Portugal: innovation incentives overview

In the context of European policy, Portugal benefits from a wide range of tax and financial supports, not only for R&D but also for innovation, internationalisation, and the development of its business environment.

From a tax perspective, in addition to the R&D Business Tax Credit (SIFIDE II), there are:

• Incentives for job creation
• Incentives for the recruitment of highly qualified experts for R&D activities
• A patent box scheme

Financial support is designed to assist companies throughout their lifecycle, with incentives for R&D, support for industrialisation and innovation, and support for non-productive areas, known as dynamic competitiveness factors, such as internationalisation, quality, marketing, intellectual property, etc.

Small and medium-sized enterprises (SMEs) have preferential access to this support. Large companies, on the other hand, have increasingly limited access (more stringent access conditions, lower support rates, higher minimum investment amounts), or even face restrictions.

In addition, Portugal has one of the best patent box regimes in the EU. In broad terms, this allows eligible income generated from the commercial use (such as licensing or temporary utilisation) of patents, industrial designs, models, and copyrights related to computer programs (e.g., selling software licenses or outright ownership) to benefit from a reduced tax rate of only 15% for corporate income tax purposes. Eligible income in this context refers to the positive difference between the income and gains earned during the relevant tax period and the expenses or losses incurred during that period for R&D activities directly related to the rights from which the income is derived.

Are there specific industries that qualify or are there reliefs that require a particular industry focus?

Most of the benefits apply to a wide range of industries, focusing on agricultural, industrial, commercial, and service sectors, in line with EU regional aid guidelines.

Do you have to apply for incentives prior to conducting the research or claiming the benefit?

Tax incentives: no, they are only applied to activities that have already been conducted.

Financial support: yes, applications must be submitted before commencing the investment.

Are there specific documentation or reporting requirements for claiming incentives?

Yes, all competitive tax benefits and investment financial supports must be submitted according to the rules specific to each measure, using the appropriate application form.

In the case of automatically applied tax benefits, all documentation should be included in the company's annual tax dossier (tax return). National legislation defines the information that should be included in the tax dossier to ensure compliance with established control rules.

SIFIDE - System of Tax Incentives for R&D
SIFIDE allows companies to deduct a portion of their R&D expenditure from their Corporate Income Tax. The incentive includes a base rate of 32.5% of eligible R&D expenses, plus an incremental rate of 50% on the increase in R&D investment compared to the average of the previous two fiscal years (up to a maximum annual deduction of €1.5 million).
Eligible expenses include internal R&D activities, outsourced R&D services, acquisition of patents, participation in R&D consortia, and technical staff costs directly involved in R&D.

Patent Box Regime
The Patent Box Regime stipulates that income generated from the commercial use will be subject to a reduced tax rate of only 15% for Corporate Income Tax purposes.

This special regime applies to the portion of income exceeding the accumulated negative balance between the income and gains associated with each right and the expenses and losses incurred in previous tax periods for research and development activities.

Applications for SIFIDE II should be submitted by the end of the fifth month following the closing of the accounts. For the majority of companies, this will be the end of May of the following year after the reported activities.

Financial support is managed through application periods defined by the competent authorities, typically open for a two-month period. A new community framework – Portugal 2030 – has already been approved by European funding agencies, so there are likely to be successive application periods until the end of 2027.

R&D tax incentives are only available to corporate entities. There are no company size and/or investment requirements. Companies should have their taxable profit determined by non-indirect methods and should not owe any debts to the state or social security.

What are the criteria that define activities that qualify as R&D, and who determines the criteria?

The definition of R&D should follow the OECD guidelines, according to the Frascati Manual.

• R&D: Creative and systematic work undertaken to increase the stock of knowledge, including knowledge of humankind, culture, and society, and the use of this knowledge to devise new applications.
• R&D activities: A set of scientific, technological, organizational, financial, and commercial steps, including investments in new knowledge, that lead to or attempt to lead to the implementation of new or improved products and processes.

Do the R&D activities have to be performed within the country to qualify? If not, is there a distinction made between the country where the claimant company is resident, EU countries, and non-EU countries?

Yes, they have to performed within Portugal to qualify.

Does the intellectual property need to reside in the country granting the incentives or in the company claiming the incentives?

The applicant company can still qualify for benefits and support even if it doesn't hold intellectual property rights, provided it is involved in qualifying R&D efforts.

Does the tax authority have to review the resultant developments to allow a deduction or credit?

No, a review is not mandatory for the claim to be allowed, although the tax authority has the right to review all claims if it chooses to.

• Expenditure on technical personnel directly involved in R&D
• Acquisition of tangible fixed assets necessary to R&D processes
• Contracting out of R&D activities to certified third parties
• Expenditure on demonstration activities
• Operating expenses (indirect costs)
• R&D audit expenses
• Participation of managerial staff in the management of R&D organisations
• Participation in the capital of R&D organisations
• R&D investment funds
• Expenditure on doctoral staff is counted at 120%
• Expenditure associated with product eco-design projects is considered at 110% (from 2024, it will increase to 120%).

Expenditure can be both revenue and / or capital in nature.

Are the incentives temporary or permanent?

The tax credit is granted and remains valid until it is fully utilised or for a maximum of 12 years, whichever comes first.

How is the benefit obtained?

SIFIDE benefit involves a reduction in corporate tax. However, if a company has paid excess tax due to a lack of R&D certification at the time, it can file an amended return (declaration of substitution) and have the excess tax paid refunded or credited back to the company.

Are the incentives incremental in nature or volume-based?

Incremental. The increase in R&D activities is valued by applying an incremental rate of 50 percentage points to the average R&D expenditure recorded in the last two fiscal years.

Are there general rules for estimating the value of the incentives?

Yes, the rules for applying the base support rates and potential increases are defined, and there are simulators that should be used and reported.

The process in Portugal is as follows:

• Identifying and evaluating eligible R&D activities
• Calculating the tax credit
• Validating and submitting the application
• Liaising with the relevant authorities
• Ensuring all deadlines are met, requests are addressed, and questions are clarified

The advisory process concludes with the recognition of the tax credit and the sharing of procedures for substituting tax models.

The client relationship continues throughout the year, working closely with each client's technical teams to identify projects during their execution and create quality procedures that ensure the timely collection of all necessary supporting documentation.

Is there a cap on the maximum level of benefit that can be received per year, per company, or for all the qualifying taxpayers together?

The tax credit granted does not have a limit, but the deduction occurs until the total amount of corporate income tax (coleta) is covered. If there is an insufficiency of coleta, the deduction can be carried forward and applied for up to the 12th subsequent fiscal year.

Are tax credits refundable?

SIFIDE benefit involves a reduction in corporate tax. However, if a company has paid excess tax due to a lack of R&D certification at the time, it can file an amended return (declaration of substitution) and have the excess tax paid refunded or credited back to the company.

Can surplus incentives be carried back or forward and used in years other than the origination years?

Yes, surplus can be carried forward.

Are there any other types of limitations?

No.

Are the R&D costs deductible when deriving taxable income?

The main costs are HR allocation, which are deductible when deriving taxable income.