Government offers reduced corporation tax if firms raise wages, invest in R&D

  • Lusa
  • 28 September 2022

The measures are part of the government's proposal for a medium-term agreement to improve incomes, wages and competitiveness.

Portugal’s government will on Wednesday propose to social partners a selective reduction of corporate income tax for companies that promote increased wages and invest in research and development, according to the proposal to which Lusa had access.

The measures are part of the government’s proposal for a medium-term agreement to improve incomes, wages and competitiveness, which will be presented this afternoon within the framework of social dialogue.

The document provides for a “selective reduction of Corporate Income Tax (IRC) for companies with dynamic collective bargaining, with an increase in salaries and a reduction in the salary range.

The government also proposes a selective decrease in IRC “for companies that invest in R&D [Research and Development], reinforcing the conditions of the system of tax incentives for business research and development (SIFIDE II) in the direct investment component.

In the proposal under discussion, the government moves towards the creation of the incentive to the capitalisation of companies (ICE), “merging the deduction of retained and reinvested profits (DLRR) and the conventional remuneration of capital stock (RCSS)”.

In parallel, it also proposes to simplify the tax incentives for capitalisation and investment by “eliminating redundancies and limitations inherent to the currently existing instruments” and to improve the investment support tax regime (RFAI).

The reformulation of the tax loss carry forward and deduction system, aimed at simplifying it, is also proposed.

This proposal for a medium-term agreement on income, wages and competitiveness does not include a cross-cutting reduction in the IRC rate (which is currently 21% and to which state and municipal surcharges are also added).

On 18 September, the economy minister, António Costa Silva, said he was in favour of a reduction in the corporate income tax rate across the board, believing it to be “beneficial”.

After these statements, and when questioned about tax changes that may be included in the state budget for 2023, the finance minister, Fernando Medina, referred the issue to the negotiations with the social partners, within the scope of the agreement on income and competitiveness, stressing that “in this matter of corporate income tax, as in all matters of the agreement, the government has a voice”, while reserving “until the end of the negotiation to speak about it”.