Empowering Innovators: Regime for Startups

Maria Câncio | Lawyer

In recent years, the startup ecosystem has become an integral part of the global economy, driving innovation, creating jobs, and fostering economic growth. Governments around the world have therefore recognised the need to provide an enabling environment for startups, through policy and regulatory frameworks that support their growth and development.

This has led to the advent of various startup policy regimes, aimed at enhancing the entrepreneurial ecosystem and unlocking opportunities for business innovation. These policies typically encompass a range of legal, financial, and institutional support measures that facilitate access to capital, talent, and expertise for startups.

Given the above, the Portuguese Government has fostered a new Startup Law (Law no. 21/2023), recently published and effective as of May 26, 2023, that has introduced a wide range of tax incentives for micro, small, or medium-sized entities, as well as small or mid-cap entities, operating in innovative fields.

This new legal regime specifically targets startups that demonstrate innovative business models or have a strong emphasis on technology-based activities, with the potential for rapid growth. It also allows for a wide range of tax incentives aimed at fostering investment and propelling the development of the Portuguese startup landscape.

Under this regime, stock options taxation undergoes a refreshing makeover. Additionally, corporate tax incentives are offered, crowdfunding emerges as a viable financing option, and various other forms of financial government support are defined.

The Startups Law introduced several key tax measures, which are outlined below:

• In order to qualify for certain tax incentives, entities seeking startup recognition must provide prior communication to Startup Portugal through the convenient public services one-stop shop.

• On a personal income tax level, gains resulting from option plans, subscription plans, allocation plans, or similar plans issued to employees or directors will be subject to taxation on just 50% of their value. Moreover, they will be taxed at a flat rate of 28%.

• At a corporate income tax level, the deductible expenses associated with Research and Development (R&D) activities have been increased from 110% to 120%. Additionally, the reporting period for expenses that were not deducted when initially incurred due to insufficient taxable income has been extended from 8 to 12 years.

Overall, the startup regime is a vital component of the innovation ecosystem and requires constant evaluation and improvement to maintain its relevance and effectiveness. Through this new legal regime Portugal is in a privileged position of promoting a culture of innovation, entrepreneurship, and economic growth.

If you have further questions regarding this matter, get in touch with Maria Câncio and she will be delighted to assist you.