Portugal has overhauled the SIFIDE II regime, extending direct R&D tax deductions through 2026 while ending the indirect investment fund mechanism for contributions made after 31 December 2025.
Portugal has enacted a major reform of its tax incentives for business research and development (R&D), extending direct relief under the SIFIDE II regime through 2026 while abolishing the mechanism that allowed companies to obtain deductions through R&D investment funds.
The changes were introduced by Decree-Law No. 170/2026, published in the Official Gazette on 21 August 2026. The legislation amends the Portuguese Investment Tax Code (Código Fiscal do Investimento or CFI) following concerns over delays in deploying capital raised through the indirect investment route. More than EUR 1 billion in contributions reportedly remained unallocated to active R&D projects.
Direct R&D tax deductions extended
The revised framework extends the direct SIFIDE II regime to the 2026 tax year, allowing Portuguese corporate income taxpayers to continue claiming deductions for qualifying R&D expenditure incurred between 2014 and 2026.
The extension preserves tax support for companies undertaking eligible research activities directly, while the broader reform seeks to make the incentive more closely linked to demonstrable R&D expenditure.
Investment fund route abolished
The legislation eliminates the indirect SIFIDE II mechanism for capital contributions made after 31 December 2025. Under the former system, companies could obtain R&D-related tax benefits by subscribing to qualifying investment funds, which were then expected to finance R&D activities.
The reform follows recommendations from the Tax and Customs Policy Evaluation Technical Unit (U-Tax), which identified a significant gap between tax benefits granted to investors and the pace at which corresponding funds were being deployed into research activities.
Transitional measures for existing funds
Funds containing contributions made by the end of 2025 remain subject to transitional provisions designed to encourage the use of previously raised capital.
The period for funds to invest at least 85% of their capital in target companies, and for those companies to incur the associated R&D expenditure, has been extended from three to five years.
The legislation also permits funds to allocate up to 20% of contributions to productive innovation. Such investment must be directly derived from and complementary to R&D carried out during the preceding three years. The allocation is capped at EUR 20 million per investee company.
Additional flexibility applies to spin-offs originating from collaborative laboratories. These entities do not need prior state certification of their R&D suitability, although the capital they receive must still be used directly for R&D.
Investors remain subject to a 10-year holding requirement for fund units. Early disposal, or failure by a fund to meet the 85% investment threshold within the five-year period, triggers the recovery of the relevant tax deductions, together with compensatory interest, through the investor’s corporate tax liability.
New approach for consolidated tax groups
The decree-law also changes the calculation of SIFIDE II benefits for companies participating in Portugal’s RETGS tax consolidation regime.
Rather than calculating deductions, incremental rates and R&D bonuses separately for each company, the relevant amounts will be determined using the aggregate qualifying R&D expenditure of the consolidated group.
The change follows recommendations from the Inspectorate-General of Finance and is intended to provide a group-wide basis for calculating the incentive.
Tighter certification and oversight
Responsibility for certifying the R&D suitability of investee entities is consolidated under the Agency for Research and Innovation (Agência para a Investigação e Inovação, E.P.E.), replacing the former National Innovation Agency designation.
Certificates of R&D suitability will generally remain valid for either two or 12 years, depending on the entity’s R&D organisational maturity. A two-year certificate can only be issued once to an entity. Organisations holding certificates for more than eight years will also face mandatory reassessment.
The reforms introduce further safeguards against the overlapping use of public support. SIFIDE II deductions cannot be claimed for projects financed, directly or indirectly, through other public subsidies, international grants or SIFIDE II investment funds. Certified accountants may be required to confirm that no prohibited double funding exists.
Implications for businesses
The reform represents a significant shift in Portugal’s approach to R&D tax incentives. While direct SIFIDE II relief remains available through 2026, the government has removed the investment-fund channel for new contributions and introduced stronger controls over how qualifying R&D is certified and financed.
The transitional provisions are intended to accelerate the deployment of legacy fund capital, while the revised group rules and enhanced anti-double-funding measures seek to improve the administration and integrity of the incentive.
Overall, Decree-Law No. 170/2026 moves SIFIDE II toward a model centred on direct, verifiable corporate R&D expenditure, while providing existing investment funds with additional time and limited flexibility to deploy capital already raised.
