Are you thinking of moving to the interior of the country? There are tax incentives for companies and families that decide to leave the big cities. Meet them.
It is not new that the Portuguese State wants to encourage citizens to move to less populated regions of the country to fight growing desertification. But it was the COVID-19 pandemic that sharpened the desire of many Portuguese to make a living in areas with lower population concentrations.
Taking advantage of the opportunity, the Government gathered in a document, which it called Internal Tax Guidethe various measures to encourage investment in the interior, as well as tax benefits for families and companies.
Inland tax guide: support for families
There are several supports designed to encourage Portuguese families to settle in inland areas, namely benefits aimed at students who attend educational establishments there, as well as households who transfer their permanent residence to these territories.
Increase in IRS deductions related to rents
Families moving inland benefit from a relevant tax incentive: the increase in the limit of IRS deductions related to charges with real estate rents.
Instead of the usual 502 euros, families who transfer their permanent residence to inland areas will now be able to deduct house rents up to a limit of 1000 euros, for three consecutive years.
Bearing in mind that only 15% of these charges are deductible, raising the maximum limit could represent a very significant incentive for these families. Let’s see an example:
- A family living in Lisbon and paying a monthly rent of 600 euros could deduct, at the end of the year, 1,080 euros (15% x (600€ x 12 months)). However, as the limit is 502 euros, the final benefit turns out to be 502 euros;
- A family living in Beja and paying a monthly rent of 400 euros could deduct, at the end of the year, 720 euros (15% x (400€ x 12 months)). As, in this case, the limit is 1,000 euros, the final benefit is 720 euros. That is, an increase of 218 euros compared to the benefit to which the same family would be entitled if they did not live in an interior territory.
Higher spending on education
Education and training expenses are deductible from the IRS collection at 30% of their value, up to a maximum of 800 euros. However, for students enrolled in educational establishments located in the interior of the country, the amount supported with education expenses is increased by 10 percentage points.
For example, a tuition fee of 697 euros (as in force at several universities in the 2021/2022 academic year) allows a deduction from the IRS collection of:
- 209.10 euros (30% of the tuition fee) for a student who attends higher education establishments outside the interior territories (for example, Lisbon, Porto or Coimbra)
- 230.01 euros (30% of 697€ x 1.1) for a student attending a higher education establishment located in the Interior (eg Évora or Covilhã) – an additional benefit of 20.91 euros.
In addition, if the student is traveling more than 50 kilometers from the place of residence, expenses related to the rent of the house can also be deducted from the IRS as education expenses (up to a limit of 300 euros). In this case, the global limit for the deduction increases from 800 euros to 1000 euros, provided that the difference is related to rent expenses.
What support is in place for companies?
For companies, support translates into tax incentives aimed at boosting the business fabric and more favorable conditions for investment in the Interior, rewarding the creation of jobs and active contribution to regional development.
Reduced IRC rate
SMEs with effective management in the Interior are entitled to a reduced IRC rate (12.5%) for the first 25 thousand euros of taxable income. This measure is intended to reinforce the business fabric of the Interior.
Companies in the interior of the country that reinvest their profits in relevant investments made in interior territories are entitled to a 20% increase in the benefit of deducting the IRC collection, which is already provided for in the Deduction regime for Retained and Reinvested Profits.
More favorable fiscal conditions to attract investment
Under the investment support tax regime (RFAI), companies that invest in relevant applications in economic activities considered strategic benefit from more favorable conditions. They may, in particular, deduct from the collection a percentage (at least 10%) of the investments made in relevant applications, which vary depending on the region.
Contractual tax benefits for Productive Investment
Companies in key sectors that carry out investment projects of €3 million or more benefit from more advantageous conditions, especially if these investments are applied in less developed areas and reduce regional asymmetries.
Support for forest protection
Individuals (category B) and companies that derive income from forest management benefit from two types of incentives: exemptions and bonuses.
Thus, companies and professionals who acquire properties located in areas covered by Forest Intervention Zones (ZIF) benefit from exemption from IMT, stamp duty and IMI. In addition, expenses assumed with the defense and maintenance of the forest are increased by IRC and IRS, reducing the tax bill payable.
The concept of “inside”
It is important to point out that, despite the term, it is not necessary to move away from the beach to be covered by incentive measures for inland regions. The Setúbal area, for example, as well as some areas on the Alentejo coast, are also covered by the support mentioned above.
This is due to the fact that the concept of “Interior” is more related to the low demographic concentration and economic activities in these territories, than to their geographic location. What the State wants is to boost the weakest regions, from this point of view, and not necessarily the regions bordering Spain.
In reality, the “Interior” represents the majority of the Portuguese territory: there are 165 complete municipalities plus 73 parishes from other municipalities, which you can consult in the Ordinance No. 208/2017. Together, all these areas are home to no more than 20% of the country’s population.
What is the Interior Tax Guide?
The Interior Fiscal Guide is a document created by the State Secretariat for Fiscal Affairs, with the support of the Tax and Customs Authority.
It brings together all the tax incentives that are already in force for territories in the interior of the country. It is available for download at executive website.
Article originally published in June 2020. Last updated in February 2023.