New Portuguese Tax Framework for Share Attribution Plans
Effective as of 1 January 2023, a new favourable tax regime is in force in Portugal regarding share attribution plans. This new regime aims to attract and retain the most qualified professionals to start-ups and other entities, namely those with relevant R&D investments, that carry out their activities in Portugal. Under the new rules, employees may benefit from a tax incentive that allows them to be taxed only on 50% of the “gain” resulting from the attribution of the plan, resulting in an effective tax rate of 14%, with the tax burden being generally deferred to a subsequent “liquidity” event (subject to specific requirements and limitations).
According to this new framework, which was implemented by Law no. 21/2023, of 25 May, the gains obtained from share attribution plans granted to employees should be subject to an effective tax rate of 14%, provided that, at least, in the year prior to the approval of the plan, the entity granting the plan complies with one of the following conditions:
- It is recognized as a start-up according to the Portuguese law, and meets at least one of the requirements established below, ie, a company qualified as a micro, small or medium-sized enterprise (SME), small mid-cap1 or a company with expenses related to R&D;
- It is qualified as an SME or as a small mid-cap; or
- It has incurred expenses related to R&D, patents, drawings or industrial designs or software equivalent to 10% of its expenses or turnover.
In order to benefit from this framework, the beneficiaries must retain the shares or equivalent rights for a minimum period of one year. Under the new framework, gains will be taxed when: (i) the shares or equivalent rights are sold; (ii) the employee ceases to be a tax resident in Portugal; or (iii) upon a gratuitous transfer of the shares or equivalent rights, whichever occurs first.
Despite the very welcome effort in attracting talent, reflecting the strong bet of the Portuguese Government in the technology sector, there are certain technical aspects of the diploma that warrant a closer analysis. DLA Piper can support your company in checking whether the rules are applicable to your specific plan and the inherent tax consequences.
1According to Decree-Law no. 372/2007, 6 November:
- A small mid-cap is defined as a company that employs less than 500 people
- A medium company is deemed as a company employing less than 250 employees and whose annual turnover does not exceed EUR50 million or whose annual balance sheet does not EUR43 million;
- A small company is deemed as a company employing less than 50 employees and whose annual turnover or the annual balance sheet does not exceed EUR10 million;
- A micro company is deemed as a company employing less than 10 employees and whose annual turnover or the annual balance sheet does not exceed EUR2 million;