The government approved a package of 60 measures on Thursday, July 4th, to accelerate the economy. The plan, which aims to enhance the competitiveness of Portuguese companies and those headquartered in the country, includes a reduction of the corporate income tax (IRC) to as low as 15% and the creation of VAT groups.

The "Accelerate the Economy Program" is designed to boost economic growth in Portugal, making it a more prosperous and fair country. One key measure is the gradual reduction of the IRC rate by 2 percentage points annually, aiming for a 15% rate by the end of the current legislature in 2027. For small and medium-sized enterprises (SMEs) and small mid-cap companies, the IRC rate will decrease to 12.5% over three years, applied to the first 50,000 euros of profit.

Starting in January 2025, the government plans to introduce VAT groups to improve companies’ cash flow by simplifying the VAT refund process and reducing bureaucratic hurdles. Additionally, the eligibility for the cash accounting VAT scheme will be expanded to include companies with annual turnovers of up to 2 million euros, up from the current 500,000 euros limit.

Another significant measure is the expansion of the "participation exemption" regime. This will allow dividends and capital gains received by resident companies to be tax-exempt, provided they hold at least 5% of the distributing company’s capital or voting rights for more than a year. Currently, the threshold is 10%.

The plan also includes extending stamp duty exemption to centralized treasury management operations and increasing the deductibility of financing expenses incurred in merger operations. These measures are part of a broader strategy to foster economic growth and are subject to parliamentary approval.

One notable initiative is the "State Pays in 30 Days" program, which aims to reduce the payment time of public entities to suppliers to 30 days. This will involve creating an account system between the Tax Authority and companies, to be later expanded to all central administrations.

The package also involves revising the Tax Incentive System for Business Research and Development (SIFIDE II) to maximize the economic impact of already allocated but uninvested capital. The revision will allow up to 20% of SIFIDE funds to be invested in innovative production projects certified and funded in the R&D phase by SIFIDE or other national and European R&D programs. It also proposes reducing the required R&D expenditure of invested companies from 7.5% to 5% of their previous year's turnover and extending the investment period from 3 to 5 years.

Attracting qualified talent is another focus of the plan. It includes measures like the IFICI1+ regulation, offering a 20% tax rate on labour income to encourage scientific research, innovation, and human capital. This aims to cover a broader range of qualified professions and companies, boosting Portuguese business growth and talent acquisition.

The government also plans to reactivate the Interministerial Commission for Maritime Affairs (CIAM) to coordinate policies across different governance areas. This includes updating CIAM to include a consultative forum with representatives from various sectors, allowing a better definition of initiatives and governmental measures.

Further, the government intends to update the Marine Satellite Account, a macroeconomic statistical tool within the National Accounts published by the Statistics Institute. This tool evaluates the maritime economy's contribution to the national economy, particularly its impact on GDP and value-added generation. The goal is to enhance information compilation and include marine ecosystem services.

The package also includes the approval of the National Plan for Marine Litter, aimed at reducing marine waste disposal, and launching ocean campaigns to define 30% of Marine Protected Areas by 2030. Additionally, there is a plan to mitigate the impacts of ocean acidification on the marine environment, aligning with Portugal's commitment to the International Alliance to Combat Ocean Acidification.

The tourism sector is not overlooked, with measures including the revision and strengthening of support lines, creating programs to support tourism projects impacting local communities, and launching Tourism Bonds 2024 to diversify funding sources for businesses in the sector, which significantly contributes to the country's economic growth.

These comprehensive measures are intended to foster economic growth, ensure sustainability, and attract talent, aiming to make Portugal a more competitive and prosperous country in the coming years.

Author

Paulo Lopes is a multi-talent Portuguese citizen who made his Master of Economics in Switzerland and studied law at Lusófona in Lisbon - CEO of Casaiberia in Lisbon and Algarve.

Paulo Lopes