In Portugal, there are several tax incentives which are exhaustively regulated and have proven to be substantially helpful in the development of companies, such as:
Credit lines with state guarantees;
Contractual tax benefits for productive investment;
Research and Development Tax Incentives System II (SIFIDE II);
Tax Regime for Investment Support (RFAI), which allows companies to deduct a percentage of the investment made in non-current assets (tangible and intangible) from the amount of corporate income tax (CIT) due;
Extraordinary Tax Credit for Investment II (CFEI II), which allows companies to deduct part of the investment made between July 1 2020 and June 30 2021 from the amount of CIT due; or
Conventional Remuneration of Share Capital (RCCS), which allows companies to deduct from its taxable profits a part of the capital contributions made by shareholders.
However, Law No. 75-B/2020, of December 31 (which approved the State Budget for 2021) introduced an extraordinary and transitory regime of incentives to maintain jobs, that limits or conditions access to the described incentives.
This new regime was regulated on July 23 2021, through the Ministerial Order No. 295/2021, and is applicable to employers headquartered or with effective management in Portugal, as well as non-resident employers with permanent establishments in Portugal, (i) whose main activity is of a commercial, industrial or agricultural nature; (ii) which are not considered micro, small or medium companies; and (iii) which have registered a positive net profit in 2020.
According to this Ministerial Order, in 2021, access to the referred public support and tax incentives by certain companies will be conditioned to the maintenance of the employment level observed on October 1 2020.
The ‘maintenance of the employment level’ is observed whenever, by the end of the month preceding that of the application, use or formation of the public support or tax incentive, the company has an average number of employees in its service equal to or greater than the number that effectively existed in October 2020.
For this purpose, there shall only be considered the employees and independent workers who are economically dependent on the company or have been assigned to it; those who have terminated their contracts on their own initiative, those whose fixed-term contracts have ceased, as well as those who died, retired or were dismissed for a reasonable cause, shall not be taken into account.
On the other hand, companies are also prohibited, until December 31 2021, to dismiss employees under collective dismissals, to extinguish work positions, or to dismiss employees for unsuitability reasons, under the penalty of immediate termination of public support “with the consequent restitution of all amounts already received” plus compensatory interest, and the “suspension of the right to enjoy tax benefits for the tax period starting on or after January 1 2021”.
Beneficiary companies are also obliged to maintain an average number of employees of no less than the one registered on October 1 2020 until December 31 2021 (to be eligible for public support), or until the last day of the tax period beginning on or after January 1 2021 (to be eligible for tax incentives).
Two critical remarks immediately arise. Firstly, it is surprising that the benefits granted to the RCCS are now conditioned to the maintenance of employment. This is an incentive to reduce the indebtedness of companies and to their capitalisation, which now appears to be instrumentalised by the purpose of not making dismissals. Investment and capitalisation are necessary factors for medium and long-term employment growth, so it does not seem to make much sense to make them dependent on a very short-term variable (maintaining jobs until the end of 2021).
Secondly, it appears that, in practice, this condition of maintaining employment is only required from large companies which have not reported losses in 2020. This legislative choice seems difficult to understand, and it may lead to undesirable results. In fact, it is not easy to accept dimension as a criteria which conditions the access to the referred incentives. For example, a large company operating in one of the most affected sectors by the pandemic may have faced extreme difficulties while making only a marginally positive profit. Is it therefore less worthy of the incentives or support systems without employment conditions? Why should large companies, which are responsible for the majority of job positions and the stability of employment, be particularly burdened with obligations to maintain employment, simply because they have managed to achieve a minimum profit regardless of the respective rate or margin?
In our opinion, we fear that these new criteria will discourage a wide range of companies that are absolutely crucial to the successful recovery of the Portuguese economy, simply because of an apparent prejudice against dimension.
Francisca Marabuto Tavares
Associate, Morais Leitão