Hot Topics | State Budget Law Proposal for 2022

PIT

1. Capital gains on securities | Compulsory aggregation

• Capital gains realized on the sale of shares, stocks and other securities, provided that related to securities held for less than 365 days and realized by taxpayers included in the highest PIT tax bracket, i.e. above EUR 75,009.00, have to be aggregated for application of the PIT progressive tax rates, thus no longer benefiting from the 28% special rate.
• Current regime: Not aggregated. Liable to a special tax of 28%

2. Capital gains on securities  | Acquisition value for donations

• The acquisition value in cases of capital gains arising from the disposal of securities, which have been acquired by donation between spouses or cohabiting partners, descendants and ascendants (exempt from stamp duty), will have to correspond to the value that would have been considered for the payment of stamp duty, should this be due, up to two years prior to the donation, and no longer to the asset value at the time of the donation.

3. Changes to the progressive tax brackets

• The number of income brackets have increased from seven to nine, with the threshold for the highest bracket consisting of an annual income of EUR 75,009.00 (no longer EUR 80,000.00):

4. Extension of the "Return" Programme (Programa “Regressar”)

• The 50% PIT exclusion regime on income from employment, business and professional income (i.e. category A and category B) is extended to 2021, 2022 and 2023, for Tax Payers emigrated, respectively, in 2017, 2018 and 2019.

5. Youth PIT | Extension of the scope of application

• The scope of the Youth PIT regime was altered to include business and professional income (i.e., those arising from the provision of services).
• The Youth PIT regime will be applicable for five years for taxpayers between the ages of 18 and 26 (with the possibility of application up to the age of 28, in the case of PhDs), earning income as from 2021, after completing an education level equal to or higher than level 4, thus no longer restricting the application of the regime to taxpayers with a taxable income equal to or less than €25,075.
• Taxpayers' income is partially exempt for five years, with the applicable exemption being 30% in the first two years (with a limit of 7.5 x IAS), 20% in the following two years (with a limit of 5 x IAS), and 10% in the last year (with a limit of 2.5 x IAS). If we use the value of the IAS for 2021 (for 2022 the value is not yet known) as a reference, the limits of the exemption will be € 3,291.08, € 2,194.05 and € 1,097.03, respectively.
• Such exemption can only be exercised once by the taxpayer, determining the compulsory aggregation of the exempted income.
• Lastly, POE 2022 grants the possibility for taxpayers, that have opted for the regime introduced by POE for 2020, to benefit from the new rules for the remaining period.

CIT

1. Extinguishing the Special Payment on Account  (PEC)

• The Special Payment on Account (PEC) obligation is extinguished from 2022 onwards, without prejudice to the possibility of recovering the PEC previously assessed (through the deduction and/or reimbursement mechanisms currently in force, which allow such recovery up to the sixth tax period following that to which the payment relates).

2. Non-deductible expenses  | New requirement

• The list of non-deductible expenses will include expenses stated in documents issued by taxpayers who have not submitted the declaration of registration (i.e. the declaration of commencement of activity).
• The non-deductibility of expenses stated in documents issued by taxpayers with a non-existent or invalid TIN or by taxpayers whose termination of activity has been declared automatically remains.

3. Patent Box regime | Extension of the CIT exclusion

• Increase from 50% to 85% of the maximum deductible percentage from taxable income applicable to income arising from contracts whose object is the temporary assignment or use of industrial property rights subject to registration (multiplied by the quotient between qualifying expenses and total expenses incurred).

4. Compulsory CIT assessment | Lack of filing the CIT return

• The compulsory assessment of CIT issued by the Tax and Customs Authority in cases where the CIT annual return (Modelo 22) is not submitted continues to be performed according to the rules of the simplified regime (based on the information in possession of the tax authority), but will now be calculated according to a coefficient of 0.35 (currently 0.75).
• In the absence of elements available to the PTA, the assessment will continue to fall on the higher of the following values: (i) the total taxable amount of the closest tax period that has been determined, or (ii) the annual value of the minimum monthly salary.

5. Aggravated Autonomous Taxation | Suspension

• Suspension of the autonomous taxation aggravation (by 10 percentage points for tax losses making entities) introduced with the 2021 POE to be extended to the 2022 tax period.
• Therefore, for the 2022 tax period, micro, small and medium-sized enterprises and cooperatives that initiated activity in 2020, 2021 or 2022 will not be covered by the autonomous taxation aggravation, as well as those that, having commenced activity in periods prior to 2020, comply with the following requirements:

o    Have obtained taxable profits in at least one of the three tax periods prior to 2022; and
o    Have complied with their declaration obligations in the 2020 and 2021 tax periods.

Tax Incentives Statute (EBF)

1. New benefit: Tax Incentive to Recovery  

• Introduction of a new tax benefit, called Tax Incentive for Recovery ("IFR"), with characteristics very similar to those of the Extraordinary Tax Credit for Investment ("CFEI II").
• Under this regime, CIT taxpayers that develop a commercial, industrial or agricultural activity and incur in investment expenses in assets allocated to the exploitation between 1 January and 30 June 2022, may benefit from a deduction of the income tax (up to 70% of the assessed income tax) corresponding to (i) 10% of the eligible expenses, up to the amount corresponding to the simple arithmetic average of the eligible investment expenses of the three previous tax periods; and (ii) 25% of the eligible expenses for the part exceeding the limit foreseen in the previous item.
• The maximum cumulative amount of eligible investment expenditure is EUR 5 000 000 per person.
• In order to benefit from this new incentive, the respective taxpayers must fulfil, inter alia, the following conditions:

o    They must keep an organized accounting system;
o    The Taxable profit is not determined by indirect means;
o    Their tax situation must be regularised;
o    They must not terminate employment contracts for three years ;
o    They must not distribute profits for three years, counting from the beginning of the tax period in which the eligible investment expenses are incurred.

2. Extraordinary cultural patronage for 2022 | Preservation of the regime

• Preservation of the extraordinary cultural patronage regime that is in force in 2021, for the tax period 2022.
• Thus, donations within the scope of cultural patronage may be increased by 10 percentage points, provided that all the following requirements are met:

o    The annual amount is equal to or higher than EUR 50,000 per beneficiary entity;
o    Donations are aimed at actions or projects in the area of heritage conservation or museum programming; and
o    Actions or projects referred to in the previous point are recognized by order from the Government members responsible for the areas of finance and culture.

• Current regime: donations are considered up to a limit of 8/1000 of the volume of sales or services provided, increased by 50% when the difference is related to said actions or projects.
• Donations may still be increased by 20 percentage points when the referred actions or projects have a direct connection with inland territories, defined by an order from the members of the Government responsible for the areas of finance and culture.
• Entities receiving donations shall be subject to compliance with the accessory obligations applicable to other donations granted within the scope of tax benefits relating to patronage.

Property Transfer Tax (IMT)

1. Extension of IMT incidence

• Clarification that (i) shareholder’s contributions with immovable property for the payment of additional capital contributions, as well as (ii) the allocation of fixed assets to shareholders in the reduction of capital, in the repayment of additional capital contributions or other forms of fulfilment of obligations by companies, are subject to IMT.
• The allocation of real estate assets to unit-holders as reimbursement in kind of investment units arising not only from the liquidation, but also from the redemption of investment units and capital reduction of privately subscribed closed-end real estate investment funds will now be subject to IMT.

2. IMT exemption | Urban buildings subject to rehabilitation

• IMT exemption applicable to the first onerous transfer of buildings or apartment units subject to rehabilitation works promoted under the terms of the Urban Rehabilitation Legal Regime, to be used for rental for permanent housing or, when located in an urban rehabilitation area, for owner-occupied permanent housing, becomes ineffective if:

o    the real estate is used for a purpose other than that on which the benefit is based within a period of six years from the date of transfer ; or
o    The property is not occupied as a main permanent dwelling within six months from the date of transfer; or
o    The properties are not subject to a permanent residential lease agreement within one year from the date of transfer.

ESG – Environmental, Social and Governance / Green Taxation

1. Electricity production for self-consumption 

• Introduction of ISP exemption for electricity production for self-consumption from renewable energy sources, up to a limit of 30kW of installed power, upon communication by the Directorate-General for Energy and Geology to the AT (to be defined by protocol).
• Legislative authorisation is also provided for the derogation of the subjective VAT incidence rule regarding the transfer of surplus electricity produced through self-consumption of renewable energy, subject to approval by the European Council.

2. Taxation of petroleum and energy products

• Progressive elimination of ISP exemptions and additional carbon tax for electricity or city gas production from fossil fuels continues until 2025. Transition fuels, such as natural gas, are subject to lower taxation.
• The additional carbon tax will not be applied to fuels used in installations covered by the European Emissions Trading Scheme (ETS). Biofuels, biomethane, green hydrogen and other renewable gases are exempted from the aforementioned regime.

3. Carbon taxation

• Taxes on carbon intensity are maintained and increased, namely at the level of Vehicle Tax (ISV) and Single Circulation Tax (IUC) with regard to the environment.
• The contribution on single-use plastic or aluminium packaging and ready meals and the carbon tax for consumers of air, sea and river travel will remain in force. Moreover, legislation is allowed to consolidate the contribution on single-use plastic and aluminium packaging for ready meals, at €0.30 per package (as currently applicable).  

Social

• The extraordinary cultural patronage regime created by the 2021 POE remains in force, i.e. a 10% (or 20% if inland) increase in donations with a limit of €50,000 per beneficiary entity, subject to approval by the Minister of Finance and the Minister of Culture.