The government’s authorization to enact IRC and cash VAT laws is valid for 180 days.

Under legislative authorisation proposals submitted to parliament, the government has 180 days to pass laws to cut the IRC, change the regime to avoid double taxation of income from subsidiaries and expand the cash VAT.

At stake are several fiscal measures that are part of the Economic Acceleration Program approved by the Council of Ministers on July 4. Some of them are scheduled to enter into force in 2025, but as Finance Minister Miranda Sarmento recently stated, they will not be included in the draft state budget for 2025 (OE2025), since the government will legitimize them in the form of legislative authorization.

In total, the three legislative amendment proposals submitted to parliament are valid for 180 days, meaning that after they are approved by parliament, made public and published, the government will have six months to approve the relevant decree laws.

In the case of the IRC, the legislative authorization calls for a gradual reduction in the IRC rate from the current 21% to 15% by 2027, with the executive order accompanying the authorization request specifying that the rate will drop to 19% in 2025, decreasing by two percentage points per year until it reaches 15%.

The changes to the IRC apply to the rate paid by small, medium and small mid-cap companies on the first €50,000 of taxable income, with the diploma forecasting that it will gradually decrease from the current 17% to 12.5%.

The changes to the “participation exemption” regime will also be legislated for within six months, and in this case the objective is to exempt from taxation dividends and possible capital gains received by companies resident in Portugal that hold, for a period of more than one year, a participation equal to or greater than 5% of the share capital or voting rights of the company distributing the profits.

Currently, the participation limit in the entity distributing the dividends is 10%, with no exceptions for lower participation rates.

In the case of monetary VAT, the government wants to extend this regime to companies with an annual turnover of up to two million euros, which would quadruple its cost compared to the 500 thousand euros currently under consideration.

The explanatory note in the government’s proposal states that in 2020 the Directive governing VAT was amended to set a maximum turnover threshold for inclusion in the monetary VAT regime of two million euros and without consultation of the (Member States) VAT Committee.