Many companies perform R&D without calling it R&D

When people think of research and development, the first image is often a laboratory, researchers in white coats or a technology company.

Business reality is much broader and may include, for example:

  • an industrial company developing a new production process;
  • a software company seeking to solve a technological problem for which no known solution exists;
  • a food company developing new formulations;
  • a manufacturer testing new materials;
  • an engineering team seeking to achieve technical characteristics that remain beyond the available knowledge.

Depending on the nature and degree of technological uncertainty, all these situations may involve R&D activities.

And that is precisely the investment SIFIDE seeks to encourage.

What is SIFIDE?

SIFIDE II, the Portuguese tax incentive system for business research and development, allows companies to deduct part of the expenditure incurred on research and development activities from their corporate income tax liability.

In August 2026, the scheme was extended to cover the 2026 tax period.

Unlike ICE, which reduces taxable profit, SIFIDE operates as a tax credit deducted from corporate income tax payable.

This distinction makes the benefit particularly relevant to companies that invest in R&D on a recurring basis.

Research and development are not synonymous with innovation

This distinction is fundamental: a company may be highly innovative in commercial terms and still not perform R&D for SIFIDE purposes.

Purchasing a more modern machine is not automatically research.

Implementing software already available in the market is not research either.

Launching a new product that merely combines known technologies may be innovative for the company's market without involving genuine scientific or technological uncertainty.

For the purposes of the scheme, research expenditure is associated with acquiring new scientific or technical knowledge. Development expenditure is associated with using that knowledge to discover or substantially improve raw materials, products, services or processes. This boundary must be demonstrated in an application.

What is the tax benefit?

SIFIDE provides for a base rate of 32.5% of eligible R&D expenditure.

This may be supplemented by an incremental rate of 50% applied to the increase in expenditure over the average of the previous two financial years, up to the statutory limit of EUR 1.5 million for the incremental component.

In certain circumstances, combining the two components may result in a tax recovery of up to 82.5% of eligible investment.

However, this percentage should not be used automatically.

It depends on the company's investment history, the expenditure that is effectively eligible, the available tax liability and the other conditions of the scheme.

What if there is not enough corporate income tax to use the benefit?

The legislation allows expenditure that cannot be deducted due to insufficient tax liability to be used until the twelfth subsequent tax period.

This is particularly relevant to companies still in an investment or growth phase which, despite performing R&D, do not yet have enough corporate income tax liability to absorb the entire tax credit immediately.

Which expenses may qualify?

The categories provided for include expenditure on:

  • personnel directly involved in R&D activities;
  • certain operating expenses;
  • tangible fixed assets used in R&D;
  • registration, acquisition and maintenance of patents;
  • procurement of R&D activities from eligible or recognised entities;
  • demonstration activities;
  • other categories expressly provided for in the legislation.

However, an invoice falling into one of these categories does not automatically make the expense eligible.

The central question remains its effective connection to a research or development activity.

The technical file is as important as the financial file

One of the most common mistakes when preparing SIFIDE is to treat the application primarily as an accounting exercise. It is not: the technological challenge must be explained by addressing questions such as:

  • What was the state of knowledge when the project began?
  • What problem was the company unable to solve?
  • Which alternatives were explored, and what uncertainties existed?
  • Which tests were performed, and what results were achieved?
  • Who was effectively involved?

A technically robust application should distinguish routine engineering or development work from activities that genuinely involve technological uncertainty.

This is why SIFIDE preparation should begin with the technical teams, not only with the finance department.

When should preparation begin?

Ideally, preparation should begin during the financial year itself. Waiting until year-end to reconstruct projects, team hours, tests and technical decisions significantly increases the risk of losing information.

Companies that perform R&D regularly should create internal procedures to track projects, team hours, expenses and technical documentation throughout the year.

The tax benefit then becomes the result of an organised process, rather than a reconstruction exercise performed several months later.

The application must be submitted by the end of the fifth month of the year following the relevant financial year.

SIFIDE and other forms of support

This is another area that requires attention because the revised legislation strengthened the restrictions on using SIFIDE for activities financed directly or indirectly through SIFIDE Funds or other national or international public support.

Where a project receives support under Portugal 2030, the Recovery and Resilience Plan, Horizon Europe or another public programme, the possibility of combining benefits must be assessed carefully.

The objective is not merely to maximise each incentive in isolation.

It is to maximise the project's overall financing while complying with the applicable rules.

R&D should also be treated as an investment

SIFIDE highlights an issue that many companies still address inadequately.

R&D is not merely a cost. It is an investment in knowledge, intellectual property, new products, new processes and competitive advantage.

The tax benefit reduces the effective cost of that investment.

But the true return still depends on what the company is able to create with it.

At Fenix Capital Partners, we seek to integrate this analysis with other financing and incentive instruments, assessing the nature of the project, its expenses, its potential SIFIDE eligibility and its possible combination with other programmes.

Correctly identifying the R&D that already exists within the company can be the first source of value.

Structuring future R&D more effectively can create even more.