Following the outbreak of COVID-19 in Portugal, the Portuguese government issued an Order to provide tax relief as well as to address other challenges that companies may encounter.
Regarding tax matters, the deadlines for some tax obligations of companies have been postponed.
Situations of infection or preventative isolation of taxpayers and their accountants, declared by health authorities will be considered reasonable cause for a delay to the fulfilment of tax reporting obligations.
On March 24, the State Secretary for Tax Affairs released the Order no 121/2020 – XXII which provides for:
- A postponement of the new Monthly Stamp Duty return, which should now only apply to operations and facts occurred from 1 January 2021 onwards.
- Stamp duty settlement and payment obligations related to 2020 transactions are to follow the procedure available as of 31 December 2019.
- As per Decree-Law n.º 14-A/2020 of 7 April the deadlines relating to the entry into force of the obligation for private contractors to issue electronic invoices within the scope of public contracts (“B2G operations”) were postponed until 30 June 2021 (for small and medium-sized enterprises), 31 December 2021 (for micro companies) and 31 December 2020 (for the remaining).
- As per Order no. 437/2020 – XXII of 9 November 2020, issued by the State Secretary for Tax Affairs, invoices in PDF format must be accepted until 31 March 2021, which will be considered electronic invoices for tax purposes.
- Through Order no. 404/2020 of the State Secretary for Tax Affairs, the deadline for the obligation to issue invoices through a software certified by entities not established in Portugal but registered for VAT purposes in this territory is postponed to 1 July 2021 (this obligation was previously defined to enter in force in 1 January 2021).
- Through Order no. 412/2020 of the State Secretary for Tax Affairs, the obligation to issue invoices and all relevant tax documents with the mention to the unique code of the document (ATCUD) is postponed to 1 January 2022 (this obligation was previously defined to enter in force on 1 January 2021).
Customs and VAT reliefs
- In line with EU Commission Decision no. 2020/491, of 3 April 2020, Portugal applies a relief of import duties and a VAT exemption to imports of goods intended to be distributed / made available (free of charge) to the persons affected by or at risk from COVID-19 or involved in combating the COVID-19 outbreak. This measures will be applicable to imports carried out between 30 January 2020 and 31 July 2020 (and may be extended). The entities eligible to benefit from the import duties relief and from the VAT exemption and the procedure to be adopted with this regard are set out in Circular Letter no. 15762, issued by the Portuguese Tax Authorities in 22 April 2020. Recently, the Portuguese Tax Authorities issued Circular Letter no. 15796, from 29 October 2020, stating that the above-mentioned measures are extended until 30 April 2021.
- Law no. 13/2020, of 7 May 2020 foresees a VAT exemption applicable to domestic supplies and intra-EU acquisitions of goods necessary to combat COVID-19 outbreak included in its annex (namely face masks, gloves, protective suits, waterproof coats and respirators for intensive and sub-intensive care) made from 30 January 2020 to 31 July 2020, provided that they are made for one of the following purposes: free distribution to people affected by the outbreak of COVID-19, exposed to that risk, as well as to people participating in the fight against COVID-19 or treatment of people affected by the outbreak or on its prevention. The 2021 Proposal for State Budget proposes the extension of the application of this VAT exemption until 30 April 2021.
- Law no. 13/2020, of 7 May 2020 establishes the reduction of the VAT rate applicable to supplies of face masks and disinfecting hand gel (from 23% to 6%, in the Portuguese mainland) from 8 May 2020 until 31 December 2020. Also, the 2021 Proposal for State Budget recently presented to the Parliament proposed the reduced VAT rate mentioned above to be definitive.
- The 2021 Proposal for State Budget also foresees an innovative measure, called “IVAucher”, which allows the final consumer to accumulate the value amounting to the global amount of VAT incurred in the accommodation, culture and food & beverage sectors and use said value in the following quarter, in expenses incurred in the same sectors.
- As per Order no. 437/2020 – XXII of 9 November 2020, issued by the State Secretary for Tax Affairs, the structure of the file through which inventories are communicated to the Portuguese Tax Authorities, only comes into effect for the communications of inventories regarding 2021, to be performed 31 January 2022.
- Also, the communication of inventories of both natural persons and legal entities, with head-office, permanent establishment or fiscal domicile in Portugal, which have organized accounts and are obliged to draw up an inventory, maintains the delivery structure in 2020 (for 2019) for the communication of 2020 inventories, to be carried out until 31 January 2021.
Tax procedures and proceedings
- According to Law no. 16/2020, of 29 May, procedures and proceedings that have been brought before administrative and tax courts are subject to a transitional and exceptional regime in what regards the procedures that require the physical presence of the involved parties, providing the possibility of such procedures to be carried out trough technologic means of distance communication.
- Additionally, the same law foresees the suspension of some deadlines and procedural acts whose diligences cannot take place under the alternative terms set out in this diploma.
- Furthermore, the referred law introduces additional measures in what regards limitation and prescription periods of administrative procedures that were, due to the COVID-19 pandemic situation, previously suspended.
Exceptional moratorium regime provided through the suspension or extension of eligible credits
- Following the publication of Decree-Law no 10-J/2020 – which provides, namely, exceptional measures on credit protection – the State Secretary for Tax Affairs released the Order no 138/2020 – XXII which states that in what regards credits with fixed or determinable terms that trough this exceptional regime are extended, Stamp Duty is only levied when the new extended term corresponds to a higher rate in comparison with the rate of the original term.
- Under this Order, the capitalization of accrued interest (derived from credits with fixed or determinable terms) during the extension period should not trigger additional Stamp Duty taxation.
- Additionally, the abovementioned order clarifies that no Stamp Duty is levied on the extension on guarantees that are materially ancillary to contracts specifically taxed under the Portuguese Stamp Duty Code.
Supplementary 2020 State Budget Law
According to Law no. 27-A/2020, of 24 July 2020, a Supplementary FY20 State Budget Law was published due to the COVID-19 outbreak.
The tax measures set out at the supplementary budget are the following:
- An extension of the tax losses carry forward loss period (from 5 to 12 years) regarding losses computed in FY20 and FY21 and an increase in the allowed loss offset from 70% of the taxable income to 80% for losses computed in covered FYs, as well as the suspension of the carry forward period for the tax losses available as from 1 January 2020 during FY20 and FY21.
- An extraordinary reduction on the FY2020 payments on account, ranging from 50% to 100% of the respective amount, as follows:
- up to 50%, in situations of a turnover decrease of at least 20% (*); or
- full exemption applied in situations of a turnover decrease of at least 40% (*).
(*) in the monthly billing average of the first six months of 2020 when compared to the average verified in the same period of the previous year.
This sets out specific measures to be applied to Companies that are included in a CIT tax group.
- The request, in 2020, for the full reimbursement of the special payment on account available and not deducted until FY19.
- An incentive to merger operations carried out under the CIT tax neutrality regime taking place in FY20 for to micro and SMEs companies, which includes the following tax measures:
- waiver of the limitation of tax losses deduction during the first 3 years of application of the benefit provided that several requirements are met, namely that the entities involved have not resulted from a demerger operation that occurred in the 3 years before the date of the merger, the activity of the entities involved must be substantially identical and no profit distribution occurs within the 3 subsequent years from the date on which this tax incentive takes effect;
Additionally, under this same tax benefit, State surcharge is not due in the 3 FYs counted from the date of the merger.
- A special tax loss transfer regime applied to SMEs, which is subject the fulfillment of some requirements, related, namely, with employment retention and non-distribution of profits, and includes:
- a special regime for mergers of qualifying SMEs with similar activity in the last 12 months (at least 50% of turnover corresponds to same activity), which allows losses to be transferred without the standard restrictions that limit the amount of transferred losses based on the proportion of the value of net assets transferred and the total net assets of the entities involved in the merger, and provides an exemption from State surcharge within a three-year period; and
- a special regime for the acquisition of a qualifying SMEs considered as a "company in difficulty situation", which allows losses of the acquired company to be transferred in proportion to the share capital held and capped at 50% of the annual taxable profits of the acquiring company, without the standard restrictions applied to the situations in which a change of ownership of more than 50% occurs.
- The reinstatement of a tax credit aimed to promote investment expenditures (“CFEI II”) which sets out a deduction to the CIT taxable income of 20% (up to a 70% limit of the total amount of the computed taxable income) of the eligible expenses incurred with assets related with exploitation between 1 July 2020 and 30 June 2021.
The unused tax credit can be carried forward for 5 years.
- An exceptional regime applicable to tax debts computed between 9 March and 30 June 2020, as well as the monthly contributions due to Social Security authorities due in the same period.
- An introduction of an exceptional regime applicable to tax debts computed between 9 March and 30 June 2020, as well as the monthly contributions due to Social Security authorities due in the same period.
- Further to the above, Law No. 27-A/2020 also provides for the introduction of an additional solidarity bank levy to finance the social security financial stabilization fund.
The levy applies at a rate of 0.02% on the average value of certain liabilities and a rate of 0.00005% on off-balance sheet derivatives.
The referred additional solidarity bank levy is due by credit institutions whose head office or place of effective management is in Portugal, as well as subsidiaries and branches in Portugal of credit institutions outside this territory.
Tax measures applicable to SMEs/cooperatives following COVID-19’s outbreak
Law no 29/2020, of 31 July, sets out tax measures applicable to SMEs and cooperatives (as per the definition established at article 2 of Annex of Decree-Law 372/2007, of 6 November)
The referred law establishes the following measures:
- Temporary suspension of CIT’s payments on account applicable to SMEs/cooperatives that intend to benefit from the exceptional regime;
- The refund to be requested in 2020 of the special payments on account of CIT that had been provided in previous FYs and not deducted up to the FY19’s taxable profit of the SMEs/cooperatives covered by this legislative act;
- A maximum 15-days period (counted from the filing of the respective tax return made by the taxpayer), for the refund of withholding taxes, payments on account or VAT computed in excess when compared with the amounts due.
Moreover, in accordance with the abovementioned law, the limitation on the CIT’s payments on account is subject to Government’s regulation.
As such, Order no. 338/2020-XXII of 24 August, was issued by the State Secretary for Tax Affairs, establishing the conditions for the application of the suspension regime of CIT’s payments on account set out in Law no 29/2020.
As per the referred Order, the suspension on the CIT’s payments on account is subject to the conditions set out in Law no 27-A/2020, of 24 July establishing, namely, specific conditions to companies included in a CIT tax group relief regime.
Additionally, the Order sets out that the certification of the conditions that sustain the limitation of the first and second CIT’s payment on account is deemed to be fulfilled up to the date in which the third CIT’s payment on account would be due (i.e. December of the respective FY).
DAC6 – Deferral of reporting deadlines
- Decree-law no 53/2020, of 4 August 2020, transposed the Council Directive (EU) 2020/876, of June 24, 2020, into the internal legal order, thus formalizing the option of the Portuguese State for deferring the reporting deadlines under the EU Mandatory Disclosure Rules (“DAC6”).
- Thus, the reporting deadline for arrangements that occurred between 25 June 2018 and 30 June 2020 will now be 28 February 2021, while the reportable arrangements that occurred between 1 July 2020 and 31 December 2020 should be reported within 30 days from 1 January 2021.
- In addition to the deferral of the reporting deadlines, the same decree-law establishes the set-up of the “DAC6 Forum” which will aim to promote the monitoring of the regime provided for in DAC6 and to provide guidance to address the doubts that have been raised by the economic agents.
Additional tax deduction applicable to donations to “SPMS – Serviços Partilhados do Ministério da Saúde, EPE” (a health public corporation) and some corporate public hospitals
- Order no. 137/2020-XXII of 24 August, issued by the State Secretary for Tax Affairs, establishes that, for the purpose of tax benefits set out in the Tax Benefits Code in relation to donations made up to 31 December 2020 (amendment set out by Order no. 415/2020-XXII, of 30 October) the entity “SPMS – Serviços Partilhados do Ministério da Saúde, EPE” (an health public corporation) and some corporate public hospitals are eligible for the application of the tax benefit.
- According the Portuguese Tax Benefits Code, donations given to the Portuguese State and all other public entities (including public hospitals and health care places) whose main activity is dedicated to pursuing social policy goals, benefit from a tax credit corresponding to 40% of the donation, with no limitations.
- In light of the above, the donations given to “SPMS – Serviços Partilhados do Ministério da Saúde, EPE” and to corporate public hospitals within this fiscal year and until 31 December 2020 should also benefit from a tax credit corresponding to 40% of the donation, with no limitations.
Installment payment program applied to tax debts
Considering that the suspension of tax execution procedures has ceased on 30 July, the Order no 354/2020-XXII, of 11 September, issued by the State Secretary for Tax Affairs has established that tax debts of an amount equal to €5,000 and inferior to €10,000 may be paid in instalments if the following conditions are met:
- the tax debts should be in a voluntary claim phase;
- the taxpayer should not be in debt regarding any taxes administered by the Portuguese Tax Authorities;
- the tax debts should be due until 31 December 2020.