Portugal – State Budget Proposal 2022
Overview of proposed changes to the Personal Income Tax and Corporate Income Tax Codes.
The Proposed State Budget Law for 2022 is being discussed at the Portuguese Parliament. Significant changes to the Proposal presented by the Government are not expected.
Where taxes are concerned, the most relevant developments relate to the taxation of individuals. In our view, this State Budget is not business-oriented nor provides significant tax relief for families.
The contents of this article are subject to updates.
Personal Income Tax
The Proposal increases the tax bands applicable to earned income, creating nine rates instead of the current seven.
The new rates are as follows:
- Up to € 7.116 14,5%
- € 7.116- € 10.736 23%
- € 10.736 – € 15.216 26,5%
- € 15.216 up to € 19.696 28,5%
- € 19.696 up to € 25.076 35%
- € 25.076 up to € 36.757 37%
- € 36.757 up to € 48.033 43,5%
- € 48.033 up to € 75.009 45%
- Excess of € 75.009 48%
The Proposal will also change the limits of personal deductions associated with taxable income, particularly for taxpayers in the upper brackets.
Particular attention should be paid to taxable capital gains on movable property, such as securities. The Proposal provides for the taxation of specific gains at progressive rates instead of the current 28% flat tax. This regime will apply to short-term capital gains (securities held for less than 365 years) and to taxpayers earning income over € 75.009. Furthermore, the FIFO rule will be used to determine the taxable gain. Finally, losses may be carried forward for five years.
Banks and financial services providers will have additional reporting obligations regarding transactions involving securities. They must disclose transactions until the 20th of January of the following year.
Allowances for workers aged 18 to 26 years old are extended up to five years (currently three years) without a cap. Level 4 of the National Qualifications Framework is required. The allowance can be further extended up to 28 years old for level 8 of the National Qualifications Framework (Ph.D.).
The Proposal will also impact the tax allowance currently in force for taxpayers returning to Portugal. This tax exemption corresponding to 50% of earned income will be available for five years, both for employment and self-employment income. Eligibility is contingent on a taxpayer not being a tax resident of Portugal during the three previous years and having no unpaid tax debts.
Corporate Income Tax
The non-deductible charges are included in the non-deductible charges in documents issued by taxable persons who have not submitted the declaration of commencing of activity.
Only 15% of income derived from IP will be taxable. Therefore, 85% of revenue is tax-exempt provided rules regarding the legal ratio between eligible and expenses are met.
The Special Payment on Account will be terminated.
SME autonomous taxation in the event of losses will be limited. Generally, an additional 10% autonomous taxation rate applies to companies assessing a CIT loss.
This additional tax is waived, provided the following conditions are met:
- The corporate taxpayer assessed a profit in one of the three previous tax years, and CIT filings were made correctly; or
- The corporate taxpayer started trading in 2022 or one of two preceding fiscal years.
Companies not complying with tax return filing requirements will face new tax assessment rules. The lack of a tax return filed by the corporate taxpayer will lead the Portuguese Tax Authorities to assess CIT based on:
- The information available to the PTA, using the simplified regime, thus applying a 35% coefficient on sales;
- In the absence of any information regarding sales, the coefficient is applied on the highest of two amounts: last fiscal year’s tax profit or the annual minimum wage.
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