The Global Minimum Tax Regime approved by Law 41/2024 of 8 November implemented the Council Directive (EU) 2022/2523 of 14 December 2022  on ensuring a global minimum level of taxation for multinational enterprise groups and large-scale domestic groups in the Union.  

The aim of this Directive is to reinforce the efforts to avoid aggressive tax planning within the internal market by establishing a global minimum tax, mitigating the practice of shifting profit to jurisdictions with low or no taxation.

The 15% global minimum tax applies to entities that are part of multinational groups or large domestic groups, with consolidated income of €750 million or more in at least two of the previous four years.

Under this regime, the effective tax rate in each jurisdiction where the group operates will be compared with the minimum rate of 15%. After this comparison, it will be determined whether the group is required to pay a top-up tax, in accordance with the following rules:

• Income Inclusion Rule (IIR).  The parent of a multinational enterprise group or of the large-scale domestic group (or the intermediate entity, if the parent is not subject to the IIR) will calculate and pay its allocable share of the top-up tax with respect to the low-taxed constituent entities of the group, or to itself.
• Under-Taxed Profits Rule (UTPR). A constituent entity of a multinational enterprise group will be responsible for paying its allocable share of the top-up tax that has not been collected by the parent entities through the application of the IIR. The formula used for this purpose considers the proportion of employees and tangible assets in each jurisdiction, acting as a backstop to the IIR.
• Qualified domestic minimum top-up tax (QMDTT): Portuguese companies subject to this regime will have the option to deduct a percentage of the value of tangible assets and employee salaries located in Portugal when calculating the taxable profits. This percentage will gradually decrease over the coming years, reaching 5% by 2033.

This regime is expected to affect large Portuguese groups with subsidiaries in other jurisdictions.

The new rules have entered into force on 9 November 2024, with retroactive effect as from 1 January 2024. However, the UTPR rule will only apply from 1 January 2025 onwards.

It should be noted that the Global Minimum Tax Regime establishes various transitional periods during which the additional tax will be reduced to zero.

On November 4th, 2024, Decree-Law 85/2024 was published, implementing Regulation (EU) 2018/1807 into Portuguese law to establish a framework for the free flow of non-personal data within the European Union (EU).

A Regulation that establishes the free flow of non-personal data across the EU. Non-personal data includes information that does not directly identify individuals, such as aggregated and anonymised datasets, commonly used in large-scale data analysis.

This data type is gaining importance with the rapid expansion of the Internet of Things, Artificial Intelligence, autonomous systems, and 5G networks. The Regulation generally prohibits EU Member States from enforcing mandatory data localisation requirements for non-personal data, effectively removing rules or practices that require data to be stored and processed in specific geographic locations. Exceptions are allowed only for reasons of public security or national defence.

While Regulation (EU) 2018/1807 is mandatory and directly applicable within the Portuguese legal system, specific provisions require local implementing measures. These include appointing a competent authority as the local contact point, establishing mechanisms and procedures for notifications and communications with the European Commission, and defining the sanctioning framework.

The Decree- Law 85/2024 appoints the Agency for Administrative Modernization, I.P. (AMA, I.P.) as the local contact point, liaising with the single contact points of other Member States and the European Commission. AMA, I.P. is also tasked with managing and updating the single national information point.

The powers of AMA, I.P. include:

• Providing and regularly updating detailed information on data localisation requirements applicable within the national territory and contributing data localisation information to a central information point.
• Assisting the competent authorities of other Member States in accessing data in line with the cooperation procedures outlined in the Internal Market Information System (IMI).
• Notifying the European Commission of any provisional data relocation measures implemented.
• Preparing an impact assessment report with support from competent national authorities, who must gather and provide relevant data.

Existing data localisation requirements must be communicated to the European Commission, along with a justification based on public security grounds, in line with the principle of proportionality. The national authorities responsible for enforcing the data localisation requirements will carry out this communication.

Supervision is carried out by the Portuguese Food and Economic Safety Authority (ASAE), which may, if necessary, cooperate with other entities, particularly the Portuguese Data Protection Authority when personal data is at stake.

Regarding penalties, failure to provide information or providing false information and failing to grant access to data when requested by the supervisory authority constitutes a severe economic offence, punishable by a fine ranging from €1,700 to €24,000, depending on whether the company is micro, small, medium, or large. In turn, providing inaccurate or incomplete information constitutes a minor economic offence, punishable by a fine ranging from €250 to €12,000, depending on whether the company is micro, small, medium or large. At the same time, ASAE can impose ancillary sanctions.

The Decree-Law 85/2024 will enter into force on January 3rd, 2025.

To find out more about Regulation (EU) 2018/1807 on a framework for the free flow of non-personal data, learn more about our insights.

After the revocation of the Extraordinary Contribution on Local Lodging, effective retroactively from 31 December 2023, the latest changes to the legal framework governing local lodging establishments were published on 23 October 2024 and will come into effect on 1 November 2024.

Generally, these changes aim to grant greater decision-making power to municipalities regarding local lodging within their territories.

To this end, municipalities will be able to approve municipal regulations to govern this activity in their respective territories and may define containment areas (areas with restrictions on the establishment of new local lodgings) and healthy growth areas (a new definition referring to areas where special monitoring measures may apply to prevent undesirable effects of local lodgings overload on neighbourhoods). The municipal regulations may also include the appointment of a local lodging mediator, a new role primarily aimed at resolving local lodging disputes between the municipality and residents.

For containment areas, municipal regulations may establish, among other aspects, that new registries of local lodging establishments in buildings or units thereof that have been subject to residential lease agreements in the two years prior to registry cannot be authorized, as well as the conditions and limits applicable to new local lodging registries, particularly regarding duration and awarding rules. For new healthy growth areas, municipal regulations may stipulate, for example, the maintenance of a certain proportion or minimum number of residential building units where local lodging establishment cannot operate. Containment areas and healthy growth areas should be reassessed every three years.

The following changes are also noteworthy:

• The approval of the commonhold owners’ assembly (assembleia de condomínio) is only required for the installation of hostels in units.
• The deadline for opposing the registry request for the installation of a local lodging establishment extends to 60 days from the date of submission and to 90 days for requests to operate local lodgings in containment areas (previously 10 days as a rule and 20 days for hostels).
• Violation of installation restrictions established by the municipality in containment and healthy growth areas and non-compliance with applicable legislation will now be grounds for opposing the registry request for the installation of a local lodging establishment.
• Limitations to transfer of local lodging registries have been revoked. Nevertheless, it should be noted that the municipal regulation may impose restrictions on the transferability of new registries for certain local lodging establishments in containment areas (without affecting cases of succession, donation to spouse, partner, descendants or ascendants, and divorce, separation or partnership dissolution).
• Three new conditions may now lead to the cancellation of the local lodging registry by the mayor: (i) lack of valid mandatory insurance, (ii) repeated and proven acts disrupting the normal use of the building, unless the dispute is settled, and (iii) in containment areas, if there are residential lease agreements in the two years prior to the relevant request, in violation of the municipal regulation.
• It is clarified that local lodging establishments may operate in residential units and that commonhold property deeds or regulations may prohibit such operation. The commonhold owners’ assembly (assembleia de condomínio) may also prohibit such activity by resolution passed by a majority representing 2/3 of the buildings value (permilagem) but such limitation will apply only to subsequent local lodging registration requests.

In municipalities with more than 1,000 registered local accommodation establishments, the municipal assembly must decide, within a maximum of 12 months from the date the municipality reaches 1,000 registrations, whether to exercise the power to approve the above-mentioned regulation.

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