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Portugal Announces Budget 2013
Interest barrier rule
The thin-capitalisation rules have been replaced by an interest barrier rule which limits the deductibility of net financial expenses.
Corporate witholding tax
There is a repeal of the 15% WHT and a new application of the standard 25% rate on various types of Portuguese sourced income.
Review of tax brackets
There was a review of the Personal Income Tax brackets, which are reduced from 8 brackets to 5 brackets, ranging from 14,5% (applicable to annual income up to Euro 7,000) to 48% (applicable to annual income above Euro 80,000). Additionally, the tax base deduction for independent service providers is reduced from 30% to 25%.
High income earners surtax
For 2013, the additional surtax rate applies at a 2.5% rate to the yearly income exceeding Euro 80,000 and at a 5% rate on yearly income exceeding EUR250,000.
The Budget Law provides for a revamping of the VAT recovery regime concerning bad debts and irrecoverable debts. Currently, in case of bad debt or irrecoverable debt, VAT taxpayers are only able to recover the VAT paid to the state if the said debt is under EUR 6,000 (VAT included) and the debtor has been sentenced by Court or is under forced execution and has been publicly notified. In particular, under the newly proposed rules, a VAT deduction would be allowed under certain conditions, namely if the debt has not been paid for more than 24 months.
Most, if not all, countries are announcing their 2013 Budgets, therefore it is an important time for multinationals to ensure they are still compliant. In this case, all corporations who have operations in Portugal should research further into these new measures and investigate the impact they may have on their business.