The “Article 41.º-A” of the Tax Benefits Statute (EBF)

 

At a time of the year when companies are closing the fiscal year of 2018 to calculate their taxable profits,  the natural responsibility to settle and pay taxes, the tax benefit associated with the conventional compensation of the share capital is a mechanism that might prove interesting.

 

The framework derives from the application of Article 41.º -A of the Tax Benefits Statute (EBF), with the amendments entrusted by the Law n.º 114/2017 - 29/12 and establishes that “in determining the taxable profit of companies, commercial or civil in a commercial form (…), an amount corresponding to the conventional compensation of the share capital may be deducted, calculated by applying, limited to each financial year, a rate of 7% of the amount of the inputs made up to (euro) 2,000,000.00, by cash deliveries or by credit conversion, or recourse to the profits of the financial year itself in the context of the company´s constitution or the increase of share capital” – according to n.º 1 of the Article 41.º-A.

 

The same norm establishes as requirements for the recognition of this framework that (i) the taxable profit of the Company is not determined by indirect methods (ii) in the tax period (year) and in the next five years the company does not reduce its share capital with restitution to the shareholders – subparagraphs c) and d) of n.º 1 of Article. 41.º-A.

 

In accordance to paragraph 2 of the article herein referenced, we warn that for the purposes of deduction:

 

a) Only are considered (i) the entries of contributions in cash, in the context of the company's incorporation or the share capital increase of the beneficiary company; (ii) contributions in kind carried out within the scope of the share capital increase that corresponds to the conversion of credits into capital, and (iii) the capital increase using the profits generated in the same financial year, provided that, in this latter case, the registration of the capital increase takes place until the submission of the income statement for the financial year in question; (iv) kind contributions corresponding to the credit conversion of third parties as from January 1^st of 2018 or from the first day of the taxation period commencing after that date, when it does not correspond to the calendar year;

 

b) It is carried out in the calculation of the taxable profit for the taxation period in which the entries are made and in the following five taxation periods.

 

It should also be noted that this framework does not apply when “in the same taxation period or in one of the previous five taxation periods, the same is or has been applied to companies which hold directly or indirectly a shareholding in the share capital of the beneficiary company, or are directly or indirectly held by the same company, in the part referring to the amount of the inputs made to the share capital of those companies that have benefited from this framework”.

 

The benefit is intended to promote the capitalization of companies without recourse to external indebtedness allowing the partners to strengthen their positions within the Companies and still deduct from taxable profit (from 2018, or the next 5 years) up to 7% of the inputs – limited to €2,000,000.00.

 

In conclusion, Companies which, in their projections, calculate taxable profit, provided that they comply with the requirements of the framework in review, may by means of a share capital increase operation, that is registered by the same day, benefit from the application of this framework.