Authorization for the Government to legislate on IRC and VAT on cash basis lasts 180 days – Economy

The Government has 180 days to legislate on the reduction of IRC, changes to the regime that prevents double taxation of income from participating companies and the extension of cash VAT, according to the legislative authorization proposals sent to parliament.

At issue are several of the tax measures that form part of the Accelerate the Economy Programme, approved by the Council of Ministers on 4 July, some of which are due to come into force in 2025 but, as Finance Minister Miranda Sarmento recently said, they will not be included in the State Budget proposal for 2025 (OE2025) because the Government will legislate them in the form of legislative authorisation.

In common, the three proposed legislative amendments submitted to parliament have a duration of 180 days – which means that after their approval by parliament, enactment and publication, the Government will have six months to approve the respective decree-laws.

In the case of IRC, the legislative authorization provides for a gradual reduction in the IRC rate from the current 21% to 15% by 2027, with the decree-law accompanying the authorization request determining that the rate will be reduced to 19% in 2025, decreasing at a rate of two percentage points per year until reaching 15%.

The changes to the IRC extend to the rate paid by small and medium-sized companies and small-medium capitalization companies on the first 50 thousand euros of taxable income, with the diploma providing for this to gradually decrease from the current 17% to 12.5%.

Changes to the ‘participation exemption’ regime will also take six months to be legislated, and in this case the aim is to exempt from taxation dividends and any capital gains received by companies resident in Portugal that hold for a period of more than one year a stake equal to or greater than 5% of the share capital or voting rights of the company distributing the profits.

Currently, the limit on participation in the entity distributing dividends is 10% – there is no exemption for lower participations.

In the case of cash VAT, the Government wants to extend this regime to companies with an annual turnover of up to two million euros, quadrupling the value compared to the 500 thousand euros currently considered.

In the explanatory memorandum, the Government’s proposal states that the Directive governing VAT was amended in 2020, setting the maximum turnover threshold for inclusion in the cash VAT regime at two million euros and dispensing with consultation (by the Member States) with the VAT Committee.