Portugal - Investment and Job Creation Incentives (2014)

2014

Investment and Job Creation Incentives in Portugal

New Tax Reform

EMPLOYMENT CENTER

AICEP

SOCIAL SECURITY

MINISTRY OF FINANCE

2

Investment and Job Creation Incentives

Investment projects promoting innovation and employment aiming at regional development.

1. Tax & Financial Investment Incentives

Scope

Refundable financial incentives, in assisted areas - most of the Portuguese territory -, in most economic sectors, under the 2014-2020 EC Guidelines for regional development. (2014-2020 Portuguese state aid legislation submitted to EC approval)

Financial Incentives

Total aid intensity subject to EU and national limits on state aid and up to 25% of the eligible expenses (in Gross Grant Equivalent), depending on the location.

Incentive Package ( Tax & Financial)

Tax Incentives

Exemption or reduction of corporate income tax, municipal taxes, property acquisition tax and stamp tax duty. (2014-2020 Portuguese state aid legislation submitted to EC approval)

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North: 1. Minho-Lima 2. Cávado 3. Ave 4. Alto Trás-os-Montes 5. Grande Porto 6. Tâmega 7. Douro 8. Entre Douro e Vouga Alentejo: 21. Lezíria do Tejo 22. Alto Alentejo 23. Alentejo Central 24. Alentejo Litoral 25. Baixo Alentejo

Centre: 9. Baixo Vouga 10. Dão Lafões 11. Serra da Estrela 12. Beira Interior Norte 13. Baixo Mondego 14. Pinhal Interior Norte 15. Cova da Beira 16. Beira Interior Sul 17. Pinhal Litoral 18. Pinhal Interior Sul 19. Médio-Tejo 20. Oeste

Maximum Aid Intensities (in Gross Grant Equivalents)

Remaining: 26. Grande Lisboa 27. Península de Setúbal

28. Algarve 29. R. A. Madeira 30. R. A. Açores

25%

10%*

EU Limits: applied to Investment Incentives 2014- 2020 The 2014-2020 national aid maps and incentive schemes

* Regions not yet defined

1. Tax & Financial Investment Incentives

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2. Internships

• Unemployed aged between 18 and 30 (inclusive), with a qualification level > 1; • Unemployed (more than 12 months) aged 30 or above, looking for a new job, with a

new qualification level higher than 1, acquired in the last 3 years; • Unemployed between 31 and 35, in predefined sectors, with a qualification level

higher than 1; • Unemployed living in a single parent family; • Unemployed married couple or in a de facto relation where both are unemployed; • Handicapped unemployed (no age limit).

Target population

• Up to 12-months Internship The intern will receive a monthly support comprising: Monthly trainee subsidy + meal allowance (€88,96) + work insurance

(€13,82): • Up to €438,16 – Primary education until grade 9 (Level 2); • Up to €505,23– Secondary general education (Level 3); • Up to €538,77 – Secondary vocational education (Level 4); • Up to €572,31 - Post-secondary non-Tertiary (Level 5); • Up to €656,15 – Tertiary Education (Levels 6, 7 and 8)

Total Grant to the Intern

Total Employers Cost

Entity in charge Public Employment Service Apply at: www.netemprego.gov.pt

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Source: Ordinance 149-B/2014, July 24th , “Estágios Emprego”, under the Strategic Regime

At least, 20% of the Monthly trainee subsidy Social Contributions (23,75%)

3. “Estímulo Emprego” Program

• Unemployed enrolled in Employment Center for more than 6 months; • Unemployed enrolled in Employment Center for more than 3 months aged

less than 30 or over 45; • Unemployed living in a single-parent family; • Living in a legal relation where both are unemployed; • Unemployment compensation beneficiaries; • Social income beneficiaries.

Target Population

Fixed-term employment contracts: • EUR 335,38 x [nº months of the contract x 50%] up to the limit: EUR

2.012,26; • EUR 419,22 x [nº months of the contract x 50%], in certain cases up to

the limit: EUR 2.515,32; Permanent employment contracts: • EUR 461,14 X 12 months = EUR 5.533,68

Total Financial Grant

•To provide on-the-job training during the maximum period; • Minimum length of fixed-term contracts is 6 months; • Net increase in total employment; former trainees are eligible.

Requirements

Source: Ordinance nº149-A/2014, July 24th

Public Employment Service Apply at: www.netemprego.gov.pt

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Entity in charge

4. Temporary Exemption of social contributions

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• Applies to young people looking for first job, aged less than 30 years old; • Long-term unemployed (registered at the employment center for more than

12 months). To whom it applies

• Only applies to permanent employment contracts; • Exemption ceases, namely, in case of employment contract termination or suspension (excepting employee temporary incapacity or unavailability for work).

• In case of long-term unemployed, no previous fixed-term contracts for more than 6-months period; in case of young people, no previous permanent contract.

Conditions

Source: Decree-Law No. 89/95

Social Security Aurhority http://www4.seg-social.pt/isencao-e-reducao-do-pagamento-de-contribuicoes1

Entity in Charge & How to apply

Exemption from payment of Social Security Contributions [23,75%] for a maximum period of 36 months

Grant to employers

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5. “Incentive” program 2013-2015

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To whom it applies

The financial support is granted until September 30th 2015 or until the end of the contract. Payments to employers are made quarterly. The entity in charge for the financial payment is the Public Employment Service. The incentive may be cumulative with others applied to the same job.

Duration and conditions

Source: Ordinance nº286-A/2013, September 16th

Entity in charge is the Public Employment Service. Apply on-line at: https://www.seg-social.pt/consultas/ssdirecta/ Key Word: “Medida Incentivo Emprego (2013-2015)”

Entity in Charge & How to apply

1% of gross monthly wage Grant to employers

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Applies to new labor contracts, both fixed-term or permanent (exception for public-sector employees and very short term contracts)

6. Fiscal Incentives for Expats

Target

Qualified Expatriates in: - high added-value activities - scientific, artistic or technical activities - upper management positions

Incentive Flat rate for Income Tax: 20%; - It applies for a maximum period of 10 years; - Applicant must be registered as a Portuguese tax resident

Entity in Charge Ministry of Finance

Source: Decree-Law 249/2009, of 23rd September (available at http://dre.pt/pdf1s/2009/09/18500/0677406783.pdf )and Regulation 12/2010, of 7th January 2010. Available (in Portuguese) at http://dre.pt/pdf1s/2010/01/00400/0004000040.pdf .

7. Fiscal Incentives for Expat Retirees

Target

Expatriate Retirees: - Pensions paid in a country with a DTA (Double Taxation Agreement) with Portugal; - Not a fiscal resident of Portugal in the last five (5) years.

Incentive

Personal Income Tax Exemption - It applies for a maximum period of 10 years; - A formal request must be filed when one’s residency is transferred to Portugal, or until 31th March of the following year.

Entity in Charge Ministry of Finance

Source: IRS Code Article 16, nº 1 & 2 and nº 6 & 7 and Article 81 nº 5 Available (in Portuguese) at: http://info.portaldasfinancas.gov.pt/pt/informacao_fiscal/codigos_tributarios/irs.htm

8. Internships Abroad

Target Population

Young graduates up to 30 years old, unemployed, pursuing an international career, European Union citizenship or Legal Resident Permit in Portugal; Foreign companies in Portugal or Portuguese companies with a branch office abroad.

Incentive • Monthly training grant of €838,44 (Portugal and abroad); • Meal allowance, Work Insurance and IT costs (Portugal); • Accommodation subsidy, travel expenses (round trip) and health insurance (only abroad);

Entity in Charge & How to Apply

Aicep Portugal Global; 53,36% EU-funded. Apply at: www.inovcontacto.pt

Source: Ordinance nº 110-A/2011, March 16th

Inov Contacto

Description 6-Months internship that includes: • A training post in Portugal, • An overseas training period and a closing seminar.

9 12 months 9 Total Support: 461,14 Euros/ month 9 Permanent Employment Contract

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INTERNSHIPS EXEMPTION OF SOCIAL

CONTRIBUTIONS

ESTÍMULO EMPREGO

12 Months 12 Months

12 Months

9 12 Months 9 Total Support: 553,37 + 88,96 + 13,82

= 656,15 Euros / month

9 12 months* 9 Total support: 23,75% x 1 200 Euros = 285

Euros / month 9 Permanent Employment Contract

ASSUMPTIONS: • Job Creation: 100 • Education Level: graduates • Monthly wage: 1.200 € • Permanent Employment Contract • Location: Portugal

* The exemption may be extended for another 24 months

9. Practical Example Simulation of job creation incentives

Simulation without Incentives:

Without Incentives

Annual Employers Cost per job (wage + work insurance) x 14

(meal allowance ) x 11

Employers’ Social contributions: 23,75%

= (1.200€ + 8,5€) x 14 months +

126€ x 11 months

= 18.305 x (1 + 23,75%)

= 22.652,44 €

Total Annual Costs = 100 x 22.652,44 € = 2.265.244 €

2-years Total Costs

= 2 years x 2.265.244 € = 4.530.488 €


9.1 Practical Example

TOTAL COST SAVING: 37,14% (EUR 1.682.748 / EUR 4.530.488)

Internships EUR 656,15 x 12 months = EUR 7.873,80

“Estímulo Emprego” EUR 461,14 X 12 months = EUR 5.533,68

Exemption of Social Contributions

EUR 1.200 x 23,75% x 12 months* = EUR 3.420

Total support per employee EUR 16.827,48

Total support 100 x EUR 16.827,48 = EUR 1.682.748

With Incentives

Simulation with Incentives:


* The exemption may be extended for another 24 months

9.2 Practical Example

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New Tax Reform

New Tax Reform Corporate Income Tax

Competitiveness Simplification Investment Promotion

• REDUCTION OF THE CIT STATUTORY RATE: one of the most competitive CIT rates in Europe: • from 25% to 23% in 2014 • 17% - 19% in 2016 • Spain: 30%; France: 33,33%; Germany: 29,58% ; Euro area: 26,5%.

• CIT RATE OF 17% TO THE FIRST €15.000 threshold of taxable income assessed by SMEs;

• DIVIDENDS AND CAPITAL GAINS FULLY TAX EXEMPT: participation exemption regime in which dividends paid by Portuguese subsidiaries to non-resident parent companies located worldwide, as well as capital gains obtained from the disposal of their shares will be fully tax exempt, provided a 5% shareholding is held for 24 months.

• TAX LOSSES: Extension of the tax losses carry forward period from 5 to 12 years.



• SIMPLIFICATION OF THE TAX REGIME: tax reporting obligations under CIT are simplified and reduced by 1/3, in order to reduce compliance costs of companies. Common interpretation conflicts are clarified, making the tax system more predictable to investors. • TRANSFER PRICING RULES: new Portuguese TP regime simplified in line with OECD guidelines. Advance Pricing Agreements’ procedures are now more flexible.

• SIMPLIFIED TAX REGIME FOR SMES: Reduction of total tax burden of a large number of companies, along with a significant reduction of compliance costs.



• TAX CREDIT FOR SME’S: Tax credit of 10% of the investment, up to €0,5 million, is granted to SMEs for the reinvestment of retained earnings in the previous 2 years.

• TAX INCENTIVE TO EQUITY-FINANCING: Deduction of 5% of the share capital paid upon the incorporation of SMEs or share capital increases.

• 50% TAXATION OF INCOME FROM PATENTS, LICENSES AND SIMILAR RIGHTS: This special regime for intangible assets has the purpose of attracting R&D activities into Portugal. Possibility to deduct, for tax purposes, the acquisition value of certain intangible assets over a period of 20 years.

• M&A TRANSACTIONS: Broadening the existing CIT tax neutrality regime for M&A transactions to include a large number of corporate restructuring operations.

This document is for information purposes only. It partially reflects but does not disclose completely nor substitute the knowledge of the full legislation governing incentives in Portugal. AICEP is available to assess specific business plans and to determine how specific investments may qualify for incentives packages and what, if any, type of packages may be applicable to the investment.

Disclaimer

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Portugal - Investment and Job Creation Incentives (2014)