Share Option Plans In Start-Ups And Changes To SIFIDE II

• Published date: 07 June 2023
• Subject Matter: Tax, Income Tax, Tax Authorities
• Law Firm: PLMJ
• Author: Mr PLMJ

Entry into force of the Law

Following the approval of Law 21/2023, of 25 May, introduced a regulatory framework that fosters the development of companies with a business model that has a strong innovation component and potential for future growth.

Law 21/2023, of 25 May introduces the concepts of start-up and scale-up into the Portuguese legal system, and creates a set of specific investment and tax policies aimed at capitalising and attracting talent to these companies.

Furthermore, a set of significant amendments are introduced to the Tax Incentive System for Business Research and Development (Sistema de Incentivos Fiscais à Investigaç'o e Desenvolvimento Empresarial, or 'SIFIDE II'), which are intended to make research and development ('R&D') more attractive.

These are the most important measures

• Change to the taxation rules for share options and subscription and/or plans to grant shares involving securities in companies qualifying as start-ups, SMEs (including small-mid caps) and companies operating in the innovation sector. Taxation is deferred until the date of disposal of the securities whilst benefiting from an effective 14% tax rate.
• Changes to the SIFIDE II scheme, with the following highlights
  1. Making the scheme more competitive by increasing the deduction for expenses incurred in R&D activities and extending the reporting deadline in the context of SIFIDE II;
  2. New rules on access to tax benefits;
  3. Imposition of reporting duties on participating companies.

Under this new regime, gains realised by employees will now only be taxed at 50% of their value and will be subject to the special rate of 28% for Personal Income Tax purposes.

Tax rules on share options / share subscription plans

Law 21/2023, of 25 May, introduces special arrangements for the taxation of gains arising from share options, share subscription and/or share allocation plans or equivalent rights attributed by SMEs (including small-mid caps), by entities operating in R&D or by companies recognized as start-ups.

Under this new regime, gains realised by employees will now only be taxed at 50% of their value and will be subject to the special rate of 28% for Personal Income Tax purposes (i.e., an effective rate of 14% will apply). This is subject to the condition that the rights underlying the securities generating the gains or equivalent rights are held for a minimum period of 1 year.

Moreover, the taxation of gains made by employees upon exercising the option, subscription or...