Government approves changes to SIFIDE II: stricter requirements and stronger focus on real R&D

Since 1997, the System of Tax Incentives for Business Research and Development (SIFIDE) has been the main public policy instrument used to encourage R&D investment among Portuguese companies. Its objective is clear: to strengthen economic competitiveness by enhancing R&D capacity within organisations.

Over the years, SIFIDE has played a decisive role in the evolution of R&D investment in Portugal. In 1997, R&D investment represented 0.56% of GDP. By 2024, this figure had risen to around 1.75% of GDP, equivalent to approximately €4.9 billion.

On 13 November 2025, the Council of Ministers approved structural changes to the SIFIDE II scheme, redefining its operation until 2026 and paving the way for a new post-2026 model.

WHAT IS SIFIDE AND WHAT ACTIVITIES DOES IT COVER

SIFIDE enables companies to deduct a percentage of their R&D expenditure from their corporate income tax liability for the portion not funded by national or European public support.

Eligible activities include:

• Research aimed at acquiring new scientific or technical knowledge.
• Development that exploits research results with a view to discovering or substantially improving products, processes or services.

By allowing companies to recover up to 82.5% of their R&D investment, SIFIDE remains a vital tool for offsetting innovation risk.

EXTENSION OF SIFIDE II UNTIL 2026

The government has decided to extend the general SIFIDE scheme until the end of 2026. This creates a clear strategic timeframe, as projects not planned or initiated by this date may fall under a new tax framework.

The continuation of the direct scheme further establishes SIFIDE as a key instrument for achieving the national target of investing 3% of GDP in R&D by 2030.

END OF INDIRECT SIFIDE FOR NEW INVESTMENTS

One of the most significant changes is the removal of tax incentives for new indirect R&D investments, also known as indirect SIFIDE II.

While existing investments are protected, new allocations will no longer generate corporate tax benefits.

This decision follows an assessment by the Technical Unit for the Evaluation of Tax and Customs Policies (U-TAX), which identified:

• Over €1 billion allocated without effective impact on R&D.
• Approximately €2 billion held in funds without deployment.
• Continuous growth in tax expenditure (estimated at €900 million in 2024).
• A decline in the number of applications (from 5,705 in 2023 to 3,174 in 2024).

The objective is clear: to ensure that tax incentives translate into real, measurable outcomes in terms of innovation.

NEW RULES AND STRONGER EXECUTION REQUIREMENTS

Despite the end of indirect SIFIDE for new investments, transitional measures have been introduced and the requirements for existing funds have been reinforced:

• Extension of the investment period from 3 to 5 years.
• Mandatory allocation of accumulated capital to R&D projects.
• Five-year transitional period for existing investments.
• Possibility to allocate up to 20% to complementary productive innovation (capped at €20 million per company).

This link to productive innovation will support the industrialisation, scaling up and technology valorisation phases.

GREATER RIGOUR IN THE FUNDING MIX

Expenditure financed through SIFIDE funds or other forms of public support can no longer be used to generate SIFIDE tax benefits simultaneously.

It is now more critical than ever to manage the funding mix between SIFIDE, PRR, Portugal 2030 and other instruments, and this requires robust strategic planning.

IMPACT ON BUSINESS GROUPS UNDER RETGS

For corporate groups under the Special Tax Regime of the Corporate Groups (RETGS), incremental rates and limits will now be calculated based on the group’s total increase in R&D expenditure.

While this may stabilise benefits in some cases, detailed technical simulations are required to assess the actual impact.

REDUCING BUREAUCRACY AND PREPARING FOR POST-2026

The proposal removes the requirement for companies backed by funds to obtain prior suitability recognition from ANI, thereby simplifying procedures without compromising technical rigour.

A dedicated working group has also been set up to redesign the scheme for the period after 2026, indicating the introduction of a new generation of R&D incentives in Portugal.

A NEW PARADIGM: MORE DEMAND, GREATER MATURITY

The new framework calls for a shift in how companies approach R&D:

• Qualified technical teams.
• Clearly defined strategic objectives.
• Robust documentation and scientific evidence.
• Continuous monitoring.
• Strong internal execution capacity.

SIFIDE is now a genuine competitiveness tool, not just a tax benefit. 

HOW H1ID CAN SUPPORT YOUR COMPANY

In this transition phase, H1ID provides support across three critical dimensions:

• Tailored impact assessment, considering sector, company size, group structure and incentive track record.
• Strategic optimisation of investment and funding mix until 2026, including SIFIDE funds and productive innovation.
• Technical simulations for RETGS groups to ensure stability and optimisation of tax benefits.

In an environment of heightened scrutiny, the technical quality of applications will be a decisive factor.