Contents:
- RFAI – Tax Regime for Investment Support
- Gifts to children and grandchildren: key legal and tax considerations
RFAI – Investment Support Tax Regime
The Investment Support Tax Regime (RFAI) is one of the main tax incentives available in Portugal for companies making productive investments. Set out in the Investment Tax Code, this regime aims to encourage economic growth, the modernisation of the business sector and job creation by reducing the tax burden associated with business investment.
In practice, the RFAI allows companies to deduct a percentage of the productive investment made from their corporate income tax liability. The benefit does not take the form of a direct subsidy, but rather a reduction in the tax payable, functioning as a mechanism for the partial recovery of the investment through the tax system.
Generally speaking, the benefit corresponds to a deduction of 25% of eligible investment up to €15 million, with a 10% deduction applicable to the amount exceeding that figure. The deduction is, however, subject to certain limits, namely that it may not exceed, in each financial year, 50% of the corporation tax liability calculated by the company.
If the company is unable to utilise the full benefit in a given tax period — for example, due to insufficient tax liability — the remaining amount may be carried forward to the following ten tax periods, allowing for more efficient tax planning of the incentive.
The scheme applies to companies subject to corporation tax that operate in certain eligible economic sectors, namely industrial, technological and tourism sectors, or activities linked to research and development. The eligibility of activities is determined by reference to the Portuguese Classification of Economic Activities (CAE), in accordance with the applicable legislation.
Sectors typically covered include, for example, extractive industries, manufacturing, accommodation and tourism, catering, audiovisual production, IT consultancy, activities related to information technology and scientific research.
To benefit from the RFAI, companies must meet a set of legal requirements. Among the main ones are the need to maintain organised accounts in accordance with applicable accounting standards, not to have taxable profit determined by indirect methods, and not to have tax or social security debts, or to have such debts duly settled.
Furthermore, the investment must constitute an initial investment, a concept which includes, for example, the establishment of a new business, an increase in the production capacity of an existing unit, the diversification of production, or a fundamental change to the company’s production process.
With regard to eligible investments, the scheme applies primarily to productive assets directly linked to the company’s business activities. These include industrial machinery and equipment, production equipment and certain facilities used in the production process.
Certain intangible assets related to technology transfer may also be considered eligible, such as the acquisition of patents, licences, know-how or other specialised technical knowledge used in the company’s business.
The legislation also requires that the assets subject to the investment remain with the company for a minimum period, in order to ensure that the tax benefit is effectively linked to the economic activity carried out. As a general rule, this period is three years in the case of micro, small or medium-sized enterprises and five years in all other cases.
In addition to the corporate income tax deduction, the scheme may also allow for the granting of additional tax benefits relating to property used in the investment, namely exemption from or reduction of property tax (IMI), exemption from or reduction of property transfer tax (IMT) and exemption from stamp duty, depending on the specific circumstances and applicable municipal decisions.
It should also be noted that, as a general rule, the application of the scheme does not require any prior application or administrative authorisation. The benefit is claimed directly by the company in its corporation tax return; however, it must be duly documented in the relevant tax records, which may subsequently be subject to verification by the tax authorities.
The RFAI can thus represent a significant tool for tax planning and support for business investment, helping to reduce the tax burden associated with expansion, modernisation or innovation projects.
Donations to children and grandchildren: key legal and tax considerations
A donation is a contract whereby one person transfers an asset or right to another person free of charge, without any consideration in return. It is a legal transaction frequently used within the family context, particularly when the aim is to arrange the transfer of assets to children or grandchildren in advance.
Through a donation, the owner of a particular asset can transfer ownership whilst still alive, allowing them to organise their future succession in advance and, in many cases, avoid conflicts between heirs at the time of distribution.
Formally speaking, a donation can take various forms. When it involves immovable property, such as houses or land, the law requires the execution of a public deed or a notarised private document, as well as its registration at the Land Registry.
A solution frequently used in a family context is a donation with reservation of usufruct. Under this arrangement, the donor transfers ownership of the asset to the beneficiary but retains the right to use the asset or to receive the income it generates, either for the rest of their life or for a specified period. This solution allows for succession to be planned in advance without the donor losing the economic use of the assets.
From a tax perspective, gratuitous transfers between close family members — namely between spouses, ascendants and descendants — are, as a rule, exempt from Stamp Duty. Nevertheless, the law requires the beneficiary to notify the Tax Authority of the donation by submitting a declaration of gratuitous transfers within the applicable legal timeframe.
It is important, however, to bear in mind that donations made during one’s lifetime may have consequences at the time of the opening of the succession. Under Portuguese succession law, certain donations made to descendants are generally considered advances on the inheritance, and their value is taken into account at the time of the distribution of the estate.
This mechanism – known in legal terms as ‘collation’ – aims to ensure equality among heirs. Thus, where a child or grandchild has received certain assets during the lifetime of the deceased, that value may be included in the calculation of the inheritance, so as to avoid imbalances among the heirs.
On the other hand, the donations cannot infringe upon the so-called ‘legitimate share’, that is, the portion of the estate that the law mandatorily reserves for certain heirs, such as the spouse and descendants. Should a donation exceed the legally permitted limits, it may be subject to reduction in order to restore the balance among the heirs.
It is also important to distinguish a gift from other transactions, such as a sale between family members. Whilst a donation can be made freely, a sale between parents and children or between grandparents and grandchildren may require the consent of other descendants, in order to protect inheritance rights.
The decision between donating, selling or transferring assets by other means must therefore be carefully considered, taking into account the tax, asset and inheritance implications.
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