Introduction
The State Budget for 2024 brought with it a series of significant changes impacting various sectors of the Portuguese economy. From changes in IRS rates to new contributions and adjustments to tax benefits, it is crucial that everyone is well informed about these changes.
This article details the main new features to help accountants and entrepreneurs prepare for the next fiscal year. Join me on this journey and find out what's new!
Changes to the IRS
Let's start with one of the most relevant areas of interest to everyone: the IRS.
1 - General Fees
This year, the limits of each IRS bracket have been updated by 3%, and the rates applicable up to the fifth bracket have been adjusted. The new table of general IRS rates is as follows:
- Up to €7,703: 13.25%
- From €7,703 to €11,623: 18.00%
- From €11,623 to €16,472: 23.00%
- From €16,472 to €21,321: 26.00%
- From €21,321 to €27,146: 32.75%
- From €27,146 to €39,791: 37.00%
- From €39,791 to €51,997: 43.50%
- From €51,997 to €81,199: 45.00%
- Over 81,199 €: 48.00%
2 - Minimum Existence
In addition to the rate updates, the reference value of the minimum subsistence level was adjusted to keep pace with the increase in the guaranteed minimum monthly wage (RMMG).
This means that more people will be able to benefit from this minimum, adjusting to the new economic realities.
3 - Increase in union dues
Another new feature is the increase in deductions for union dues, from 50% to 100%. This change applies to the specific deductions for categories A (dependent work) and H (pensions).
4 - Young IRS
The IRS Joven scheme has been strengthened. This scheme offers significant exemptions for young workers aged between 18 and 26, or up to 30 for PhDs, for the first five years of employment:
- 100% in the first year, with a limit of 40 times the IAS.
- 75% in the second year, with a limit of 30 times the IAS.
- 50% in the third and fourth years, with a limit of 20 times the IAS.
- 25% in the fifth year, with a limit of 10 times the IAS.
5 - Former Residents Regime
The "ex-residents" regime has also been expanded. The 50% tax exclusion for employment income and business and professional income now includes those who become tax residents in the years 2024 to 2026, provided they have not been resident in Portugal for the previous five years.
Please note: this exclusion has a limit of €250,000 and applies for five years!
6 - Non-Habitual Residents
On the other hand, the regime for non-habitual residents has been repealed. However, taxpayers who are registered as non-habitual residents on January 1, 2024 or who meet certain conditions will have this regime maintained until the end of the ten-year period.
7 - Tax Incentives for Scientific Research and Innovation
A new tax incentive has been created to attract talent and investment in the area of research and innovation. This scheme applies to taxpayers who become tax residents in Portugal and carry out activities such as teaching in higher education, scientific research and other highly qualified professions.
They will benefit from a special rate of 20% on net income from employment and business, as well as an exemption on income earned abroad.
8 - Housing provided by the Employer
Income from work in kind, resulting from the use of permanent housing provided by the employer, will be exempt from IRS and Social Security contributions up to the limit value of the rents provided for in the Rental Support Program.
This measure is valid for the period from January 1, 2024 to December 31, 2026.
9 - Profit sharing
An exemption up to the value of a fixed monthly salary was established, with a limit of five times the value of the RMMG, for the amounts given to workers as profit-sharing in companies.
This income must be included for the purposes of determining the rate applicable to other income subject to taxation.
10 - Allowances and Compensation for Travel by Own Car
Allowances and compensation for travel by own vehicle have also been revised. The new amounts are
- Travel by own vehicle: €0.40 per kilometer.
- National travel:
- Employees: €62.75
- Members of the Government and equivalent in the private sector: €69.19
- Travel abroad:
- Employees: €148.91
- Members of the Government and equivalent in the private sector: €167.07
11 - Gains Derived from Share Plans
The tax regime for share plans has been extended to include gains from plans created by start-ups, as well as other important changes. Income calculated when a taxpayer ceases to be resident in Portugal will be partially exempt from IRS up to the value of 20 times the IAS.
12 - Deduction of losses on capital gains on securities
The possibility of reporting movable capital losses subject to mandatory inclusion for the following five years has been reinstated, offering taxpayers more flexibility.
13 - Business and Professional Income: Young Farmers
For young farmers, first installation premiums will have a coefficient of 0.1 in the simplified taxation system and will only be considered at 50% when covered by the organized accounting system.
14 - Property Income: Housing leases entered into before the RAU
Property income from residential rental contracts entered into before the RAU, subject to the NRAU regime, will be exempt from taxation, provided that the tenants have a corrected gross annual income of less than five RMNA, or are over 65, or have a degree of disability equal to or greater than 60%.
15 - Exemption of Gains from the Sale of Real Estate to the State
The exemption from personal income tax (IRS) and corporate income tax (IRC) has been extended to gains from the sale of land for construction purposes, in favor of the state, autonomous regions, public housing companies or local authorities.
16 - Withholding Tax: Deduction for Permanent Housing Costs
During 2024, there will be a reduction in IRS withholding tax for holders of permanent housing lease/sublease and loan agreements.
The amount to be deducted will be increased by €40, provided that the taxpayer holds a lease/sublease agreement for their first home or a loan agreement for the purchase, construction or construction of their own permanent home, and earns a monthly salary of no more than €2,700.
17 - Deductions
Training and Education Expenses
Training and education expenses, including vocational training, maintain the applicable overall limit. The maximum deductible amount for rent for displaced students increases to €400 and the overall limit of €800 can be increased by €300 to cover rent.
Property charges
The maximum amount of the deduction from the taxable income for rent for permanent housing will be €600 (or €900 for taxable incomes below the first IRS bracket).
Charges for remuneration for domestic work
5% of the annual costs of the remuneration paid in exchange for domestic work will now be deductible, up to a limit of €200.
Invoice Requirement Deduction
Expenditure on sports will now be tax-deductible at an amount corresponding to 30% of the VAT borne by any member of the household on invoices issued by entities with the PPAs of sports and recreational education, sports club activities and gym-fitness activities.
People with disabilities
Taxpayers with disabilities who have benefited for at least five years from the deduction provided for in Article 87(1) of the IRS Code and who, as a result of a disability review or reassessment process, no longer have a degree of permanent disability equal to or greater than 60%, while maintaining a disability equal to or greater than 20%, will now be able to benefit from a deduction in the four years following the disability review or reassessment process.
18 - Settlement Procedures and Forms
If the taxpayer fails to submit the IRS tax return after notification, the Tax Authority will make an ex-officio assessment, taking into account the IRS withholdings, the existence minimum and the deductions known to the Tax Authority.
19 - Annual tax return
It is now compulsory to report information on all sources of income from the previous year in the annual tax return, including income subject to non-inclusive rates and income not subject to IRS of more than €500, as well as assets held in jurisdictions with a clearly more favorable tax regime.
20 - Tax Incentives under the Common Agricultural Policy
Taxpayers who receive subsidies or grants under the Common Agricultural Policy in 2024, relating to the previous year, can opt for taxation in that year. If the payment is made after the deadline for submitting the tax return, it is possible to submit a substitute return.
Changes to the IRC
Now let's move on to the changes to the IRC, which also bring important news for companies and startups.
1 - Corporate Income Tax Rate Applicable to Startups
Startups qualified as innovative with high growth potential or recognized by ANI may benefit from a corporate income tax rate of 12.5% on the first €50,000 of taxable income, provided they meet certain conditions, such as having completed a round of venture capital funding.
2 - Exemption from Corporate Income Tax: Remuneration of Public Debt
Interest on public debt paid to social security and welfare institutions will now be exempt from corporate income tax.
3 - Intangible Assets
The acquisition cost of goodwill acquired in a business combination will now be accepted in equal parts during the first 15 tax periods after its initial recognition (previously, 20).
4 - Accelerated Depreciation of Real Estate
Accelerated depreciation is allowed at a rate of 4% (instead of 2%) for properties owned, built, acquired or converted that are covered by the tax incentive for workers' housing.
Indirect Taxes
Now, let's look at the changes in indirect taxes, including VAT, ISP and tobacco taxes.
1 - Value Added Tax (VAT)
Exemptions
The basic food basket no longer benefits from zero VAT. Tickets granted free of charge to people accompanying others with a degree of permanent disability equal to or greater than 60% for access to certain recreational and cultural events/equipment will now be exempt from VAT.
Reduced rate
The transfer of chairs and seats suitable for transporting children on bicycles will now be taxed at a reduced rate. Equipment for capturing and using solar, wind and geothermal energy also benefits from this tax.
2 - Spirits
A general increase of around 10% has been introduced in the taxes applicable to spirits, including in the Autonomous Region of Madeira.
3 - Other Fermented, Still and Sparkling Beverages
There was also a general increase of 10% in the taxes applicable to these drinks.
4 - Tax on Petroleum and Energy Products (ISP)
The tax rates on various products used in the production of electricity, electricity and heat (cogeneration) and town gas have been increased, including further increases for the following years, except for natural gas.
5 - Tobacco tax
An increase in the rate has been established for the specific element for conventional cigarettes, heated tobacco and other smoking tobaccos. The ad valorem element for conventional tobacco is set at 1%, with the possibility of automatic changes.
Property taxes
Finally, we will explore the changes in property taxes, including IMI and IMT.
1 - Municipal Property Tax (IMI)
The IMI exemption for urban buildings built, enlarged, improved or acquired for a consideration, intended for residential rental, only applies when the rental is for the tenant's permanent home.
2 - Municipal Property Transfer Tax (IMT)
The brackets for determining the IMT rate applicable to the transfer of urban buildings intended exclusively for residential use have been updated by 5%.
Tax Benefits
Finally, we'll look at the various tax benefits introduced or adjusted in the new budget.
1 - Increases and Incentives
The 20% surcharge on costs and losses relating to electricity and natural gas consumption was maintained when calculating taxable profit for 2023 and 2024. The 40% increase in costs and losses relating to the acquisition of certain goods used in agricultural production activities has been maintained, and the unused increase can be carried forward to the following ten tax periods.
2 - Investment and Innovation Incentives
Salary costs arising from the creation of jobs for employees with master's or doctoral degrees are now considered relevant applications for the RFAI.
The Madeira Free Trade Zone regime has been extended until December 31, 2024, with exemption from corporate income tax for gains from the sale of land for construction to the State and other public entities.
Tax Justice
Before concluding, let's look at the changes in tax justice, which affect the way tax cases are managed and resolved.
1 - Referral of Pending Tax Cases to Arbitration
The possibility of referring pending court challenges to tax arbitration was established, with various conditions and consequences, including the termination of the court challenge and the possibility of an appeal.
2 - Withdrawal of Claims in Legal Challenges
Taxpayers who withdraw their claim in a court challenge benefit from the exceptional incentive scheme for the termination of the proceedings, including a reduction in the court fee.
3 - Electronic payments
Payment of tax credits by legal persons will now be made exclusively by electronic means.
Contributions
And finally, the changes in contributions that affect various sectors of the economy.
1 - Extraordinary Contribution on the Energy Sector (CESE)
The EESC was maintained for 2024, with changes to include operators transporting crude oil and petroleum products.
2 - Contribution on Single-Use Packaging
Articles relating to the levy on single-use packaging have been repealed and a new comprehensive levy on single-use packaging has been created, with a rate of €0.10 per package and a minimum charge of €0.30 for the end consumer.
3 - Contribution on Very Light Plastic Bags
Very light plastic bags will now be taxed at €0.04 per bag, applicable to bags purchased when selling bakery products, fresh fruit and vegetables in bulk.
Conclusion
The State Budget for 2024 introduces several fiscal and tax changes that directly impact Portuguese taxpayers. From adjustments to IRS rates to new contributions and tax benefits, it is essential that accountants and tax professionals are up to date in order to provide the best advice.
Would you like more information and to understand how your company can benefit from the new tax framework? Send us a message and request your first free meeting with a BTOCNET expert here.
