Portugal’s Finance Minister Vitor Gaspar has unveiled details of a raft of financial and fiscal incentives, designed to boost investment, growth, and employment in Portugal.

The elegant downtown of Lisbon, the heart of the city is Baixa’s Rua Augusta, which leads to Lisbon’s famous Terreiro do Paço. Picture courtesy of Osvaldo Gago.

Gaspar made clear that “the time is right for investment,” given the successful reduction of the budget deficit and in view of financial stability in Portugal. The Minister argued that the Government’s proposed measures are intended to initiate the recovery of economic activity by reviving “productive private investment.” As a result, an increase in investment is expected in the second half of the year, Gaspar said.

To re-launch investment in Portugal in 2013, the Government plans to introduce an extraordinary investment tax credit. The Government also plans to introduce a package of fiscal initiatives, designed to create attractive fiscal conditions, to stimulate productive investment.

Alluding to the extraordinary investment tax credit as an “innovative measure, unprecedented in Portugal,” given the amount and scope of the investment tax break, Finance Minister Gaspar explained that the provision corresponds to a corporate tax reduction (IRC) of 20 percent of the investment, up to a maximum 70 percent of total IRC due.

Gaspar emphasized that the incentive will serve to reduce the effective corporate tax rate to 7.5 percent for those companies that elect to invest significantly in 2013. Already approved by the European Union, the provision will apply to investments realized between June 1, 2013, and December 31, 2013, up to EUR5m (USD6.5m).

The proposed package of fiscal measures is designed to consolidate the various tax benefits currently provided for in the country’s Investment Tax Code.

Defending the proposals, Finance Minister Gaspar underscored that Government efforts to balance the Portuguese budget will not be affected by the resulting revenue shortfall, pointing out that the tax initiatives will generate growth and promote economic activity.

Referring to the announcement as “a very important day” for Portugal, Economy and Employment Minister Alvaro Santos Pereira stated that the proposals are already having a positive impact on the country’s economy, by “restoring investor confidence.”

State Secretary for Fiscal Affairs Paulo Nuncio stressed that the provisions are a “very powerful incentive,” both for companies that have not thought about investing in 2013, and for businesses that have so far hesitated, unsure of whether to invest in Portugal or in other countries.