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Significant changes proposed to Portugal’s Corporate Income Tax law

The Portuguese government is seeking to cut the corporate income tax rate to 20% from the current 31.5% in the 2014- 2018 period, in an effort to attract new investments in the country. The proposed changes to the CIT law, if approved, are expected to be enacted in 2014.

In Portugal the standard corporate tax in 2013 is with an additional surtax of 3%-5% for income exceeding EUR 1.5 million and of up to 1.5% municipal tax making a total of 29.5%-31.5%. Companies in the free trade zone of Azores are eligible for a reduced tax rate of 17.5%.

The average corporate rate in the European Union is 23.5% and it is 26.1% in the euro zone.

The idea is to make a Portugal one of the most attractive countries in Europe for new investment by providing very strong fiscal incentives to new investments.

Also changes to make the labor law more flexible and companies easier to be set up, fiscal incentives to new investment and the use of EU funds to train the Portuguese to work in export-led industries will provide sustainable economic growth.

The government expects the industrial sector—including car-making, textiles the traditional shoemaking, and also wine and machinery industries —should contribute about 20% of GDP by 2020, up from 13% currently, and close to Germany’s 25%. Portuguese exports, meanwhile, should equal 50% of GDP by then, up from 37% currently.

Despite the sharp slowdown in economies in Europe, including in Portugal’s largest trading partner, Spain, the country was able to increase exports by 7.5% last year. Bank of Portugal expects a further 6.3% rise this year.

Portugal is a very stable country, where the companies can expect low levels of uncertainty and changes in legislation. In opinion of our expert from Portugal, Andre Sousa Cruz, once the law regarding a new Corporate Income Taxcome into effect, it will for sure be in place for long time.

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