Paulo Dias 2023

Presentation

Program
III. Corporate Income Tax
- Profits and tax costs
- Other equity variations
- Tax corrections
IRC Incidence
Who?
•Taxable persons (personal or subjective incidence)

What?
•The income obtained (real or objective incidence)

Where?
•Obtained inside or outside Portuguese territory (territorial incidence)

When?
•During the tax period (temporal incidence)

3
 Personal or Subjective Incidence
Art.º 2.º
• Commercial Companies
• Civil Societies in commercial form
With legal • Cooperatives
personality • Public Enterprises
• Other legal persons
N.º 1 a)
Residents
•Income not taxed in IRS
Without legal • Irregular Companies
Taxable • Associations
personality • Civil Societies
Persons
N.º 1 b)

With or Without Legal Personality, provided

Non-Residents that they obtain in Portuguese territory
N.º 1 c) income not subject to IRS

4
Real or Objective Incidence
Art.º 3.º
paragraph a)
Main Profit
Yes
activity
?
Yes

No paragraph b)
Global Income

Residents (n.º 1)

Yes
paragraph c) Profit attributable to
No

permanent establishment
With
Permanent No
Establishment
? paragraph d) Income of the various IRS
Categories
See
Art. 5.º

5
Number of Declarations - 2021
By Type of Taxable Person
0,4% 0,2%
1 - Residents whose main
5,5%
activity is commercial, industrial
or agricultural

2 - Resident not engaged

primarily in commercial,
industrial or agricultural activity

3 - Non-resident with
permanent establishment
93,9%

4 - Non-resident without a
permanent establishment

6
Tax Calculation
Taxable Amount X Rate = Tax amount

Tax amount − Deductions − Payments Made

• International Double Taxation • Withholding Taxes (on account)
• Tax Benefits • Payments on Account

Tax Payable/Recover
7
Territorial Incidence Art.º 4.º

Total income, including income obtained

n.º 1
abroad
Yes

Residents

Only those obtained in the National

No

n.º 2
Territory

8
Temporal Incidence Art.º 8.º

Economic
More than 1 year
Less than 1 year year
=
(n.º 4)
Calendar (n.º 8)
Year (n.º 1)
•in the year of the beginning of the activity; •Companies in liquidation in which the same
• in the year of cessation of activity; has a duration of more than one year.
• disappearance of the conditions of subjection;
• adoption of another tax period.

2 years

Exceptions (n.º 2)
• Non-residents with a permanent establishment
• Others with economic interest

5 years
9
 Exemptions Art.ºs 9.º a 14.º

–The State, the Autonomous Regions and local authorities

– Social security institutions
– Legal persons in the public interest
– Private charities
– Non-profit cultural, recreational and sports activities
– Companies covered by Tax Transparency
– Other exemptions

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Forms of Exercise of
the Activity

Tax Transparency
– Societies Special Regime
General Regime

11
Number of Declarations - 2021
By Taxation Regime
0,9% 3,8%
2,0%
2,8%

General Regime

Simplified Regime

Tax transparency

Group of Companies
90,5%
Other Regimes

12
Tax Transparency Art.º 6.º

– Subject Entities:
• Civil companies not incorporated in commercial form;
• Professional Societies;
• Simple Asset Management Companies;
• Complementary Groupings of Companies (ACE);
• European Economic Interest Groupings (EEIGs).

13
Tax Transparency Art.º 6.º

Professional Societies

Whose income comes from more than 75% of the joint or

Constituted for isolated exercise of activities provided for in article 151 of the
the exercise of CIRS, provided that, cumulatively
an activity
provided for in
article 151 of the
CIRS, in which at least 75 % of the
all partners are share capital is
none of the
professionals of the number of held by
partners is a legal
this activity members does professionals who
person governed
not exceed five carry out those
by public law
activities through
the company

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Tax Transparency Art.º 6.º

Simple Asset Management Companies

Whose share capital

Company that limits belongs to a number of
Whose majority of the
its activity to the members not exceeding
share capital belongs
administration of five and none of them is a
to a family group
assets or values and legal person governed by
whose income public law
reaches, on average
over the last three
years, more than 50%
of its total income group consisting of
Not applicable to SGPS
people united by marital
holding shareholdings that
or kinship bond or affinity
meet the requirements of
in the straight or collateral
paragraph 1 of article 51 CIRC
line up to the 4th degree
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Tax Transparency Art.º 6.º

– What happens:

Taxable
Amount Imputed
(or profit/loss
in the ACE/EEIG) Partners
(or members)
– For what purposes:
• Tax Neutrality
• Elimination of Economic Double Taxation

16
Groups of Companies – RETGS
Art.º 69.º

Conditions

17
 Groups of Companies – RETGS
Art.º 70.º

–Determination of Taxable Profit:

–Algebraic sum of taxable profits and tax losses of dominant and
dominated companies, calculated individually

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Calculation of Taxable Profit
Art.º 17.º

Profit = Final Assets – Initial Assets

Net Accounting Profit

+/-
Equity Variations
+/-
Tax Corrections
=
Taxable Profit
19
Income and Earnings
Art.º 20.º

(a) those relating to sales or services;

(b) income from immovable property;

(c) of a financial nature;

(d) income from industrial or similar property;

(e) the supply of services of a scientific or technical nature;

(h) realised capital gains;

(i) compensation received in any way;

(j) operating subsidies.

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Deductible Expenses and
Losses
Art.º 23.º

All expenses and losses incurred Only expenses and losses that are
or borne by the taxable person to demonstrably indispensable to
obtain or guarantee the income obtain or guarantee income subject
subject to IRC are deductible. to IRC are tax-deductible.

That is

21
Non-Tax-Deductible Expenses
Art.º 23.º-A

The following charges are not deductible for the purposes of determining Taxable
Income, even when accounted for as Expenses of the Taxable Period:

a) The IRC and any other taxes that directly or indirectly affect the profits;

b) Undocumented expenditure;

c) Charges not duly documented or issued by taxable persons with non-existent TIN,
invalid or whose cessation of activity has been declared;

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 Non-Tax-Deductible Expenses
Art.º 23.º-A
d) Unlawful expenses that violate the law;

e) Fines, fines and other charges for the practice of infractions, of any nature, that
do not have a contractual origin, including compensatory interest;

f) taxes, fees and other taxes levied on third parties that the taxable person is not
legally authorized to bear;

g) compensation for the verification of events for which the risk is insurable;

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Non-Tax-Deductible Expenses
Art.º 23.º-A

e)Subsistence allowances and charges with compensation for travel in the

worker's own car, at the service of the employer not invoiced to customers,
recorded in any capacity, whenever the employer does not have a map
through which it is possible to control the trips and except in the part where
there is a place of taxation in the IRS;

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Subsistence Allowances and
Travel by Own Car

Billed to No Map of Yes

Deductible
Customers ? Control?
Yes

No
Deductible Non-Deductible

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Non-Tax-Deductible Expenses
Art.º 23.º-A

i) the costs of renting without a driver light passenger or mixed vehicles, in the
part corresponding to the value of the depreciation of these vehicles that, in
accordance with points c) and e) of paragraph 1 of article 34, are not
accepted as expenses;

j) fuel charges in so far as the taxable person does not prove that they relate to
goods belonging to his assets or used by him under lease and that normal
consumption is not exceeded;

26
Non-Tax-Deductible Expenses
Art.º 23.º-A

k) charges relating to pleasure boats and passenger aircraft which are not used
for the operation of the public transport service or are not intended to be hired
out in the course of the taxable person's normal activity;

l) the capital losses realized in respect of pleasure boats, tourist aero planes and
light passenger or mixed vehicles, which are not allocated to the operation of
a public transport service nor are intended to be rented in the exercise of the
normal activity of the taxable person, except in so far as they correspond to
the taxable amount in accordance with point e) of paragraph 1 of article 34
not yet accepted as expenses;

27
Non-Tax-Deductible Expenses
Art.º 23.º-A

m) Interest and other forms of remuneration for supplies and loans made by the
partners to the company, in so far as they exceed the amount corresponding
to the Euribor reference rate at 12 months from the day of the incurrence of
the debt or another rate defined by an ordinance of the Minister of Finance
that uses that rate as an index;;

Portaria n.º 279/2014, of 30 December

SME Other Companies

Euribor 12M + 6% Euribor 12M + 2%

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Net Financing Expenses
Art.º 67.º

Deductible up to the greater of the following limits:

- €1.000.000

- 30% of EBITDA

With the possibility of reporting up to five years

29
Non-Tax-Deductible Expenses
Art.º 23.º-A

n) expenses related to profit sharing by members of the company's governing

bodies and employees, when the respective amounts are not paid or made
available to the beneficiaries until the end of the next tax period;

o) Without prejudice to the previous paragraph, expenses related to profit sharing

by members of corporate bodies, when the beneficiaries are holders, directly or
indirectly, of shares representing at least 1% of the share capital, in the part in
which it exceeds twice the monthly remuneration earned in the tax period to
which the result in which they participate.

30
Deductible Impairment Losses
- Inventories
- Receivables
- Doubtful debts
- Credit and other financial institutions
- Non-current assets
- Reversal of Losses – taxable income

31
 Impairments in Receivables
Art.º 28.º-A

- Credits from normal activity

- Evidenced in accounting
- Uncollected receipts recognized by insurers
- Others imposed by Banco de Portugal

32
 Impairment Losses on Credits
Art.º 28.º-B
N.º 1 Accepted without Limit
- The debtor with insolvency proceedings, business recovery or enforcement;
- The credits have been claimed in court or in an arbitral tribunal;

N.º 2 Accepted with Limit

- 25% for credits in arrears for more than 6 months and up to 12 months;
- 50% for credits in arrears for more than 12 months and up to 18 months;
- 75% for credits in arrears for more than 18 months and up to 24 months;
- 100% for credits in arrears for more than 24 months

33
 Impairment Losses on Credits
Art.º 28.º-B
N.º 3 Credits Not Accepted

- On the State, Autonomous Regions and local authorities;

- Covered by insurance, or by any kind of real guarantee;
- On natural or legal persons who hold (or are held) more than 10% of the
company's capital.

34
 Tax-deductible provisions
Art.º 39.º
N.º 1

a)Ongoing legal proceedings

b) Charges with guarantees to customers provided for in the contract of
sale and provision of services (*)
c) Imposed by the Insurance Institute of Portugal
721
d) Repair of environmental damage

Warranty charges to customers in the last 3 years

(*) Limit =
Turnover of the last 3 years

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Reversals of Impairment
Losses and Provisions

Those that were accepted Those that were not

for tax purposes when they accepted for tax purposes
were set up when they were set up

There is no fiscal correction Tax correction to be deducted

Losses by
Provisions
Impairment

36
Depreciation and Amortization
Amortization Gradual and periodic elimination of an
enterprise's assets, such as charges for the year,
financial or immaterial fixed assets.

Depreciation Accounting phenomenon that expresses the loss

of value that the fixed values of use suffer in time,
by virtue of their use in management; loss of value
by use.

Period during which a depreciable asset is

Life
expected to be used by the enterprise.

37
 Depreciation and Amortization
 All fixed assets, except land (*), can be depreciated or amortized for tax
purposes;

 As a general rule, fixed assets are depreciated under the straight-line method;

 The declining-balance method may be elected for new tangible assets other
than buildings, private passenger cars not used for public transport or rental and
office furniture;

(*) When we do not know the value of the land we assume that it represents 25%
of the total value of the property
38
 Depreciation and Amortization
 As a rule, depreciation is compulsory. However, a depreciation amount of the
current year can be claimed in a later year insofar as it was not deductible
previously because it exceeded the maximum depredation amount allowed for
tax purposes.

 Depreciation is usually taken on pools of items of a similar level of use. This rule
does not apply to buildings or cars;

 The unit cost below which assets may be written off in the year of acquisition or
production is currently EUR 1.000;

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 Depreciation and Amortization
 Accelerated depreciation may be allowed by the tax authorities. Where
tangible fixed assets are subject to extraordinary wear and tear, the
depreciation rates are increased by a maximum of 25% for use in two shifts and
by 50% for more intensive use.

 Under the straight-line method, the maximum depreciation is calculated by

applying to the adjusted purchase cost or production cost either the specific
depreciation rates (for assets used in farming, forestry or fisheries; mining or
quarrying; manufacturing; construction or public works; energy or water;
transportation or communications; and health, recreation, etc., services) or the
general rates (for other assets).

 Research and Development expenses can be considered as a tax expense in

the tax period in which they are incurred.
40
 Depreciation and Amortization
 The general maximum straight-line depreciation rates include:

Type of asset Rate (%)

Office buildings 2
Industrial buildings 5
Electronic equipment 20
Computers and compressors 33.33 or 25
Ordinary tools and fittings 25
Engines and heavy machine tools 1. 2.5
Portable machine tools 20
Motor vehicles 14.28, 20 or 25
Office equipment 12.5
Software 33.33
41
 Non-Deductible Depreciation
and Amortization
N.º 1 a) Items not subject to depreciation or amortization; Art.º 34.º
b) Real estate in the part corresponding to the land;
c) That exceed the legal limits;
d) Practiced beyond the useful life;
e) Passenger Cars(*), pleasure boats and tourist aircraft not used for the
public transport service or to be rented in the exercise of normal activity

(*) Acquisition Value Limit

Electric vehicles €62.500
Plug-in hybrids €50.000
Natural gas €37.500
Other vehicles €25.000
42
Special Situations DR 25/09

Taxed depreciation and amortization Art.º 20.º

Depreciation and amortization that are not considered as tax

expenses in the tax period in which they were accounted for,
because they exceed the maximum amounts allowed, are
accepted as tax expenses in the following periods, to the
extent that they do not exceed the maximum depreciation or
amortization quotas fixed in this regulatory decree.

43
 Capital Gains
Capital gains include:

 voluntary capital gains realized from the sale or exchange of fixed assets or the
appropriation of a company’s fixed assets for any purpose unrelated to the
operation of the corporate business;

 involuntary capital gains realized on compensation front expropriation and on

indemnities for a loss of assets.

44
 Capital Gains
 The gain is generally the amount by which the proceeds from the disposal
exceed the cost of acquisition;

 In order to avoid imposing tax on inflationary gains, the acquisition cost of fixed
assets, immovable property, and shares and comparable interests in companies
(excluding other financial assets) alienated after an ownership period of 2 years
may be adjusted in accordance with the indexation coefficient for the year of
acquisition.

Realization
Value - Acquisition Value -
Tax Depreciation
X Currency Devaluation
Coefficient

45
 Capital Gains - Reinvestments
 Under a partial rollover relief scheme, 50% of capital gains on the disposal of
tangible fixed assets owned for at least 1 year or resulting from indemnities
covering losses of such assets is taxable in the year of disposal;

 The remaining 50% is not subject to tax, provided that the total consideration
received is reinvested, within a 2-year period beginning in the year preceding
the disposal, in the acquisition of similar assets;

 If only part of the consideration is reinvested, only the corresponding part of the
gain qualifies for the relief.

46
Capital Gains - Reinvestments
Tax Correction

Total 50% of the tax capital gain

Reinvests
(% capital gain reinvested x
Realization Partial 50%) + (% capital gain not
Value reinvested)
Does not
reinvest Total capital gain

If the reinvestment is not made by the end of the second year, the corresponding gain that
was not taxed, as increased by 15%, is taxable in that year

47
Determination of the
Tax Base
Art.º 52.º
Net Accounting Profit
+/-
Equity Variations
+/-
Tax Corrections
=
With effect from 1 January 2023, an
Taxable Profit
unlimited loss carry- forward of tax
- losses applies. The losses may be
Tax Losses set off up to a maximum of 65% of
= the taxable income
Taxable Amount

48
Tax Rates
Art.º 87.º
N.º 1 21% - Normal Tax Rate
N.º 2 17% - To the first €25,000 of SMEs

49
Classification as SMEs
Decree-Law no. 372/2007

Company
Workers Turnover or Total Assets
Category

Medium < 250 ≤ EUR 50 million ≤ EUR 43 million

Small < 50 ≤ EUR 10 million ≤ EUR 10 million

Micro < 10 ≤ EUR 2 million ≤ EUR 2 million

50
 Autonomous Taxation Rates
Art.º 88.º

N.º 1 50%
Undocumented expenses are taxed autonomously, at the rate of 50%, without
or
N.º 2 70% prejudice to their non-consideration as expenses pursuant to Article 23a(1)(b).

10% Charges related to passenger cars, motorcycles or motorcycles depending on

N.º 3
27,5% their purchase value of less than €27,500, between €27,500 and €35,000 or more
35% than €35,000

N.º 18 Hybrids 2.5%, 7.5% and 15% respectively

N.º 19 Electric 10%, - acquisition cost ≥ € 62.500

51
 Autonomous Taxation Rates
Art.º 88.º

Charges related to representation expenses, namely receptions, meals, trips,

N.º 7 10% tours and shows offered in the country or abroad to customers or suppliers or to
any other persons or entities.

35%
expenditure corresponding to sums paid or due to resident persons or entities
N.º 8 ou
55% and subject to a clearly more favourable tax regime, unless justified.

Costs relating to subsistence allowances and compensation for travel in the

N.º 9 5% worker's own car, at the service of the employer, not invoiced to customers,
provided that...

52
Subsistence Allowances and
Travel by Own Car
No
Billed to No Map of Yes Taxed Yes
Autonomous
Customers ? Control? in IRS ? Taxation

No
Yes

No
Deductible Non-Deductible

Taxation
Autonomous

53
 Autonomous Taxation Rates
Art.º 88.º

N.º 13 Expenses or charges related to compensation for termination of contract of the

a) 35%
functions of manager. Administrator or manager.

expenses or charges related to bonuses and other variable remuneration

N.º 13
b) 35% provided that they exceed 25% of the annual remuneration and an amount
exceeding €27,500.

N.º 14
Tax Loss = + 10% on all taxes

54
Taxas de Tributação Autónoma
6 000 Autonomous taxation 100%
Corporate income tax 5307
% Companies 4 991 4 981
5 000
4 493 80%
4026
Millions of Euros

4 000
60%
3 000
39,2% 40,1%
37,8%
40,0% 39,7% 40%
2 000

20%
1 000
510 541 568 487 522

0 0%
2017 2018 2019 2020 2021
55