Portugal Adopts the Highest Level of Fiscal Incentives in Europe for R&D Companies

This provision is envisaged in the new System of Tax Incentives for Business R&D (Sistema de Incentivos Fiscais à I&D Empresarial - SIFIDE) which, in accord with Law No. 10/2009 (in Portuguese), of 10 March, published today in the Official Gazette Diário da República, specifies a tax relief of 32.5% applicable to total expenditure on R&D, plus a deduction of 50% on the increase in this expenditure in relation to the average of the two previous years (up to a limit of 1.5 million Euros). The total tax relief from Company Tax (IRC) may thus reach 82.5% of investment in R&D.

The new provisions in force have updated Law No.40/2005 (in Portuguese), of 3 August, which reintroduced SIFIDE in 2005, and increased the rate of tax relief applied to company expenses on R&D by 12.5 percentage points and doubling the deductible limit regarding the increase in R&D expense in relation to the average of the two previous years. As such, this ensures that Portugal has the highest rate of tax relief for private investment in R&D in Europe, greater than the value recently adopted in France under the scope of the measures adopted to combat the economic and financial crisis.

The data from the 2007 Scientific and Technological Potential Survey show that R&D activities in Portugal underwent the greatest growth in EU countries, above all in companies creating 0.61% of GDP (988 million Euros). The data showed an unparalleled growth in Portugal in the number of companies with R&D activities, changing from around 930 in 2005 to more than 1,500 in 2007. Total expenditure on R&D in Portugal in 2007 was 1.18% do GDP, a value extremely close to that of Spain (1.22% of GDP) and considerably higher than that of Italy and Greece and the 10 countries of the last EU enlargement (with the exception of the Czech Republic and Slovenia). As such, the percentage growth in R&D expenditure in relation to GDP from 2004 to 2007 was 15.3%, the highest in the EU and considerably above the EU average of 0.2%.

SIFIDE has enabled a reduction in Company Tax (IRC) for expenditure on research and development, covering expenses linked to staff, furniture purchases, operating expenses and expenses on patents, thus constituting one more Government measure to support the competitivity of companies in Portugal, by facilitating conditions for private R&D investment. This measure will stimulate an improvement in the technological capacity of companies operating in Portugal, encourage scientific employment and promote preferential conditions with the European Space for technologically based companies to express themselves.

Law No. 10/2009 (in Portuguese), now published, has established the budgetary Programme known as the Initiative for Investment and Employment, which seeks to promote economic growth through employment, and contribute towards reinforcing the Country’s modernisation and competitivity, as well as the qualifications of Portuguese citizens, energy independence and efficiency, and environmental sustainability and the promotion of social cohesion.