Tax and social contributions obligations in the context of the COVID-19 disease pandemic

SÉRVULO PUBLICATIONS 30 Mar 2020

With the purpose of ensuring liquidity for companies, preserve their activity and the job posts they create, Decree-Law no. 10-F/2020, of March 26, established an exceptional and temporary regime of compliance with tax obligations and Social Security contributions, in the context of the COVID-19 disease pandemic, namely by making the respective payment more flexible.

This diploma was amended by the Declaration of Rectification no. 13/2020, of March 28. Our summary below reflects also the amendments included by this declaration. 

In this context and from a tax and Social Security point of view, the aforementioned Decree-Law provides:

a) A flexible payment regime for VAT and Personal Income Tax (IRS) and Corporate Income Tax (IRC) withholding tax to be complied within the second quarter of 2020;

b) A deferred payment of Social Security contributions due by employers and freelancers (trabalhadores independentes);

c) The application to the instalment plans in progress with the Portuguese Tax Authorities (“PTA”) and the Social Security of the regime provided for in paragraph 1 of article 7 of Law no. 1-A/2020, of March 19;

d) The suspension of enforcement processes imposed by the PTA and the Social Security until June 30, 2020, if the regime approved by paragraph 1 of article 7 of Law no. 1-A/2020, of March 19 ceases at an earlier date. 

The main characteristics of the above outlined measures are the following: 

a) VAT and Personal Income Tax (IRS) and Corporate Income Tax (IRC) withholding tax 

Companies and freelancers will be given more time to deliver VAT and withholding taxes to the State. 

In both cases, there is the possibility to pay in instalments of three or six months, starting in April. 

With regard specifically to VAT, this option is granted both to companies in the monthly tax regime – covering the tax payable in April, May and June – as well as companies in the quarterly regime, which may benefit from this regime in relation to the tax payable in May. 

Identical regime will be applicable to Personal Income Tax (IRS) and Corporate Income Tax (IRC) withholding taxes payable in April, May and June, wheras the respective delivery can be made in instalments of 3 or 6 months, starting in April. 

Requests for payments in monthly instalments must be submitted electronically, through the Tax Authorities’ website (Portal das Finanças), until the end of the respective voluntary payment term and they do not depend on the provision of any guarantees. 

Taxpayers that may benefit from this regime 

These exceptional measures apply to companies and freelancers:

• With a turnover up to € 10,000,000 in 2018;
• Whose activity falls within the sectors of activity closed under the terms of article 7 of Decree no. 2-A/2020, of March 20, which include:
  • Recreational and leisure activities;
  • Cultural and artistic activities;
  • Sports, except those intended for high-performance athletes;
  • Activities in open spaces and public roads or spaces and private roads equivalent to public roads;
  • Gaming and betting spaces;
  • Restaurants.
  • Who started the activity in 2019;
  • That restarted the activity on or after January 1, 2019, in situations where they did not have a turnover in 2018;
  • Who have registered a decrease in the reported invoicing through the E-fatura of, at least, 20% in the average of the three months preceding the month in which this obligation exists, compared to the same period of the previous year.

To this end, when the communication of the invoices through the E-fatura does not reflect the totality of the VATable operations carried out, even if exempt, related to the transmission of goods and services, referring to the periods at stake, the evaluation of the invoicing’s reduction will be made with reference to the turnover reduction, with the respective certification by a statutory auditor or certified accountant. 

b) Deferral of Social Security contributions payment

After, on March 19, having suspended the payment of the Social Security contributions, which payment term was March 20, Decree-Law no. 10-F/2020 provides that the contributions due by the employer, in March, April and May 2020, can be paid on the following terms:

a) One third of the contributions is paid in the month in which it is due;

b) The remaining two thirds are paid in equal and successive instalments, respectively in the months of July, August and September 2020 or in the months of July up to December 2020, without bearing interest. 

Assuming the suspension of the payment of contributions due in March may have been announced after employers made their payment in full – since this measure was only announced on March 19 and, therefore, on the eve of the term of payment - Decree-Law no. 10-F/2020 foresees that the deferral regime may start in April and end in June 2020, thus allowing entities to equally benefit from a three-months’ deferral period. 

This deferred payment is not subject to a prior request before the competent authorities, although employers who want to benefit from the alternative outlined in paragraph b) above must indicate so, through the Direct Social Security (Segurança Social Direta), which payment term they intend to use.

It should be noted that the present regime only covers contributions payable by employers, excluding the contributions due by employees but delivered to Social Security by the respective employers. 

This regime will also be applicable to self-employed workers (freelancers), in which case the deferral will only apply to the months of April, May and June 2020, with the respective payment being made in the above described terms.

Beneficiary entities

This regime is applicable to employers in the private and social sectors that meet one of the following requirements:

a) Less than 50 workers;

b) A total of workers between 50 and 249, provided they have a reduction of, at least, 20% of the invoices issued communicated through the E-fatura, in the months of March, April and May 2020, compared to the same period of the previous year or, for those who started the activity less than 12 months ago, the average of the elapsed activity period;

c) A total of 250 or more workers, provided that it is (i) a private institution of social solidarity or equivalent (ii) the activity of these employers falls within the sectors of activity closed under the terms of article 7 of Decree no. 2-A/2020, of March 20 (as listed above), (iii) in the aviation and tourism sectors and provided that they present a reduction of, at least, 20% of the invoicing communicated through the E-fatura in the months of March, April and May 2020, compared to the same period of the previous year or, for those who started the activity less than 12 months ago, the average of the elapsed activity period. 

Declaration of Rectification no. 13/2020 clarifies that, when the activity of employers falls into sectors of activity closed under the terms of Decree No. 2-A/2020, of 20 March, or in the sectors of aviation and tourism, these entities can only benefit from this regime in relation to the shop or company effectively closed. 

It is also added that the application of this regime to the activity of employers that has been suspended, by legislative or administrative determination, (i) under the terms provided for in Decree-Law no. 10-A/2020, of 13 March, in its current wording, (ii) in the Civil Protection Act, approved by Law no. 27/2006, of July 3, in its current wording, or (iii) in the Health Act, approved by Law no. 95/2019, of 4 September, is only applicable to the shop or company effectively closed. 

Finally, similarly to what happens with VAT and withholding taxes, to this end, when the communication of the invoices through the E-fatura does not reflect the totality of the VATable operations carried out, even if exempt, related to the transmission of goods and services, referring to the periods at stake, the evaluation of the invoicing’s reduction will be made with reference to the turnover reduction, with the respective certification by a statutory auditor or certified accountant. 

The number of workers should be ascertained with reference to the remunerations’ declaration regarding the month of February 2020. 

As above indicated, self-employed workers are also entitled to defer payment of their contributions using the procedure foreseen in this Decree-Law.

c) Suspension of instalment plans and enforcements processes with the PTA and Social Security

The parity to the judicial vacation regime will be applicable to instalment plans in progress with reference exclusively to tax enforcement processes, without prejudice to the fact they may continue to be strictly fulfilled.

If the parity ends before 30 June 2020, tax enforcement processes must remain suspended until this date.

Ongoing payment plans are also suspended until 30 June 2020 for Social Security debts outside the scope of enforcements processes, without prejudice to the possibility of continuing to be strictly fulfilled.

Finally, after 30 June 2020, the competent Social Security institution may decide to extend the suspension of the instalment plans entered into with private social solidarity institutions under cooperation agreements.

Considering the steps now taken and despite their limitations, namely the fact Social Security contributions on behalf of employees are still due, companies and self-employed workers have a larger period to comply with their payment obligations.

Teresa Pala Schwalbach | tps@servulo.com

Leonor Gargaté Oliveira | lgo@servulo.com