Impact Policy Tracker Policy

Tax Incentives for Social Impact Bonds



In 2018, Portugal became the second country in the world to introduce a specific tax incentive to encourage investment in Social Impact Bonds (SIBs) through its 2018 State Budget Law.

Under this incentive, the amount invested by social investors in SIBs can be deducted from their taxable income, with a 30% bonus. This means that investors are allowed to declare 130% of their investment as a deductible expense for tax purposes, regardless of whether the project reaches its expected social outcomes. This offers investors a form of indirect return via tax benefits, even in cases where the SIBs are structured to only reimburse the original investment (with no financial profit), as is the case with all SIBs under Portugal Inovação Social.



Highlights

  • Reducing financial risk for SIB investors: This tax incentive makes investing in Social Impact Bonds more attractive by reducing financial risk. It offers social investors an indirect return through tax deductions, even in cases where the SIB only allows for full repayment without financial gain.

  • Key role of GSG’s National Partner in Portugal: MAZE Impact, GSG’s National Partner in Portugal, played a central role in promoting this measure. Their contribution included analysing international examples of similar tax incentives and advocating for the strategic use of Social Impact Bonds in Portugal. Their engagement with key government stakeholders, particularly the Minister for the Presidency and Administrative Modernisation (the strong proponent of this measure), was instrumental in aligning public policy with innovative financing mechanisms for social good.

  • Complements Portugal Inovação Social: The tax incentive complements the broader efforts of Portugal Inovação Social, a government initiative launched in 2015 to mobilise European funds for social innovation. By providing outcome-based payments for successful SIBs, this initiative, in conjunction with the tax incentive, creates a supportive ecosystem that encourages private investment in social outcomes.

Government’s Role:
Market Regulator


Country:
Portugal

Policy Type:
Fiscal Incentives

Year: 2018

Responsible Institution:
Portuguese Parliament

Additional information:
Progress Report – Portugal Social Innovation (2018)
Tax Incentives for Social Impact Bond Investors – Portugal

Fiscal Incentives

What are Fiscal Incentives for Stimulating the Impact Economy?

Fiscal incentives are public policy tools that governments can use to channel private capital towards social and environmental goals. These typically take the form of tax exemptions, which either reduce investors’ tax liabilities or offer exemptions directly to impact businesses.


In some cases, such incentives are tied to a specific legal status - such as Benefit and Collective Interest Companies (BICs) in Colombia - while in others, they are designed to encourage investment in Social Impact Bonds (SIBs), as seen in Portugal, or to enable investors to deduct a portion of their investment from income tax, as in the UK.