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State Budget Law for 2021: Main Tax Measures 

by Serena Cabrita Neto, Miguel C. Reis, João Velez de Lima, Isaque Ramos

Published: January, 2021

Submission: February, 2021


Introductory note

The State Budget Law for 2021, which was published on 31 December 2020, comes at a very difficult time that is one of great uncertainty for the State and for the country. It is clear from the outset that the changes to the tax laws are limited in scope and the focus is on issues considered essential and a priority. For example, there are absolutely no amendments to the laws regulating taxpayers’ guarantees or tax justice. Neither are there any changes regarding potential tax incentive measures for companies that clearly and unequivocally reflect the true recovery plan supported by the expected influx of European funds.

In this pandemic, families and businesses are facing increasing difficulties due to the economic slowdown. Therefore, in terms of tax policy, it would be defensible to follow one of two avenues: (i) increasing the tax burden to finance a strengthening of social actions, or (ii) insisting on tax relief as a way to stabilise the economy.

The measures implemented throughout 2020 in reaction to the economic situation, such as the introduction of the Extraordinary Ta x Credit for Investment (CFEI II) and the temporary tax loss carry forward scheme, were precursors to what is set out in this Law: the maintenance or a (understandably modest) easing of the tax burden.

Although not a real form of tax relief, the reduction in withholding tax rates for Personal Income Tax has a direct financial effect. Even though this effect is small, it could have an immediate effect on consumption, and this objective is understandable in the current circumstances.

Two other points are noteworthy. First, excise duty rates have not been increased even though they are normally raised in line with the inflation forecast for the year to which the tax relates. Second, there are a number of incentives aimed at consumers. These include the extension of the sectors covered by the deduction of Personal Income Tax associated with e-invoicing and the introduction of the “IVAucher” (VATVoucher).

Finally, the government introduced a restriction on access to a wide range of tax benefits for entities that do not qualify as SMEs. This, in parallel with the total absence of any new incentives in addition to those already in place, may prove insufficient to ensure the survival of a very significant part of the Portuguese business enviroment.





In line with the OECD’s guidelines in the Base Erosion and Profit Shifting (“BEPS”) project and the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS (“MLI”), the State Budget Law for 2021 makes significant changes to the concept of the “permanent establishment”.

The concept of permanent establishment now includes:

• The provision of services, including consultancy services, provided by a company, through its own employees or other persons hired by the company to provide the services in Portugal, only if the services are provided during a period or periods that, in total, exceed 183 days in a 12-month period beginning or ending in the tax period in question; and

• The installations, platforms or vessels used for prospecting or exploration for natural resources when the duration of the activity exceeds 90 days.

With this change, the concept of a dependent agent now covers situations where the dependent agent (i) acts in Portugal on behalf of a company and usually plays a decisive role in the conclusion of contracts by the company, and does so routinely and without substantial changes; or (ii) maintains in Portugal a goods or merchandise warehouse to supply those goods or merchandise on behalf of the company, even if the agent does not usually conclude contracts for the goods or merchandise and has no involvement in the conclusion of such contracts.

In addition, f ixed installations or stocks of goods or merchandise which are used or maintained by a company when it (alone or jointly with a closely related entity) engages in a complementary activity forming a coherent set of activities of a business nature, in the same place or in different locations in Portugal, are no longer excluded from the concept of fixed establishment whenever: (i) the installation or stock constitutes a permanent establishment of that undertaking or of another closely related undertaking; or (ii) the whole activity resulting from the combination of the activities carried on by two or more closely related undertakings at the same location, or by the same or closely related undertakings at different locations, is not of a preparatory or ancillary nature.

Finally, changes have been made to the calculation of taxable profit attributable to a permanent establishment. This now includes income from the sale to persons or entities resident in Portugal of goods or merchandise identical or similar to those sold through this permanent establishment.


It is now possible to exempt entities classified as cooperatives or as micro, small and medium-sized entreprises according to the criteria defined by law from Corporate Income Tax payments on account.

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