Portugal is a popular destination for foreign investors due to its stable economy, strategic location, and favorable tax regime. The Portuguese government has implemented a range of tax incentives and exemptions to attract investors to the country, especially in the fields of intellectual property, research and development (R&D), and innovation. In this article, we will provide an overview of the tax incentives available for investors in Portugal.
Tax incentives for intellectual property
Portugal has a favorable tax regime for intellectual property (IP) rights, which includes patents, trademarks, copyrights, and other related rights. This includes:
- A reduced tax rate of 10% for income derived from IP rights that are developed or exploited in Portugal
- An exemption from tax for income derived from IP rights that are developed or acquired outside Portugal, for non-habitual residents
- A patent box regime that provides a reduced tax rate of 85% for qualifying intellectual property income, applicable for income derived from intellectual property developed or acquired after March 31, 2019
In addition, Portugal has implemented a special tax regime for non-habitual residents (NHRs) who receive income from intellectual property. NHRs are foreign individuals who become residents in Portugal for tax purposes and are not considered tax residents in the country where they have their primary residence. Under the NHR program, income derived from IP is exempt from tax in Portugal, provided that the IP was developed or acquired outside Portugal.
Tax incentives for R&D and innovation
Portugal has implemented several tax incentives for companies engaged in R&D and innovation. These incentives aim to encourage companies to invest in new technologies, products, and services, and to develop innovative solutions that can enhance their competitiveness in the global market.
One of the most significant tax incentives for R&D and innovation is the Research and Development Tax Credit (SIFIDE). SIFIDE provides a tax credit of up to 82.5% of eligible R&D expenses incurred by companies engaged in R&D activities in Portugal. The tax credit can be used to reduce the company’s corporate tax liability or to obtain a cash rebate.
Portugal also provides tax incentives for companies that invest in venture capital funds that finance innovative startups and small and medium-sized enterprises (SMEs). These incentives include a tax credit of up to 25% of the amount invested in the venture capital fund, as well as an exemption from capital gains tax on the sale of the shares of the venture capital fund.
Read also: Taxes in Portugal
Other tax incentives for investors
Apart from the tax incentives for IP, R&D, and innovation, Portugal also provides several other tax incentives for investors, including:
- Reduced corporate tax rate for companies engaged in export activities
- Exemption from withholding tax on dividends, interest, and royalties paid to non-residents
- Tax deductions for investment in certain regions of Portugal, such as the Autonomous Region of Madeira and the Azores
- Tax exemptions for certain types of income, such as capital gains on the sale of shares in Portuguese companies
Let’s take a closer look at tax deductions for investors in the islands as Madeira has been a long-popular destination for investing in the hotel business, while the Azores are a fast-developing region with promising investment opportunities in agriculture, vine production, and tourism.
Tax deductions for investment in Madeira and the Azores
Madeira and the Azores are two of Portugal’s autonomous regions, located in the Atlantic Ocean. Both have unique characteristics that make them attractive for investment, such as their strategic location, natural resources, and cultural heritage. To encourage investment in these regions, the Portuguese government has implemented several tax incentives, including tax deductions for qualifying investments.
Here are some of the main features of these tax deductions:
- Tax deduction rate. The tax deduction rate for qualifying investments in Madeira and the Azores is 20%, which means that up to 20% of the investment amount can be deducted from the investor’s taxable income.
- Eligible investments. To qualify for the tax deduction, the investment must be made in specific sectors identified as priorities for economic development in Madeira and the Azores. These sectors include tourism, renewable energy, agriculture, fisheries, and cultural industries, among others.
- Minimum investment amount. The minimum investment amount required to qualify for the tax deduction varies depending on the sector and the region. In Madeira, for example, the minimum investment amount for tourism projects is €500,000, while for other sectors, it is €75,000. In the Azores, the minimum investment amount ranges from €20,000 to €500,000, depending on the sector and the location.
- Duration of the tax deduction. The tax deduction is granted for a period of five years, starting from the year in which the investment is made.
- Application process. To apply for the tax deduction, the investor must submit a proposal to the relevant regional authority, providing detailed information on the investment project, including its economic, social, and environmental impact.
In addition to the tax deductions, Madeira and the Azores also offer other incentives to investors, such as reduced corporate tax rates, simplified administrative procedures, and access to funding and support programs.
Overall, the tax deductions for investment in Madeira and the Azores can be an attractive incentive for those looking to invest in these regions and take advantage of their unique potential. However, it is important to carefully evaluate the investment project and comply with the relevant legal requirements to ensure eligibility for the tax deduction and maximize its benefits.
Portugal offers a favorable tax regime for investors, especially in the fields of IP, R&D, and innovation. The tax incentives available to investors can help reduce their tax liability, increase their cash flow, and enhance their competitiveness in the global market. If you are considering investing in Portugal, it is essential to understand the tax incentives available to you and how you can take advantage of them.
