ICE ICE Baby: Portugal’s Easy-to-Apply Capitalization Incentive

1. What is ICE?

ICE is a tax deduction from taxable income in Corporate Income Tax (IRC). In practice, it works as a “notional interest” on equity increases: companies that strengthen their capital base can deduct a percentage of those increases from their taxable profit.

2. Who can benefit?

The regime applies to:

• Commercial companies and civil companies under commercial form (including those under tax transparency);
• Cooperatives;
• Public enterprises and other legal persons with head office or effective management in Portugal;

The regime excludes:

• Branches of foreign companies; and
• Entities under supervision of the Bank of Portugal or the Insurance and Pension Funds Authority.

3. Eligible equity variations

ICE is based on the net increase in eligible equity. This means increases minus decreases.

Thus, retained earnings, reserves, and genuine capital contributions count positively, while distributions and reductions count negatively.

4. Deduction and limitation

The annual deduction corresponds to:

• 4.5% of net eligible increases;
• 5% for SMEs and Small Mid Caps.

The deduction described above may not exceed, in each tax period, the greater of the following limits:

• €4,000,000; or
• 30% of the result before depreciation, amortization, net financing expenses and taxes (tax EBITDA, as defined in Article 67 of the Corporate Income Tax Code).

The portion of the deduction that exceeds the limit set out in point (b) may be carried forward and deducted in one or more of the five subsequent tax periods, subject to the same limits.

5. The “conta-corrente” mechanism

ICE operates on a cumulative account (conta-corrente):

• Each year, the eligible net increase is added to the account.
• If the year shows a net decrease, it reduces the account.
• The deduction is calculated on the sum of the current year and the past six years (for 2024 onwards; nine years in 2023).

Example of evolution

Explanation:

• In 2025, decreases (90,000) outweigh increases (10,000), producing a net change of –80,000.
• Added to the prior running balance (60,000), the conta-corrente becomes negative (–20,000).
• A negative balance resets the base for ICE to zero, meaning no deduction can be taken in that year.

This rolling account means deductions depend not only on the current year’s contributions, but also on the equity history of past periods.

6. Why should this matter to you?

ICE is particularly attractive because there is no clawback or penalty if equity later decreases. Reductions in equity (such as dividends, reserve distributions, or capital reductions) only affect the calculation of the conta-corrente prospectively. They do not force a company to return the tax benefits already used in prior years.

This has two key implications:

• For companies not in a hurry to distribute profits: Keeping earnings in reserves or retained earnings allows a steady stream of ICE deductions, reducing the tax base year after year. If, later on, the company decides to distribute those amounts, the only consequence is that the deduction base decreases going forward — but past benefits remain untouched.
• For companies considering a major capital injection or debt-to-equity conversion: Since there is no downside, timing these operations to fall under ICE can generate no-strings-attached tax savings. A single large increase in share capital or conversion of shareholder loans into equity can lock in significant deductions for multiple years.

In short: ICE rewards patience and capitalization. Companies that defer payouts and strengthen their equity can legitimately reduce their IRC burden — with no risk of retroactive adjustment if their equity decreases later.