The Corporate Income Tax Reform: Tax Simplification And Investment Promotion

Profession:RFF & Associados
 
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  1. ABSTRACT

    In the current economic scenario, any corporate tax regime plays a big role in the promotion of economic growth and the Portuguese regime is no exception, even though it can generate important distortions in investment decisions.

    Nowadays, Portugal has a robust corporate tax regime which has been in force for over 20 years, and which has been contaminated by recurrent changes to the tax legislation, specifically tailored amendments and the recent need to raise tax revenues.

    Notwithstanding, the time has come to make an end-to-end revision of the current corporate tax regime, considering the need to revise and simplify the taxation of companies thus promoting investment - be it domestic, inbound or outbound -, the need to revise and simplify the current regime of ancillary obligations imposed on taxpayers thus reducing some of the existing bureaucracy and the need to restructure the current international tax policy followed by Portugal in its relations with other countries and its positioning in a globalized economy, namely as regards the negotiation and conclusion of double taxation agreements.

    With the above mentioned objectives in mind, a special commission (the "Reform Commission") was appointed by the Portuguese Government to study the necessary changes and put forward a proposal of revision of the Corporate Income Tax Code and related legislation, which conclusions have been presented on 30 July 2013.

    Please find below a summary of the most relevant proposals.

  2. REDUCTION OF STATUTORY TAX RATES

    Tax rates are typically perceived as the ultimate proxy for how burdensome a given tax system is.

    Even though the effective tax burden relies on a myriad of other elements, as acknowledged by the Reform Commission, the most visible proposal entails the reduction of the statutory tax rates and the extinction of the existing (municipal and national) surtaxes, progressively, until 2018.

    Accordingly, the proposal is that the aggregated statutory tax rate is reduced, progressively and on a yearly basis, from 31.5% in 2013 (4th higher in the European Union) to 19% in 2018, with the surtaxes being completely repealed.

  3. (RE)INTRODUCTION OF A SPECIAL TAXATION REGIME FOR SMALL BUSINESSES

    Considering that Portuguese business sector is mainly composed of small and medium enterprises, the Reform Commission has put forward a proposal to reintroduce (a previous system had been repealed in 2010) a simplified tax system applicable to small businesses.

    According to the proposal this is an optional regime applicable to entities which comply with all of the following:

    i) maximum...

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