Yesterday, Decree-Law 21-B/2023, of March 30, extended until December 31, 2023 the exceptional and temporary mechanism for adjusting the production costs of electricity in the Iberian Electricity Market (MIBEL) set by Decree-Law 33/2022, of May 14. Those measures were applied by Portugal and Spain last year to face the strong instability in the energy sector, and included the setting of a reference price for natural gas consumed in the production of electricity traded at the MIBEL - a measure that would be in force until May 31, 2023. In addition, this new regulation, which comes into force today, excludes from the cost of liquidation of the market adjustment value, consumption related to:
It also requires the market agents to communicate to the appointed electricity market operator, to the global manager of the SEN and to ERSE the information relating to the contracting, within:
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The Portuguese government simplified the environmental requirements for the implementing, among others, renewable energy production plants, through Decree-Law no. 11/2023, of February 10th, also known as "Environmental Simplex", which is expected to reduce the project’s construction timelines. We highlight below the more impacting ones. The Environmental Impact Assessment (“EIA”) is waived in the case of:
When a project is located outside environmentally sensitive areas, EIA is will not be required for:
The Environmental Simplex added two new rules to produce renewable energy:
The use of water produced for re-used to produce energy, in particular hydrogen, is now subject, in some cases, to a prior communication; In the case of decentralized systems, a production license was replaced by a prior communication; and if PEA does not decide in 20 days counted of the communication, the person concerned may start his activity. |
The current energy crisis has set the background for the introduction of a new tax policy both at EU level and at EU Members States, arguably to fight high energy prices on most vulnerable families and companies and the ongoing inflationary cycle. In this framework, Portugal has enacted a new contribution to certain companies’ surplus profits: the so-called windfall profits’ tax. This new contribution has its origins in the Council Regulation (EU) 2022/1854 of 6 October 2022 on an emergency intervention to address high energy prices, including a mandatory temporary solidarity contribution aimed at taxing surplus profits of companies and permanent establishments in the European Union (“EU”) operating in the crude petroleum, natural gas, coal, and refinery sector and on food retailers; as their profits in 2022 were not profits these companies would or could be expected to have under regular circumstances. On 31 December 2022, Law 24-B/2022, of 30 December (the “CST Law”) established two solidarity contributions taxing surplus profits: (i) the Energy Temporary Solidarity Contribution on energy companies and (ii) the Food Distribution Temporary Solidarity Contribution on food retailers. Both contributions are temporary and only applicable to profits considered to be extraordinary in the tax periods (for corporate income tax purposes) starting in the years 2022 and 2023. In the next lines, you will find some detail on the scope, taxable subject, taxable amount, and revenue allocation of the Portuguese Energy Temporary Solidarity Contribution (“CST Energia”), where the CST Law implements Chapter III of Council Regulation (EU) 2022/1854 on the measure concerning the crude petroleum, natural gas, coal, and refinery sectors. 1. Who pays for the new CST Energia? The CST Law, in its article 2 (that follows closely art. 1 of Council Regulation (EU) 2022/1854), establishes that CST Energia applies to resident corporate taxpayers whose main activity is commercial, industrial, or agricultural and non-resident corporate taxpayers with a permanent establishment in Portugal, that (in both cases) operate in the crude oil, natural gas, coal and refinery sectors. Article 2/1/b of CST Law defines taxpayers operating in the crude oil, natural gas, coal, and refinery sectors as those with at least 37.5% of their turnover deriving from extraction, mining, petroleum refining, or coking plant sectors, as per Regulation (EC) 1893/2006 of the European Parliament and of the Council. The above excludes companies operating renewable electricity production plants in Portugal from the scope of the CST Energia. 2. On which surplus profits falls CST Energia? Surplus Profits are the taxable profits that are above a 20% increase of the average of the taxable profits in the four fiscal years starting on or after 1 January 2018. In such cases, a rate of 33 % will apply. When the average of the taxable profits is negative, it is equal to zero and the energy temporary solidarity contribution is levied on the total taxable profits. 3. How and when is CST Energy paid? The CST Energia must be paid through an official model declaration (to be approved by the member of the government responsible for finance). This declaration must be electronically sent to the Tax Administration before the 20th of the 9th month following the end date of the tax period to which it relates. Taxpayers must pay this contribution on an individual and autonomous basis, even when the Special Taxation Regime of Company Groups, provided by the Corporate Income Tax Code, is applicable. 4. Where to go the revenues from CST Energia? The Portuguese government does not yet know to how much they will amount, but, as expressed in the Council Regulation (EU) 2022/1854 and in the CST Law, revenues from CST Energia will be allocated to: (1) Financial support measures to final energy consumers, especially vulnerable families; (2) Financial support measures to help reduce energy consumption; such as through demand reduction auctions or tender schemes, lowering the energy purchase costs of final energy customers for certain volumes of consumption, promoting investments by final energy customers into renewables, structural energy efficiency investments or other decarbonization technologies; (3) Financial support measures to support companies in energy-intensive industries, if they are made conditional upon investments into renewable energies, energy efficiency, or other decarbonization technologies; and (4) Financial support measures to develop energy autonomy, in particular investments in line with the REPowerEU objectives. How and when will that happen? Nobody knows yet as the CST Law does not add any clarity to this. |
The Portuguese Government published in Diário da República the bases of the new auction for a centralized purchase of biomethane and hydrogen produced by electrolysis of water using electricity from renewable energy sources. It will be composed of two parcels:
The Last Resort Supplier (LRS) shall buy the amounts auctioned through direct contracting with the producers. Contracts concluded with producers will last for 10 years and the base price, as the maximum price to be paid for by the LRS, is €62/MWh for biomethane and €127/MWh for hydrogen. The quantities to be purchased by the LRS from each producer and the price payable shall be defined in the contract and valid throughout the contractual period, with the respective guarantees of origin. The costs of network access tariffs, those for the injection of renewable gases, will be borne by the LRS. The Environmental Fund will compensate the LRS for the costs of acquiring biomethane and hydrogen from producers (and associated guarantees of origin). Where the result of the sale of the gases of renewable origin is higher than the respective acquisition cost, the positive difference will be returned by the LRS to the Environmental Fund. The contract is conditional on the qualification of producers to connect to the transport or gas distribution networks, as applicable. The auction documents will be prepared by the Directorate-General for Energy and Geology (DGEGE) in coordination with the LRS to be submitted for approval to the Energy Secretary of State no later than May 30, 2023. The auction is expected to be launched by June 30, 2023. |
The State Budget for 2023 was approved by Law 24-D/2022, of 30 December (OE 2023) with some changes compared to the proposal presented by the Government. In this newsletter, we review the main changes approved by the Portuguese Parliament. PIT Regarding Personal Income Tax (PIT), we highlight the following novelties compared to the Government's proposal:
Capital gains resulting from the sale of crypto assets. The change of residence will be assimilated to disposal for consideration. Capital gains will be calculated according to FIFO (First In, First Out) rules. The exclusion of taxation of capital gains and capital losses will apply not only in respect of disposals that relate to crypto-assets held for a period of 365 days or more but also those that are made against the delivery of new crypto-assets – in this case, the crypto-assets received will be attributed an acquisition value equal to the acquisition value of the crypto-assets delivered. The exclusions from taxation will not apply when the taxpayers or the debtors of the income are not resident in another Member State of the European Union or the European Economic Area or in another State or jurisdiction with which an international double taxation treaty, bilateral or multilateral agreement providing for the exchange of information for tax purposes is in force.
CIT With regard to Corporate Income Tax (CIT), we highlight the following changes:
VALUE ADDED TAX As to Value Added Tax (VAT), the following changes are highlighted:
REAL ESTATE TRANSFER TAX Regarding Real Estate Transfer Tax (RETT), the following measures stand out:
MUNICIPAL PROPERTY TAX With regards to Municipal Property Tax (MPT), the following changes were included:
- up to 100% in cases where the buildings are used for local accommodation. - up to 25% in cases of houses that are not rented or in use as the taxpayer's own permanent residence. A further 50% increase may apply whenever a taxpayer is a legal person or other equivalent entity.
- 25% whenever the urban building or autonomous fraction is destined to habitation and, in the year to which the tax relates, is not rented or allocated to the taxpayer's own and permanent residence. - 50% whenever a taxpayer is a legal person or other equivalent entity. STAMP DUTY In terms of stamp duty, we highlight these new rules:
TAX BENEFITS The State Budget includes the following changes:
For more information on the other tax changes introduced by the State Budget 2023, please click here. |
The Parliament approved the State Budget for 2023 (2023 State Budget). In this newsletter, we summarise the main tax changes set out in the 2023 State Budget. Personal income tax Regarding Personal Income Tax (PIT), the main changes are as follows:
- 50% with a limit of 12.5 times the value of the Social Support Index in the first year. - 40% with a limit of 10 times the value of the Social Support Index in the second year; - 30% with a limit of 7.5 times the value of the Social Support Index in the third and fourth years; and - 20% with a limit of 5 times the value of the Social Support Index in the fifth year.
- Relate to crypto assets held for a period of 365 days or more; or - Are made against the delivery of new crypto-assets – in this case, the crypto-assets received will be attributed an acquisition value equal to the acquisition value of the crypto-assets delivered. These exclusions from taxation will not apply when the taxpayers or the debtors of the income are not resident in another Member State of the European Union or the European Economic Area or in another State or jurisdiction with which an international double taxation treaty, bilateral or multilateral agreement providing for the exchange of information for tax purposes is in force.
Corporate income tax In terms of Corporate Income Tax (CIT), the following changes should be highlighted:
- Production, transport, distribution, and trade of electricity or gas; or - Manufacture of petroleum products refined or from waste, and of agglomerated fuels.
- Fertilisers, organic and mineral fertilizers, and correctives. - Flours, cereals, and seeds, including mixtures, residues, and waste from food industries, and any other products suitable for the feeding of livestock, poultry, and other animals, referred to in the Codex Alimentarius, irrespective of breed and living functionality, intended for human consumption. - Irrigation water; and - Glass bottles.
Value added tax With regard to Value Added Tax (VAT), the following changes should be highlighted:
Special taxes on consumption In terms of special taxes on consumption, the following amendments should be noted: Duty on petroleum and energy products (ISP)
- Products covered by CN codes 2710 19 62 to 2710 19 67 and CN codes 2710 20 32 and 2710 20 38, used in the production of electricity and cogeneration, or town gas on the mainland, are taxed at a rate corresponding to 100 % of the ISP rate and at a rate corresponding to 100 % of the addition on CO2 emissions. - Covered by CN codes 2710 19 43 to 2710 19 48, CN 2710 20 11 to 2710 20 19, CN 2710 19 62 to 2710 19 67, CN 2710 20 32 and 2710 20 38, consumed in the Autonomous Regions of Azores and Madeira and used for the production of electricity, electricity, and heat (cogeneration) or town gas, by entities which carry out such activities as their main activity, are taxed at a rate corresponding to 50% of the ISP rate and 50% of the rate of the CO2 emission surcharge. It is set to rise to 75 % and 100 % on 1 January 2024 and 2025 respectively. - Falling within CN code 2711, used in the production of electricity, of electricity and heat (cogeneration), or of town gas, by entities carrying out such activities as their main activity, apart from those used in the autonomous regions, are taxed at a rate corresponding to 40% of the ISP rate and at a rate corresponding to 40% of the rate of addition on CO2 emissions. It is set to rise to 50% as of 1 January 2024; - Falling within CN codes 2701, 2702, 2704, 2713, and 2711 12 11 which are used in installations subject to an agreement on the rationalization of energy consumption (ARCE), and fuel oil with a sulfur content not exceeding 0,5% falling within CN codes 2710 19 62 and 2710 19 66 will be taxed at a rate corresponding to 30% of the additional rate on CO2 emissions. It is set to increase to 65 % and 100 % on 1 January 2024 and 2025 respectively. Duty on Beverages
Duty on Tobacco
Carbon tax The carbon tax for consumers traveling by air, sea, and river remains in force in 2023. Vehicles tax Increase in the vehicles tax rates applicable to cars, motorbikes, tricycles, and quadricycles, regarding their cylinder capacity and environmental component. Single circulation tax A generalized increase in the single circulation tax rates is applicable to all vehicles. Real state transfer tax Regarding Real Estate Transfer Tax (RETT), the following measures stand out:
Municipal Property Tax With regard to Municipal Property Tax (MPT), the following measures are of particular importance:
- up to 100% in cases where the buildings are used for local accommodation. - up to 25% in cases of houses that are not rented or in use as the taxpayer's own permanent residence. A further 50% increase may apply whenever a taxpayer is a legal person or other equivalent entity.
- 25% whenever the urban building or unit is intended for habitation and, in the year to which the tax relates, is not rented or allocated to the taxpayer's own and permanent residence. - 50% whenever a taxpayer is a legal person or other equivalent entity. Stamp Duty In terms of stamp duty, we highlight these new rules:
Special Contributions The 2023 State Budget extends the following special contributions to 2023: - Special contribution to the conservation of forest resources. - Contribution to the banking sector. - Additional solidarity contribution to the banking sector. - Contribution to the Pharmaceutical Industry. - Extraordinary contribution to the energy sector. - Extraordinary contribution to the suppliers of medical devices industry of the National Health Service; and - Contribution to single-use plastic or aluminum packaging in prepared meals. Tax Benefits The State Budget includes the following changes:
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* New amendments or adjusted amendments during the discussions held in Parliament.
The European Regulation published yesterday, lays down temporary emergency rules to speed up the licensing procedure for renewable energy plants. Under this Regulation, the planning, construction, operation and grid connection of renewable energy plants and installations deemed to be of overriding public interest and Member States must ensure that they have priority in the licensing procedures. To speed up licensing procedures it establishes:
This temporary framework enters into force today, on 30 December 2022 and applies to licensing procedures starting until 30 June 2024. The European Commission will review this Regulation by the end of 2023, with a view to a possible extension of its period of validity. |
The Portuguese windfall profits’ tax law has finally been approved last week by the Portuguese Parliament, confirming that:
According to the Portuguese Government, this new tax will generate revenue between 50 and 100 hundred million euros. But GALP alone has already announced that its tax burden for 2022 and 2023 will exceed 100 hundred million euros. In any case, the impact on prices to consumer will be high and this new tax will contribute to extending the inflation pressure on oil and gas products in 2023. |
Portugal completes the implementation of Directive (EU) 2018/2001 on the promotion of the use of energy from renewable sources by establishing the new national goals for renewable energy consumption. Within those, stands out the establishment of a minimum quota of use of energy from renewable sources in 2030 of at least 49 % of renewable energy use in gross final consumption of energy. This represents a more ambitious goal compared to the previously 47 % forecast. In the transport sector, the target is lower: in 2030, the minimum share of renewable energies in the final consumption of energy should be of 29%. To guarantee the fulfilment of these goals, the Portuguese Government established that:
With a view to promoting the use of renewable energies, new incentives are created, of which we highlight the following:
Decree-Law No. 84/2022, of 9 December, where the above goals and measures are set, came into force on December 10, 2022. |
In 2023, rents under urban and rural leases will be reviewed in accordance with an index of 1.02, i.e., increasing rents will be limited to 2%, unless the parties agree otherwise. Pursuant to Law no. 19/2022, of 21 October 2022, the above index of 1.02 shall apply to urban and rural lease agreements that establish annual rent review to take place in accordance with the index established in the applicable law or the annual publication made by the National Statistics Institute in the Official Gazette (Diário da República). To compensate landlords for the above-mentioned limitation to rent review – which will be below inflation and consumer price index in 2022 – only a portion of their real estate income will be considered for purposes of income taxation. For individuals, real estate income subject to the tax rates established in article 68, section 1, or article 72, section 2, of the Individual Income Tax Code (IITC), shall be determined by applying a factor of 0.91. As to real estate income subject to the special tax rates established in sections 2 to 5 of article 72 of IITC. For companies, taxable income originating in rent subject to the tax rates established in article 87 of the Corporate Income Tax Code (ITC) shall be determined by applying a factor of 0.87. This form of support granted to landlords shall apply to rents (i) that become due and are paid in 2023, (ii) originated in lease agreements in force before 1 January 2022 and reported to the tax authorities as required by Portuguese law and (iii) that do not originate from lease agreements which rents are reviewed in accordance with an index exceeding the above-mentioned index of 1.02 established for 2023. |