Portuguese State Budget for 2023 - What you need to know

The Portuguese State Budget Law for 2023 (Law 24-D/2022, of 30 December) came into force on January 1, 2023.

The key highlight is the introduction of a new tax framework for crypto assets, which are now defined in the Personal Income Tax Code. On the corporate side, there is the introduction of some important changes to the deductibility of losses whilst also increasing certain tax incentives for the capitalisation of companies.

On the other hand, the longstanding Non-Habitual Resident (NHR) regime remains unchanged.

Portuguese State Budget 2023 – what changes?

The main features of the Portuguese State Budget for 2023 are summarised below.

Corporate Income Tax (IRC)

1. Tax losses are now deductible for an unlimited period (until now, the carry forward was limited to 5 or 12 years, the latter for small and medium-sized companies), but the annual limit for the deduction is reduced to 65% (until now, the threshold was of 70%).
2. There is no longer the need to apply for authorisation from the Portuguese Tax Authorities for the maintenance of tax losses in case of a change of ownership of more than 50% of the share capital or of the voting rights.
3. The reduced 17% IRC rate applicable in Mainland Portugal (11.9% in Madeira) is extended to the first EUR 50,000 of the taxable amount of micro, small and medium-sized companies, as well as small mid-cap companies (the former threshold was the first EUR 25,000 of the taxable amount).
4. The pre-existing conventional remuneration of share capital is replaced by a new tax benefit providing that IRC taxpayers may deduct, from the respective taxable profit, 4.5% of net eligible equity increases (plus 0.5% in the case of micro, small and medium-sized companies and small mid-cap companies). For this purpose, contributions in cash or in kind, share premiums, retained earnings, reserves, and share capital increases are accounted for. The deduction is limited, in each tax period, to EUR 2,000,000 or 30% of the EBITDA, whichever is higher and applies in the tax period in which the equity increases occur and the following nine tax periods.
5. The costs of electric vehicles become subject to a 10% autonomous taxation whenever their acquisition cost exceeds EUR 62,500 (thus putting an end to the former exemption from autonomous taxation);
6. The autonomous taxation for companies with tax losses will not apply in 2022 and 2023, whenever: (i) the taxable income was obtained in any of the 3 previous years, (ii) the corporate tax returns for the 2 previous years have been timely filed and (iii) these relate to the first year or the following 2 years of activity.

Personal Income Tax (IRS)

1. A fiscal concept of crypto asset is introduced in the IRS Code. This concept does not include NFTs, which are left outside the scope of the new rules;
2. Whenever no effective commercial/professional activity exists, any form of remuneration derived from crypto assets operations will be generally taxed as capital income. Upon sale, the capital gains will be taxed unless the crypto assets were held for at least 365 days, in which case the respective capital gains are tax-exempt. The timeframe before 1 January 2022 is considered on the computation of the holding period;
3. However, no such tax exemption applies if either the seller or the acquirer is a tax resident outside the European Union or the European Economic Area, or in another country or jurisdiction with which Portugal does not have any tax treaty in force, nor any bilateral or multilateral agreement foreseeing the exchange of information for tax purposes. For the purpose of triggering capital gains taxation, the change of tax residence to abroad is deemed equivalent to a sale. Also concerning crypto assets taxation, where a real commercial activity exists and under the simplified regime (applicable to taxpayers with annual earnings falling below the EUR 200,000 threshold), either only 15% or 95% (depending on whether it relates to general crypto assets operations, or mere crypto assets mining, respectively) of the resulting gross income is deemed taxable income, to which the progressive tax rates apply; in this case, however, taxation only occurs upon sale of such crypto assets. For triggering capital gains taxation, the termination of such commercial activity or the change of tax residence to abroad is deemed to be equivalent to a sale;
4. The minimum subsistence income for those mostly depending on employment, self-employment or pensions, is established at EUR 10,640 (in 2022, it was of EUR 9,870);
5. For young workers (between 18 and 26 years of age), the partial exemption rates on employment or self-employment income in the first 5 working years increase to:
   • 50% in the first year with the limit of 12.5 times of the value of the IAS (€ 480,43);
   • 40% in the second year with the limit of 10 times the value of the IAS;
   • 30% in the third and fourth years with the limit of 7.5 times the value of the IAS; and
   • 20% in the fifth year with the limit of 5 times the value of the IAS.
6. The taxation of additional work (overtime) income is reduced by 50% from the 101st work hour.
7. Capital gains obtained by non-residents from the sale of real estate and on the onerous transfer of contractual positions or other rights related to real estate (in both cases when not attributed to a local permanent establishment) are considered in 50% of its value and mandatorily aggregated with their other worldwide income for determining the applicable progressive tax rate (as it already happens for residents);

By way of reference, the IRS rates applicable to residents of Madeira are the following:

Value Added Tax (VAT)

1. Under the simplified regime, the value of the VAT exemption is increased from EUR 12,500 to EUR 13,500.
2. Reduction of the VAT applicable to the acquisition of bicycles (from 23% to 6%).

Stamp Duty

1. The free transfers of crypto assets will now be taxed at a rate of 10%.