Corporate Income Tax Reform: Tax Simplification And Investment Promotion

Author:Mr Rogério Fernandes Ferreira, Mónica Respício Gonçalves, José Calejo Guerra and José D. Mègre Pires
Profession:RFF & Associados
 
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  1. ABSTRACT

    One year after the Reform Commission has started its work, amidst heavy debate and several proposals, Law no. 2/2014 was published in the Republic Gazette on 16 January 2014, thus approving the corporate income tax reform and republishing the corporate income tax code accordingly.

    Considering that, in the current economic scenario, any corporate tax regime plays a big role in economic development, even though it can generate important distortions in investment decisions and that the Portuguese regime has been in force for over 20 years, subject to recurrent changes to the tax legislation, specifically tailored amendments and the recent need to raise tax revenues, an in-depth reform of the tax system was of a vital importance to put Portugal forward as an attractive economy, both for Portuguese companies, as well as for foreign entities.

    In accordance, the time has come to make an end-to-end revision of the current corporate tax regime, considering the need to revise and simplify the taxation of companies thus promoting investment - be it domestic, inbound or outbound -, the need to revise and simplify the current regime of ancillary obligations imposed on taxpayers thus reducing some of the existing bureaucracy and the need to restructure the current international tax policy followed by Portugal in its relations with other countries and its positioning in a globalized economy, namely as regards the negotiation and conclusion of double taxation agreements.

    Please find below a summary of the most relevant measures.

  2. REDUCTION OF STATUTORY TAX RATES

    Tax rates are typically perceived as the ultimate proxy for how burdensome a given tax system is.

    Even though the effective tax burden relies on a myriad of elements, of which the nominal tax rate is just a small part, the most publicized measure is, probably, the reduction of the statutory tax rate to 23%.

    Despite the fact that the current reduction is only of 2 p.p., it represents the first step towards the proposed reduction of the nominal tax rate to 19%, with the extinction of the existing (municipal and national) surtaxes, progressively, until 2016.

    As a result of the political debate that was held on this matter, small and medium enterprises now benefit from a reduced tax rate of 17% applicable to the taxable income up to € 15,000.

    In order to mitigate the revenue impact of the decrease of the tax rates, the state surtax now includes a 7% additional tax rate applicable to taxable income in excess of € 35,000,000.00.

  3. (RE) INTRODUCTION OF A SPECIAL TAXATION REGIME FOR SMALL BUSINESSES

    Considering that the Portuguese...

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