Innovation Funding Incentives: Portugal

Portugal has strategically positioned itself as an attractive hub for innovation and entrepreneurship, implementing a range of funding incentives to stimulate research and development (R&D) and foster a dynamic startup ecosystem. These initiatives, spanning tax benefits, direct grants, and public-private investment schemes, aim to enhance the country’s competitiveness, drive technological advancement, and attract global talent. This report will detail the primary innovation funding mechanisms available in Portugal and their collective impact on the nation’s vibrant innovation landscape.

Key Funding Incentives

1. SIFIDE (Sistema de Incentivos Fiscais à I&D Empresarial)

SIFIDE is Portugal’s cornerstone tax incentive system for business R&D, designed to encourage companies to invest in research and development activities.

Mechanism: SIFIDE allows companies to deduct a significant percentage of their R&D expenses from their Corporate Income Tax (IRC). It comprises a base rate deduction (e.g., 32.5% of R&D expenses) and an incremental rate (e.g., 50% of the increase in R&D expenses compared to the average of the previous two years, up to a limit of €1.5 million). In practical terms, this can result in recovering a substantial portion (up to 82.5%) of R&D investment. If the tax credit exceeds the tax payable, it can be carried forward for several fiscal years.

Eligibility: The incentive is broad, open to companies resident in Portuguese territory carrying out agricultural, industrial, commercial, or service activities. It covers a wide range of eligible expenses, including staff costs directly involved in R&D tasks (with an enhanced rate for PhD holders), operating expenses, acquisition of tangible fixed assets, and costs related to patent registration and maintenance.

Impact: SIFIDE is considered one of Europe’s most attractive R&D tax benefits, significantly reducing the financial burden of innovation and encouraging companies to continuously invest in R&D.

2. Portugal 2030 Programmes

Portugal 2030 represents the national strategy for applying European funds (around €23 billion between 2021 and 2027) to stimulate and develop the Portuguese economy, with a strong focus on innovation.

Objectives: The programmes under Portugal 2030 aim to create a “Smarter Portugal” by investing in research and innovation, digitalisation, competitiveness, and internationalisation of companies. They also target a “Greener Portugal” through support for decarbonisation, energy efficiency, and renewable energy, and a “More Connected Portugal” with investments in strategic transport networks.

SIID (Sistema de Incentivos à I&D Empresarial): This key incentive system within Portugal 2030 supports business R&D operations. It’s divided into individual operations (for single research and development projects) and co-promotion operations (for R&D activities in partnership with other entities). Funding rates can be up to 80% of eligible costs, supporting expenses such as personnel, raw materials, prototype development, and acquisition of technical equipment.

Impact: These programmes are crucial for channelling substantial European funds into strategic areas, accelerating R&D, promoting digitisation, and supporting the green transition of the Portuguese economy.

3 | Startup Vouchers and Direct Grants

Portugal offers various direct grants and voucher schemes tailored to support startups and early-stage innovative projects.

• New Competitiveness Incentives System: This system provides non-repayable grants (vouchers) of varying amounts (e.g., €10,000, €30,000, €60,000) to stimulate the creation of new startups, especially those emerging from academia. These vouchers can be used for certification processes, product development, marketing, and specialised recruitment.

• Voucher Deep Tech:Specifically supports tech-based startups in defining strategies, certification, intellectual property development, and international regulatory processes, providing non-repayable grants.

• Voucher Go to EIC Accelerator: Assists companies preparing applications for the European Innovation Council (EIC) Accelerator, covering essential services for proposal submission.

• Start from Knowledge Program: Encourages the creation of startups founded by researchers or university lecturers, promoting the transfer of academic knowledge to the business sector.

• Startup Vouchers (under Recovery and Resilience Plan – PRR): With a significant budget, these vouchers support innovative startups working in digital and environmental transitions, covering investments in technological solutions, energy efficiency, and artificial intelligence.

• Impact: These schemes provide crucial early-stage, non-repayable funding, de-risking new ventures, fostering entrepreneurship, and accelerating the commercialisation of academic research.

4 | Innovation-Focused Investment Funds

Portugal leverages various investment funds, some with public backing, to provide capital for innovative companies.

Portugal Ventures: A leading public venture capital investor, Portugal Ventures plays a pivotal role in the startup ecosystem by providing capital and strategic support to innovative Portuguese companies, often focusing on technology, life sciences, tourism, and the ocean economy. It typically invests in Seed and Series A rounds.

Angel Investor Tax Credit: This programme provides tax credits for individuals investing in eligible startups, encouraging private investment into early-stage companies.

200M Fund: A matching fund that aims to foster co-investment in high-growth innovative startups with qualified national or international private co-investors.

Impact: These funds provide essential seed and growth capital, often co-investing with private investors to leverage public money, thereby strengthening the overall venture capital ecosystem.

5 | Venture Capital Landscape

Portugal’s venture capital (VC) ecosystem is robust and expanding, with increasing interest from international funds.

Growth and Focus: The Portuguese VC market is dynamic, with significant funding rounds in sectors such as technology, fintech, deep tech, and sustainability. There is strong demand for AI-focused companies.

Key Players: A mix of public (e.g., Portugal Ventures) and independent VC firms (e.g., Indico Capital Partners, Faber Ventures, Armilar Venture Partners) are active investors in early-stage and growth-stage companies.

Impact: The thriving VC landscape complements government incentives by providing crucial capital, enabling Portuguese startups to scale domestically and expand internationally, reinforcing the country’s position as an innovation hub.

Conclusion

Portugal’s comprehensive strategy for innovation funding, built upon attractive tax incentives (SIFIDE), substantial EU-backed programmes (Portugal 2030), and diverse grants and vouchers for startups, creates a highly supportive environment for businesses. This multi-faceted public support, significantly complemented by a growing venture capital landscape and dedicated public investment funds, effectively reduces financial barriers and risks for innovative ventures. This integrated approach is fundamental to Portugal’s continued success in fostering technological advancement, enhancing its economic competitiveness, and attracting global talent and investment.