North, Centre, and South), indicating that there will be three competitive procedures. However, municipalities have the power to decide on the territorial delimitation proposed by ERSE. If they choose to establish a different territorial area, they must demonstrate significant advantages for the public interest in doing so. These tenders were initially planned for 2019 because most of the concession contracts were set to expire between 2021 and 2022. Extensions have been granted to the concessionaires in the meantime. The publication of the model tender documents is a first step, but there is no indication of when the tender for awarding LV electricity distribution concessions will take place. So, it is unclear if this will happen soon or if stakeholders will continue to wait for a long period for their opportunity in this market. |
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The call for expressions of interest on the offshore wind energy auction has closed and, as of yesterday, the list of entities interested in participating in the competitive procedure is already available on the website of DGEG, the Portuguese energy ministerial department. Fifty companies from over 10 countries have expressed their interest in participating in the auction. This includes utilities such as Iberdrola, Repsol, GALP and TotalEnergies and developers such as GreenVolt, BlueFloat, Acciona and Cerulean Winds. All these companies will be invited to participate in the dialogue phase, the details of which are still unknown. This phase will run until January 2024, allowing the Portuguese Government to understand the specific intentions of each group and only then formulate the specific terms of the auction. There is a high level of uncertainty about how the government’s fall and the general elections scheduled for March 10, 2024, will impact the auction’s structure and timeline. However, government officials have recently announced a two-phase auction. The first phase, involving maritime space rights, will begin in early 2024. The date for the second phase, which involves the allocation of grid connection rights and the CfD, is yet to be determined. |
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On 18th October 2023, Directive (EU) 2023/2413 of the European Parliament ("Directive") was published, amending Directive (EU) 2018/2001, Regulation (EU) 2018/1999 and Directive 98/70/EC regarding the promotion of energy from renewable sources, and revoking Council Directive (EU) 2015/652. The Directive enters into force on 20th November 2023 and aims to reduce greenhouse gas emissions, energy dependence and energy prices through strategies that must be adopted by the Member States. We highlight the following: (1) Member States should provide a framework facilitating the purchase of electricity from renewable sources, removing obstacles to the supply of electricity from renewable sources, such as those related to licensing procedures, and addressing the development of the necessary transmission, distribution and storage infrastructure for renewable energy; (2) To increase the share of renewable energy used by the construction sector, Member States should set target for 2030 and introduce appropriate measures in national regulations for this purpose (for instance requiring the use of minimum energy from renewable sources); (3) Member States should identify areas in their national territory with potential for speeding-up the development of renewable energy projects (on land, artificial surfaces, inland waters and at sea); (4) Member States should establish appropriate polices and measures to increase the share of renewable sources consumed by the industry sector; and (5) Member States should require relevant economic operators to enter data on the transactions carried out and the sustainability characteristics of the fuels used, including their greenhouse gas emissions, in the Union database, as well as ensure the accuracy of such data. Member States are required to execute this directive until 21st May 2025. |
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The call for expression of interest in the offshore wind auction announced by the Portuguese Government at the beginning of October is now open. Interested parties will be invited to participate in a dialogue phase aimed at discussing multiple options related to pre-qualification and bidding models. The purpose of the auction is to award a title for the reservation of injection capacity in the Portuguese public electricity grid for the generation of electricity by offshore wind power plants located at sea and allocate seabed rights for the use of the national maritime space. The auction will encompass the areas defined in the draft Allocation Plant for Offshore Renewable Energies (PAER), which is currently under public consultation and be accessed via ConsultaLEX Portal or the PARTICIPA Portal. Expressions of interest must be submitted to the Portuguese Directorate of Energy (DGEG) until 14 November via email to offshore@dgeg.gov.pt, accompanied with a set of documents, including, inter alia, identification of the company and the promoter's representative, track record of onshore and offshore development of renewable energy projects, identification of the interested lots, financing models and development plans for equipment supply chains and project assembly. |
The first auction is expected to be launched by the end of the year and will allocate approximately 3.5 GW of capacity, distributed across seven lots located in Viana do Castelo (2), Leixões (1), and Figueira da Foz (4), each lot having approximately a total capacity of 500 MW.
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On October 4th, 2023, the Portuguese Prime Minister announced a request for expressions of interest in the first Portuguese auction of offshore wind energy. The task force appointed by the Portuguese Government one year ago to support the deployment of the 2023-2030 Portuguese offshore wind plan had already recommended a preliminary phase for expressions of interest as an initial step towards gauging the interest of potential promotors. In this preliminary phase, companies will express their intention to participate in the competitive procedure, promoting the formation of consortia of participants, and indicating the trade-offs and investments they intend to make. This expression of interest will have the mere purpose of identifying potential candidates. Therefore, it will not grant any participation rights. In the pre-qualification phase, scheduled for the end of the year but most likely to occur at the beginning of 2024 and lasting no less than 3 months, the bidders will have to fulfill the criteria set by the auction rules, as a condition to participate in the tender stage. Interested parties will have to demonstrate the technical feasibility of the project, previous experience in implementing wind farms, financial viability, and sustainable business models, as well as a positive economic impact. The Portuguese Energy Secretary of State, Ana Fontoura, mentioned in a recent public event that starting by tendering the rights of use of the maritime space is a possibility because it would give time to the bidders to gain first-hand experience in the design of the projects (not having to offer immediately with a price offer that could be too expensive for consumers); as well as would allow them to eventually consider merchant projects without a feed-in-tariff for the sale of electricity. The final stage would be the auction of 'contracts for difference' (CfD) for the sale of electricity. The inaugural auction will assign approximately 3.5 gigawatts (GW) of capacity, distributed across seven lots located in Viana do Castelo (2), Leixões (1), and Figueira da Foz (4), each lot having approximately a total capacity of 500 MW. Of these, it is intended to have 2 GW in operation by 2030. Despite all these recent announcements, there is still great uncertainty on the tender structure and whether the timings set by the Portuguese Government will be kept. Hopefully, the soon-coming notice for the manifestations of interest will thread some light on what comes next. |
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The Portuguese Government has presented the draft State Budget Law for 2024 (SBL 2024). Below is a summary of the key changes impacting employment and labour law: (A) Provisions Concerning the Public Administration and the Public Business Sector (i) Mobility situations existing as of the entry into force of SBL 2024, with a maximum duration limit occurring in 2024, may exceptionally be extended until 31 December 2024, by mutual agreement. This extension also applies to mobility situations whose end occurs before the entry into force of SBL 2024. (ii) The subsistence allowance, overtime, and night work schemes, as provided in Decree-Law 106/98 of 24 April, as amended, and in the Portuguese General Law on Public Employment, shall apply to employees of public foundations governed by public law, public foundations governed by private law and public establishments, without prejudice to the provisions of collective bargaining instruments. (iii) Public entities with employees under individual employment contracts may contract health and personal accident insurance, provided it is intended for the majority of employees, as well as other insurances required by law or provided for in a collective bargaining instrument. (iv) Public legal persons, even if they enjoy administrative autonomy or statutory independence, must recruit employees for open-ended or fixed-term employment contracts, in accordance with the provisions of the budget implementation decree-law, otherwise the recruitment will be null and void. (v) Public business sector companies shall recruit employees for open-ended or fixed-term employment contracts, following the terms of the budget implementation Decree-law, otherwise the contracts shall be deemed null and void. (vi) Public bodies or services are responsible for presenting a plan for the development of their employees, under the terms defined in the budget implementation Decree-law, applying, as a rule, the collective bargaining instruments and other legal or contractual instruments in force or, in their absence, the provisions of the budget implementation Decree-law. (vii) Retired persons with relevant experience in the areas of railway maintenance or as train drivers may work for public companies in the railway sector that provide public passenger transport while maintaining their retirement pension, along with up to 75% of the remuneration corresponding to their category and, as applicable, level or salary position held at the time of retirement, as well as their working regime. (B) Specific Provisions for Public Companies (i) Public companies pursue a policy of optimizing operating expenses that promote operational balance, pursuant to the provisions of the budget implementation Decree-law, without prejudice to ensuring the necessary administrative and financial autonomy, particularly, for the execution of budget items relating to the hiring of employees. (ii) Public companies are limited in their indebtedness to 2%, which must be calculated in accordance with the terms to be defined in the budget implementation Decree-law, without prejudice to their necessary administrative and financial autonomy to implement the budget items relating to investment programs provided for in the SBL. (C) Amendment to the Tax Benefits Statute The costs corresponding to the salary increase for employees with open-ended employment contracts, for purposes of determining the taxable profit of IRC taxpayers and IRS taxpayers with organised accounting, are considered at 150 % of the respective amount, accounted for as a cost for the year. The final text of the 2024 State Budget is now awaited to be approved and published. |