Law No. 7-A/2016, of March 30th, approving the Portuguese State Budget for 2016, was published and entered into force on March 31st, 2016. Notwithstanding this State Budget has introduced very few tax changes, the following is a brief description of what we consider to be the most significant changes applicable to companies.

Corporate Income Tax (CIT)

• General rate

The general CIT rate stands at 21% as in 2015.

• Tax losses

The reporting period for deduction of tax losses is reduced from 12 years to 5 years and applies to tax losses calculated in periods of taxation beginning in 1st January 2017.

• Deadline for tax documents

The time limit for the conservation of books, accounting records and respective supporting documents is reduced from 12 to 10 years. This reduction shall apply from the taxation periods starting in January 1st, 2017.

• Participation exemption

The regime applicable to the exclusion of taxation of dividends and capital gains arising from the sale of shares requires a minimum participation of 10% in the share capital (previously: 5%) of the company that distributes the profits or whose shares are sold, as well as a minimum shareholding period of 1 year (previously: 24 months).

• Profits distributed to non-resident entities

Similar to what happens in the participation exemption regime, changes were introduced in the minimum percentage to 10% (previously: 5%) and the minimum period of detention for 1 year (previously: 24 months) for the purposes of the exemption on income paid or made available to entities resident in another Member State of the EU, EEA or State with which has been celebrated Convention for the avoidance of Double Taxation (CDT), provided that there is an exchange of tax information.

• International economic double taxation

For the purposes of the deduction of tax credit for international economic double taxation of profits and reserves distributed by non-resident entities which have been included in the taxable income of the Portuguese entity, becomes required a participation at least of 10% and a minimum holding period of 1 year.

Municipal Property Tax (IMI)

• Extraordinary taxable value correction

The Taxable Value (VPT) of real estate properties affect to commercial, industrial or services activities that will be subject to an extraordinary update of 2.25%, to 31 December 2016, that only applies to buildings which VPT has been updated with reference to 31st December of 2012 to 2015.

Stamp Duty

• Shareholder loans

The exemption applied to shareholder loans including the respective interest made by shareholders to their companies, shall depend on a minimum participation on share capital not less than 10%, and since this participation has remained in its possession for a consecutive year, or since the incorporation of the company, provided that, in this case, the participation is held during that period of 1 year.