Tax Alert - New tax measures and the long-awaited NHR 2.0

On July 4, 2024, the government approved a program aimed at enhancing Portugal's global tax competitiveness and attracting foreign investment, capital, and skilled professionals.

The proposals are expected to be implemented before the end of the year, either through approval by the Portuguese Parliament or regulation of existing regimes.

What are the new measures?

There are new measures for businesses and individuals.

For Companies

• Corporate Income Tax (“CIT”) Reduction: A gradual reduction of corporate income tax by 2% per year, aiming to reach 15% by 2027. The first step will then be a reduction from the current 21% to 19% as from 2025.

Madeira would be allowed to have a 13.3% CIT rate as of 2025 and a 10.5% rate as of 2027.

• Small and Medium-Sized Companies: Accelerated reduction of corporate income tax for small or medium-sized companies and small mid-cap companies, targeting a reduction from 17% to 12.5% by 2026, applicable to the first 50,000 euros of taxable income.

Madeira would be allowed to apply an 8.75% CIT rate on these cases (instead of the current 11.9%).

• Participation Exemption Regime: Reduction of the minimum holding requirement from 10% to 5% for a minimum period of one year.
• Financing Costs Deductibility: Increased deductibility of financing costs incurred during restructuring operations, relaxing the 1M€ or 30% of the EBITDA rules on these cases.
• Goodwill Tax Deductibility: Expansion of operations covered by the goodwill tax deductibility regime.

• Extension of the Stamp Duty exemption on cash pooling arrangements.

The Government also announced plans to finally transpose the Pillar 2 rules to the Portuguese tax landscape.

For Investors and New Tax Residents:

• NHR 2.0 (also known as “IFICI”): Expansion of the list of professions and business activities eligible under the new regime for attracting talent from abroad, which replaced the previous Non-Habitual Resident regime on December 31, 2023.

Apart from a 20% flat rate applicable over employment and self-employment income, this regime is expected to maintain an exemption in Portugal over foreign-sourced passive income (except for blacklisted jurisdictions).

This measure will be implemented through the long-expected regulation of NHR 2.0 and will not need to go through lengthy Parliamentary discussions.

• PIT Tax Credit: Creation of an IRS tax credit for capital gains and dividends earned by individuals who invest in Portuguese companies involved in eligible capitalisation operations.

NEWCO will continue monitoring the developments and keep you posted.