Global Daily Tax News, Portugal To Abandon Steep Cuts To Corporate Tax Rate, (Oct 11, 2024)

Portugal is expected to water down plans for a multi-year reduction to the corporate tax rate, as the Government struggles to secure enough support in parliament for its tax reform agenda.

The minority government requires support from the main opposition party, the Socialist Party, to progress the territory's 2025 Budget.

The Government had proposed lowering the corporate tax rate by two percentage points each year for three years, to lower the federal rate to 15 percent from 21 percent by 2027.

However, a counterproposal put forward by the Socialist Party would instead involve a lesser one percent cut this year and no future reductions. Instead, it has proposed reintroducing the Extraordinary Tax Credit for Investment, to benefit a broader range of businesses.

Further, the Government's plans to offer tax breaks to young workers are expected to be made less attractive. The Government had initially planned to offer a reduction in personal tax to young workers earning no more than a moderate salary for 13 years. The Socialist Party has called for changes to the design of the offering, as a well as a reduction in its term to a maximum of seven years. The Government is now understood to be calling for a 10-year duration.

As well as cutting the standard rate of corporate tax, the Government had previously proposed lowering the rate on profits up to EUR50,000 from 17 percent to 12.5 percent.

Among numerous others, proposals announced earlier by the Government included creating a value-added tax group regime; a review of the rules regarding the tax deductibility of goodwill; expanding access to the participation exemption; and the introduction of a tax deduction for capital gains and dividends obtained by dividends from the capitalization of companies.

While the corporate tax rate cut and the personal tax relief for young workers are the two key battlegrounds in sparring between Portugal's largest political parties, it is unclear as yet which of the other measures eyed by the Government will survive to be included in the territory's Budget, which will be discussed by lawmakers starting at the end of this month, with a final vote expected at the end of November.