PORTUGAL Law and Practice Contributed by: Francisco Cabral Matos, Rita Pereira de Abreu and Margarida Campelo, VdA
2.2 Technology Investments SIFIDE II
ble accounting framework, adjusted according to the CIT Code. Tax losses can be carried forward with no time limi - tation. The deduction is limited to 65% of the tax - able profits of the relevant year. As a general rule, all expenses incurred for the conduct of business (to obtain or ensure income subject to tax) are tax deductible, except if a specific limitation applies pur - suant to the CIT Code. In Portugal, profits are determined on an accrual basis under the “ princípio da especialização dos exercíci - os ”, meaning revenues and costs are recognised in the period to which they relate, regardless of receipt or payment, with limited statutory exceptions (eg, items that were unforeseeable or unknown at year-end, and certain multi-year contracts). In certain circumstances (eg, where it is impossible to prove and accurately quantify the essential elements of taxable income, unjustifiably significant losses/ gains, abnormal decreasing of activity), tax authori - ties may resort to indirect methods to determine tax - able profits. Non-resident entities with no permanent establish - ment in Portugal may be subject to (withholding) tax on income sourced in Portugal, with their taxable base calculated on the net sum of the different categories considered separately for PIT purposes. If a permanent establishment is deemed to exist, it will be taxed on its worldwide taxable profits attributable to the permanent establishment. Portugal provides an optional regime under which an entity treated as a Portuguese tax resident may exclude from taxation the profits and losses of its foreign permanent estab - lishments. This exclusion does not apply to profits allocated to a foreign permanent establishment to the extent of prior losses of that permanent establishment that were utilised by the Portuguese head office in the previous 12 tax years. The election must cover all permanent establishments located in the same juris - diction and be maintained for at least three years.
The Portuguese legislature has created a special tax credit applicable to qualifying R&D expenses (SIFIDE II), which was originally intended to be in force until December 2025. The legislation was recently reviewed in order to amend the Investment Tax Code and extend this scheme until 31 December 2026. According to SIFIDE II, which remains in force, resi - dent companies and Portuguese permanent estab - lishments may benefit from a tax credit comprising (i) a base rate credit of 32.5% of the R&D expenses incurred in a given year, and (ii) an incremental credit of 50% of the difference between the R&D expenses incurred and the average of the previous two years, capped at EUR1.5 million. However, the Portuguese government has proposed amendments to the existing SIFIDE II, which will limit the range of benefits and will essentially exclude tax - able deductions linked with contributions to invest - ment funds that indirectly invest in R&D (also known as “SIFIDE Funds”). Among other amendments aimed at promoting this type of investment, there is also a discussion on the extension of investment deadlines, so that R&D companies may invest their SIFIDE funds up to five years (the current limit being three years). Patent Box Portuguese legislation provides for a patent box regime that grants an 85% exemption on gross income derived from the assignment or temporary use of patents, industrial models or designs, copyrights over computer software, and indemnities resulting from the infringement of such IP rights. However, this benefit is only available if specific conditions are met: the IP must originate from research and development activities carried out either in-house or under contract, and must be used in a business, industrial or agricul - tural context. Additionally, the exemption is subject to a limitation based on the proportion between qualifying R&D expenses and the overall costs involved in creat - ing or exploiting the IP. This regime adheres to the international standards outlined in BEPS Action 5, and excludes transactions involving related parties,
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