Empowering the Next Generation of Entrepreneurs: Regime for Startups

In recent years, the startup ecosystem has become an integral and thriving component of the global economy. It serves as a catalyst for innovation, job creation, and overall economic growth. Recognising the significance of startups, governments worldwide have acknowledged the importance of establishing a supportive environment through strategic policies and regulatory frameworks.

Consequently, several startup policy regimes have emerged, designed to enrich the entrepreneurial ecosystem and unlock boundless opportunities for business innovation. These comprehensive policies encompass a wide array of legal, financial, and institutional support measures. Their primary objectives are to facilitate startups' access to capital, talent, and expertise, enabling them to flourish.

Embracing this global trend, the Portuguese Government has recently nurtured the implementation of a groundbreaking Startup Law (Law no. 21/2023), which came into effect on May 26, 2023. This law introduces a broad range of tax incentives specifically tailored for micro, small, and medium-sized entities, as well as small or mid-cap entities engaged in innovative fields.

The new legal regime directly targets startups that showcase innovative business models or possess a strong focus on technology-based activities, with substantial potential for rapid growth. Furthermore, it paves the way for an extensive 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 progressive transformation, offering entrepreneurs exciting possibilities. Additionally, corporate tax incentives are made available, crowdfunding emerges as a viable and dynamic financing option, and numerous other forms of government-backed financial support are defined.

The Startups Law has introduced a range of important tax measures, which are outlined below:

• To qualify for specific tax incentives, entities looking for startup recognition must communicate in advance to Startup Portugal through the convenient public services one-stop shop.
• With regards to personal income tax, gains arising from option plans, subscription plans, allocation plans, or similar plans granted to employees or directors will be subject to taxation on only 50% of their value. Additionally, they will be taxed at a flat rate of 28%.
• In terms of corporate income tax, the expenses related to Research and Development (R&D) activities that are deductible have been increased from 110% to 120%. Furthermore, the reporting period for expenses that were not initially deducted due to insufficient taxable income has been extended from 8 to 12 years.

In general, the startup regime plays a critical role in fostering the innovation ecosystem. It demands ongoing evaluation and enhancement to ensure its continued relevance and effectiveness. Portugal, through the implementation of this new legal regime, holds a privileged position as a proponent of innovation, entrepreneurship, and economic growth.

Should you have any further inquiries regarding this matter, please do not hesitate to reach out. We are delighted to offer our assistance and support.