Regulation of the incentive scheme to maintain jobs

Legal alert no. 156

Regulation of the incentive scheme to maintain jobs

Ministerial Order number 295/2021, of July 23, 2021, was published, regulating the extraordinary and transitory regime of incentives to maintain jobs, foreseen in the State Budget for 2021.

Subject Entities

The incentive scheme to maintain jobs is applicable to employers with head office or place of effective management in Portugal, as well as non-residents with permanent establishment, whose main activity is of a commercial, industrial or agricultural nature and which (i) are not considered micro, small or medium-sized enterprises and (ii) have recorded a positive net result in the accounting period concerning 2020.

Access to public support and tax incentives

During the year 2021, the access to public support, as well as the use of tax incentives, by the entities subject to the regime, will be conditioned to the observance of the maintenance of the employment level.

The maintenance of the employment level is considered observed, whenever, by the end of the month prior to the application, use or training of the public support or tax incentive, when applicable, the entity has an average number of employees equal to or greater than the level observed in October 2020.

The average number of employees is calculated, taking into account their number in the months between October 2020 and the month before the application, use or formation of the public support or tax incentive.

The expected tax incentives (with the exception of contractual tax benefits for productive investment) are considered to be formed on the date of verification of the respective constitution or reporting assumptions, which will correspond to the last day of the tax period beginning on or after January 1, 2021, unless otherwise provided by law.

The access to public support and the use of the tax incentives foreseen by the entities subject to the regime also determines

i) A prohibition to terminate employment contracts under the modalities of collective dismissal, dismissal by termination of employment or dismissal by inadaptation, provided for in the Labor Code, as well as to initiate the respective procedures, until December 31, 2021, or for three years, counted from the effective date of the benefit under the CFEI II;

ii) The duty to maintain until December 31, 2021, in the case of public support, or the last day of the tax period beginning on or after January 1, 2021, in the case of tax incentives, an average number of workers that is not less than the number existing on October 1, 2020.

Employment Level

For the purposes of verifying the level of employment

(i) Employees, as well as economically dependent independent workers in the service of the company and those on assignment are taken into account; and

(ii) Employees who have terminated their employment contract on their own initiative, due to death, retirement due to old age or disability, dismissal with just cause by the employer, or the expiration of a fixed term contract, are not taken into account if it is proved by the employer that the exceptional increase in the company's activity, the occasional task or service precisely defined and non-lasting, the work, project or other defined and temporary activity has demonstrably ceased.

The entities subject to the regime may also demonstrate to the competent body for the allocation or supervision of the support or incentive that, in the overall sum of the entities with which it has a corporate relationship of reciprocal shareholdings, control or group, even if not subject to the regime, the maintenance of the level of employment under the terms and conditions provided for in this regime was observed, counting for this purpose only the entities that have their head office or effective management in Portuguese territory or the permanent establishments of these entities located in this territory.

Public support and tax incentives

The following public support and tax incentives are covered by this regime:

i) Lines of credit with State guarantees;

ii) Tax benefits mentioned below:

- The tax benefit provided for in the Statute of Tax Benefits with respect to the conventional remuneration of share capital;

- The contractual tax benefit regimes for productive investment, relative to new contracts, the fiscal regime of support for investment (RFAI) and the fiscal incentive system for business research and development II (SIFIDE II), foreseen in the Investment Tax Code; and

- The Extraordinary Tax Credit for Investment II (CFEI II).

Non-compliance

Non-compliance with the maintenance of the employment level determines:

i) in the case of Lines of Credit with State guarantees, the non-approval of applications or requests that are submitted during the year 2021;

ii) In the case of contractual tax benefits for productive investment, for new contracts, the RFAI, the SIFIDE II, the non-approval of contracts whose applications are submitted during 2021; and

iii) In the case of the remaining public support and tax incentives (CFEI II and tax benefit provided for in the Statute of Tax Benefits in relation to the conventional remuneration of share capital), suspension of the right to use the benefit during the tax period beginning on or after January 1, 2021.

Failure to comply with the prohibition to terminate contracts and the duty to maintain the average number of employees determines:

i) The immediate termination of public support that constitute support lines, with the consequential refund of all the amounts already received; and

ii) The suspension of the right to enjoy the remaining tax benefits foreseen for the year 2021, for the tax period beginning on or after January 1, 2021.

If the tax benefit has already been exercised, the non-compliance will imply the refund of the uncollected tax revenues, plus compensatory interest.

The verification of the employment level is carried out on an unofficial basis, namely, based on information provided by the Social Security.

The ordinance came into force on July 24, 2021, however, it is effective as of January 1, 2021.

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