PORTUGAL Trends and Developments Contributed by: João Riscado Rapoula and Hugo Leonardo, VdA
• R&D jobs for employees whose costs are eligible for the purposes of the system of tax incentives for R&D (SIFIDE); • jobs and members of governing bodies who carry out economic activities recognised by AICEP or IAPMEI (the Portuguese agencies for trade and competition) as relevant to the national economy; and • jobs and members of governing bodies in entities certified as start-ups. The employment/service provision income received in connection with the eligible activities is subject to tax, during a ten-year period, at a rate of 20%, instead of the general progressive rates regime that may reach 48% with the possibility of solidarity surcharges being added. This regime also provides for an exemption on foreign- sourced employment income, business and profes - sional income, investment income, rental income and capital gains (with foreign pension income being taxed under the general terms). The application for this tax regime must be submitted by 15 January following the year in which the appli - cant became a Portuguese tax resident, and requires certain certifications to be provided by Portuguese entities – such as the Foundation for Science and Technology (FCT), the National Innovation Agency (ANI), the Trade and Investment Agency (AICEP) and the Portuguese tax authorities. Stock option regime Portugal’s stock option regime, established under Law 21/2023, offers a competitive framework for attract - ing and retaining talent, particularly in the country’s thriving start-up and innovation ecosystem, and is becoming a clear trend. As a technology hub with more than 4,700 start-ups in 2024, Portugal leverages equity-based incentives – such as stock options – to empower companies and employees alike. The regime applies to start-ups, SMEs, Small Mid-Cap companies and innovation-focused organisations. It allows employers to grant stock options, which are rights for employees to acquire shares on predefined terms (exercise price, share class, vesting period,
etc), formalised through clear plans governing grant, vesting and settlement. The standout benefit is the deferred taxation: employees are taxed only when a liquidity event occurs (eg, sale of shares or exit), rather than at the time of grant or vesting. When this taxable event arises, only 50% of the gain is considered, taxed at a special flat rate of 28%, resulting in an effective tax rate of just 14%. This is attractive compared to other European jurisdictions and fosters staff align - ment with company growth. Beneficiaries who directly or indirectly hold at least 20% of share capital or voting rights, or serve on gov - erning bodies, are excluded – except for start-ups or micro/small enterprises, which broadens access to the incentive. This ensures incentive plans are direct - ed at wider employee populations. A key requirement is the one-year minimum holding period for shares or equivalent rights. Beneficiaries must hold the acquired equity for at least 12 months before a taxable disposal to benefit from the reduced tax base. Only holding the option, without acquiring shares, does not satisfy this condition; the regime is designed to encourage real equity alignment, and same-day exercise and immediate sale may disqualify the employee from the preferred tax treatment. For internationally mobile employees, the regime introduces an exit tax: when an employee leaves Portuguese tax residency before a liquidity event, a deemed tax event occurs based on the fair market value, with only 50% of the gain taxed at the special rate. This provision is practical and protective, but companies should manage cross-border moves care - fully and communicate plan rules clearly. Three years on from its introduction, Portugal’s stock option regime is a critical step forward, embrac - ing modern trends in employee equity taxation. Its mechanics – deferred taxation, reduced taxable base and a competitive flat rate – offer a robust platform for talent attraction and retention, confirming Portugal’s position as a top destination for innovative companies. Companies may leverage these rules and incentives to craft compelling, fair equity-based compensation, fostering entrepreneurial growth and value creation. The regime is an asset for Portugal’s continued rise as
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