Portugal’s Patent Box — Now includes tax breaks for computer sofwtare
Software houses and other companies focusing on software development and/or licensing to third parties can establish a presence in Portugal in a tax efficient manner. The Portuguese Patent Box regime allows for tax exemptions on income derived from intellectual property.
Following the enactment of the 2020 State Budget, its benefits now cover income derived from registered copyrights for computer software. This tax incentive is in line with other measures designed to attract IT and Tech enterprises to Portugal.
The Patent Box Regime provides that 50% of income derived from the following assets and rights are excluded from Corporate Income Tax:
- Income derived from the sale or temporary licensing of industrial property rights such as industrial drawings, models or patents.
- Income derived from registered copyrights for computer software.
- Indemnities derived from claims against the infringement of the abovementioned IP rights.
Thus, in addition to the income already eligible for the Patent Box, the new amendment allows corporate taxpayers in Portugal to benefit from a tax break regarding income from assignment contracts or the temporary use of copyright over computer programs. Licensing and the sale of software is thus included.
The tax benefit is limited by a ratio considering eligible expenses and total expenses in developing or using IP protected assets. A 30% mark-up of the eligible expenses is available but is capped at the amount of the total expenses incurred with the development of those assets.
Clear and proper accounting segregating between types of income and expenses is required to differentiate between eligible and non-eligible income and expenses.
The regime is applicable to income derived from industrial property rights developed internally. The exemption also applies to indemnities derived from claims against the infringement of those IP rights.
Transactions with associated enterprises, including entities resident in black-listed jurisdictions, are not eligible. Costs and expenses that are not directly connected with R&D are excluded from this assessment, such as interest or real estate depreciation.
The information above is a simple overview of the implications and benefits. Such information is not to be used in place of proper and complete professional advice, as it does not constitute a binding legal opinion nor does it not consider the particularities of your case.