What the RFAI is, what it gives back and where it applies

A benefit whose value changes with the map

The RFAI is the most widely used tax support for companies investing in productive capacity in Portugal. The idea is simple: a company that buys new equipment, builds industrial premises or creates qualified jobs can deduct a percentage of that investment from its corporate tax charge.

The percentage is where it stops being simple. The RFAI is not an ordinary tax benefit, it is a regional state aid, and that changes everything. The European Union authorises each country to support private investment more generously in its poorer regions and less generously, or not at all, in its richer ones. Portugal translated that authorisation into a table, and it is that table, not the company's head office or the type of project, that decides how much the RFAI gives back.

The rate: 30%, 10% or nothing

Article 23.º(1)(a) of the Investment Tax Code deducts from the corporate tax charge determined under article 90.º(1)(a) of the corporate tax code¹:

• In regions eligible under article 107(3)(a) of the Treaty on the Functioning of the European Union: 30% of relevant applications for investment made up to 15,000,000 EUR, and 10% for the part above that amount.
• In regions eligible under article 107(3)(c) of the same provision: 10% of relevant applications.

Which is which sits in the table of article 43.º(1), which reproduces the national regional aid map approved by the European Commission on 8 February 2022 for the period from 1 January 2022 to 31 December 2027².

Look at what the table does not have. It does not have the city of Lisbon. It does not have most of the Algarve. It does not have either region in full: both appear marked “(partial)” and eligibility is limited to a closed list of civil parishes.

In the Algarve there are seventeen: São Brás de Alportel, Alferce, Boliqueime, Cachopo, Ferreiras, Loulé (São Clemente), Loulé (São Sebastião), Mexilhoeira Grande, Monchique, Paderne, Pechão, Quelfes, São Bartolomeu de Messines, São Marcos da Serra, the united parishes of Algoz and Tunes, the united parishes of Conceição and Estoi, and Vaqueiros.

In the Lisbon metropolitan area there are twelve, almost all on the Setúbal peninsula: Alcochete, Gâmbia-Pontes-Alto da Guerra, Moita, Pinhal Novo, Quinta do Anjo, Sado, São Francisco, the united parishes of Atalaia and Alto Estanqueiro-Jardia, of Gaio-Rosário and Sarilhos Pequenos, of Palhais and Coina, of Pegões, and of Poceirão and Marateca.

What counts is where the investment is made, not where the company is registered. A Lisbon company installing a production line in Évora applies the Alentejo Central rate. A Braga company buying equipment for a warehouse in Cascais has no RFAI at all.

The second ceiling: half the charge, not the whole of it

Working out the deduction is the easy part. What decides how much the company saves this year is article 23.º(2), which caps the deduction at 50% of the corporate tax charge determined in each tax period¹. Deduction up to the full charge does exist, but only in the start-up period and the two that follow, and only where the company is not the result of a demerger.

It is the most important practical difference from SIFIDE, the research and development tax credit, which deducts up to 100% of the charge in any year. Two companies with the same credit save very different amounts depending on whether they are inside that initial window.

What does not fit is not lost. Paragraph 3 of the same article allows the remainder to be deducted in the assessments of the following 10 tax periods, up to the charge determined in each of them and subject to the same 50% limit in the years where it applies.

There is one further detail that only matters to companies with older credits: Law 21/2021 of 20 April suspended the running of this deduction deadline during the 2020 and 2021 tax periods, with retroactive effect to 1 January 2020.

And, as with SIFIDE, the deduction is made against the charge determined under article 90.º(1)(a) of the corporate tax code, that is the corporate tax charge and only that. The municipal surcharge, which each municipality sets at up to 1.5% of taxable profit, and the state surcharge, due above 1,500,000 EUR of profit, sit outside it and are paid in full.

The third ceiling: the regional aid allowance

Article 23.º(5) adds that the benefits must respect the maximum regional aid limits in force in the region, under article 43.º. And paragraph 6 requires counting, towards that limit, the total amount of regional state aid granted to the investment in question, from all sources¹.

The maximum intensity is the one in the last column of the table above, uplifted under article 43.º(2) by 10 percentage points for medium enterprises and 20 points for micro and small ones, except on projects whose relevant applications exceed 50,000,000 EUR².

From this follows a case that is rarely explained and is worth knowing before applying a project to a grant scheme: in a 30% region, a large company has a maximum intensity of exactly 30%, which is the RFAI rate itself. The tax benefit on its own exhausts the investment's allowance. Any non-repayable regional grant on the same project reduces the RFAI euro for euro, and the company ends up with the same total support it would have had without the grant. For a small company in the same region the intensity rises to 50%, leaving 20 percentage points of room to stack.

A worked example

A small company invests 500,000 EUR in a new production line in the North and has a taxable profit of 300,000 EUR for the period.

The North is in the article 107(3)(a) column and the investment is well below 15,000,000 EUR, so the deduction is 30%: 150,000 EUR. The maximum intensity in the region is 30%, uplifted by 20 points because it is a small company, giving 50% and a ceiling of 250,000 EUR. The credit fits comfortably.

The corporate tax charge is 55,000 EUR, because the first 50,000 EUR of taxable profit is taxed at 15% and the remaining 250,000 EUR at 19%.

And this is where the sum changes hands. The period limit is 50% of the charge, that is 27,500 EUR. The company deducts that this year, still pays the other 27,500 EUR of corporate tax, and carries 122,500 EUR into the following ten periods. The credit is worth almost three times the year's tax charge, but what the regime gives it in this financial year is half the tax, not all of it.

If the same company were in its start-up period or one of the two following ones, it would deduct the full 55,000 EUR and end up with no corporate tax to pay.

What counts as a relevant application

Article 22.º(2) lists three families, all on condition that the assets are used in the business³.

Tangible fixed assets acquired new, with six exclusions that catch many companies out: land, except where intended for mining concessions, mineral and spring waters, quarries, clay pits and sand pits in the extractive industry; the construction, acquisition, repair and extension of any buildings, unless they are industrial premises or used for tourism, audiovisual production or administration; passenger and mixed-use cars; furniture and comfort or decoration items, except hotel equipment used in a tourism business; social facilities; and other investment assets not used in the business.

Intangible assets consisting of spending on technology transfer, in particular the acquisition of rights to patents, licences, know-how or technical knowledge not protected by patent.

Salary costs arising from the creation of jobs for staff qualified at level 7 or 8 of the National Qualifications Framework, a sub-paragraph added by Law 82/2023 of 29 December. Paragraph 5 of the article clarifies that this includes gross salary before tax, mandatory social security contributions, occupational accident insurance, childcare and dependant care costs and other charges of legal or collective bargaining origin.

A note for larger companies: in those outside the micro, small and medium enterprise category, paragraph 3 limits intangible assets and salary costs to 50% of total relevant applications.

The conditions, and the penalty for breach

Article 22.º(4) requires six cumulative conditions: regularly organised accounts; taxable profit not determined by indirect methods; keeping the assets in the company and in the region for three years in SMEs or five in other companies, or for their minimum useful life if shorter; not owing money to the State or social security; not being a company in difficulty; and making an investment that creates jobs and maintains them³.

The third of those conditions has a consequence of its own. Article 26.º provides that, where the holding period is breached, the tax that was not assessed because of the benefit is added to the corporate tax of the period in which the assets were disposed of, plus the corresponding compensatory interest uplifted by 10 percentage points⁵. That is an aggravated penalty written into the rule itself, and it is rare among Portuguese tax benefits.

On paperwork, the RFAI has no prior application to any agency. Article 25.º only requires the deduction to be supported by a document in the tax documentation file of article 130.º of the corporate tax code, identifying the relevant applications and their amounts item by item, plus a document evidencing the calculation of the benefit and proof of the eligibility conditions⁶.

What it can be combined with

Article 24.º settles this in two lines, and the distinction is clear⁴.

Paragraph 1 rules out cumulation: the RFAI is not cumulative with any tax benefits of the same nature, including contractual ones, in respect of the same relevant applications. That is what separates the RFAI from SIFIDE. A company may use both regimes in the same financial year, but each euro of spending has to be allocated to only one of them, and that allocation is decided before the accounts are closed.

Paragraph 2 opens the only exception: the RFAI is cumulative with the DLRR, the deduction for retained and reinvested profits, provided and to the extent that the maximum regional aid limits in article 23.º(5) and (6) are not exceeded. The two benefits share the same allowance, and they have to be added together before comparing with the region's maximum intensity.

The other three branches of the benefit

This article, and the calculator that goes with it, deal with the deduction from the tax charge, which is almost always the most valuable branch and the only one that can be computed from figures the company already knows. But article 23.º(1)(a) has three siblings¹:

• Exemption from or reduction of property tax (IMI), for up to 10 years from the year of acquisition or construction, on buildings used in the investments that constitute relevant applications.
• Exemption from or reduction of property transfer tax (IMT) on acquisitions of buildings that constitute relevant applications.
• Stamp duty exemption on those same acquisitions.

The first two are conditional, under paragraph 4 of the article, on the competent municipal assembly recognising the interest of the investment for the region. They are not automatic and they are not a calculation: they depend on a resolution, and that is why they sit outside the calculator.