Navigating Portuguese R&D Tax Credits: SIFIDE II Reform

The Portuguese government put forward a proposal to reform the investment tax code, extending the SIFIDE II tax incentive until 2026 while introducing significant structural changes. The proposal was approved, marking a critical shift for corporate research and development (R&D) in Portugal. Understanding its implications is essential for any business operating in the region.

SIFIDE II: Portugal's R&D Tax Incentive Explained

Since its creation in 1997, SIFIDE has been a central pillar in fostering business innovation, allowing companies to deduct a substantial portion of their R&D expenses from corporate income tax. However, the indirect investment route introduced in 2014, which permitted tax deductions through investment funds, revealed significant limitations. This mechanism led to a clear mismatch between the tax benefits claimed and the actual R&D activities performed, delayed project execution, and ultimately diluted the incentive for companies to invest directly in R&D.

To correct this, the new approved proposal eliminates the option of claiming SIFIDE deductions through investment funds, starting from 2026. The regime will now refocus on what matters: direct corporate investment in R&D. This move is designed to drive effectiveness, enhance transparency, and ensure a direct link between fiscal expenditure and tangible innovation outcomes.

Key Changes You Need to Know

The reform introduces several critical adjustments aimed at sharpening the incentive's impact:

Elimination of Indirect Investment: The path to claim deductions via investment funds will be closed, channelling benefits directly to companies undertaking R&D.
Ban on Double Deductions: Expenses financed by SIFIDE funds or other public support will no longer be eligible for additional SIFIDE claims, ensuring tax benefits are applied fairly and efficiently.
Focus on Industrial Application: The reform creates a new pathway to use SIFIDE funds to finance productive investments that are directly linked to R&D results. This builds a crucial bridge between scientific discovery and industrial application, turning innovation into real-world value.
Revised Group Deductions: For corporate groups, the incremental deduction will now be calculated on an aggregated basis. This ensures a more consistent and transparent application of the incentive within complex group structures.

The need for this overhaul was reinforced by Portugal’s newly established Technical Unit for Evaluation of Tax and Customs Policies (U-Tax), which confirmed that a significant portion of capital channelled through SIFIDE funds remained unspent and delivered limited economic impact.

The Path Forward

The current SIFIDE regime will remain in place until the end of 2026, providing a transition period for businesses. Concurrently, a dedicated working group will evaluate the scheme and design a new, more effective model for the future.

This reform represents a strategic step toward strengthening the competitiveness, transparency, and innovation capacity of Portuguese businesses. By focusing on direct investment and tangible outcomes, the government is ensuring that tax incentives deliver real economic value. For business leaders, this is a clear signal to re-evaluate R&D investment strategies to align with the new framework, positioning your company to maximise benefits and drive growth in a reformed landscape.