Portuguese corporate tax rate

Self-employment, freelance and corporate tax in Portugal

Comments0 comments

Setting up shop as a freelancer in Portugal may require following alternative corporate tax rules and regulations to that of your home country. Follow the advice in this article to ensure you know the current Portuguese corporate tax rate and can fill in your return correctly.

If you are self-employed or are a freelancer working in Portugal, you will have to pay either Portuguese personal income tax (Imposto Sobre das Pessoas Singulares) on your business income or Portuguese corporate income tax (Imposto Sobre das Pessoas Collectivas). Which one you will have to pay depends on the type and structure of your business, but you will need to submit your own regular tax returns so will need to know which tax you're paying and how much.

This guide will look in more detail at corporate tax in Portugal, including:

Who pays corporate tax in Portugal?

Corporate tax in Portugal, also known as business tax, is levied against any business income not taxed under the personal income tax regime. If you are self-employed or working freelance in Portugal, you will probably pay your tax through the personal income tax system if you are a sole trader or have a partnership agreement.

Limited companies and larger corporations who exist as separate legal entities will have to pay corporate tax in Portugal. The Portuguese Tax System guide lists three groups that must pay corporate tax in Portugal:

  • Resident incorporated companies based in Portugal will be taxed on their worldwide income
  • Resident unincorporated companies based in Portugal will be taxed on worldwide income that has not been taxed through personal income tax
  • Non-resident companies (incorporated and unincorporated) operating in Portugal, but based for tax purposes outside Portugal, will be taxed on income earned inside Portugal that has not been taxed through personal income tax

 

See our guide to taxes in Portugal for more information on who qualifies as a tax resident in Portugal and our guide to starting a business in Portugal for more information on different types of business structure in Portugal.

Portuguese income tax for self-employed business owners and freelancers

If you are self-employed as a sole trader or freelancer, or your business operates as an unincorporated entity (e.g. a partnership), the money you earn from your business will be treated as personal earnings and will be taxed as personal income tax rather than as corporate income tax in Portugal. Self-employment income from a business or profession is classed as category B income under the Portuguese personal income tax system.

If you start a business in Portugal and decide to incorporate it (e.g. as a limited company), money you personally earn from the business as a salary will be taxed through personal income tax but additional profits that the business generates as a separate legal entity will be subject to Portuguese corporate tax.

Personal income tax in Portugal is progressive, starting at 14.5% for earnings up to EUR 7,035 rising to 48% for earnings over EUR 80,000. See our guide to income tax in Portugal for more information on income tax rates, allowances and exemptions.

Corporate tax Portugal

Portuguese corporate tax rates

Similar to many other countries, corporate tax in Portugal is taxed at a separate rate to taxes paid on personal income earned from the business (salary, sole trader profits, etc.). The standard Portuguese corporate tax rate is a flat rate which currently stands at 21% on taxable profits. This has gradually been reduced from 27.5% in 2006 and now places the corporate tax rate in Portugal slightly below the global average of 24.29% and the EU average of 21.51%.

There are also the following surcharges to the Portuguese corporate tax rate:

  • up to 1.5% surcharge on the taxable profit charged by the regional municipality
  • 3% surcharge on taxable profit between EUR 1.5 million and EUR 7.5 million
  • 5% surcharge on taxable profit between EUR 7.5 million and EUR 35 million
  • 7% surcharge on taxable profit over 35 million

 

Small and medium sized businesses are entitled to pay a reduced Portuguese corporate tax rate of 17% on their first EUR 15,000 of taxable profit. See our guide to starting a business in Portugal for more information on what qualifies as a small business.

Portuguese corporate tax for freelancers and sole traders in Portugal

Corporate tax in Portugal for freelancers rarely applies. If you are a freelancer or a standard sole trader (Empresario em Nome Individual) in Portugal, you and your business are a single legal entity and you will pay your tax through the personal tax system in Portugal.

Sole traders can also choose to set themselves up as either a Single-Member Limited Company (Sociedade Unipessoal por Quotas) or an Individual Limited Liability Establishment (Estabelicimento Individual de Responsabilidade Limitada) where the business assets are separated from personal earnings. If you do this, any business profits not included on your personal income tax return will be subject to Portuguese corporate tax.

Portuguese corporate tax for partnerships in Portugal

Standard partnership organisations, where two or more partners share all business profits and have unlimited liability for business debts, are taxed in the same way as sole traders in Portugal. Each partner will pay tax on their share of the profits through the Portuguese personal income tax system.

Corporate income tax Portugal

Portuguese corporate tax for limited companies in Portugal

Corporate tax in Portugal for limited companies is paid on business profits. If two or more people set up a business in Portugal and incorporate it as a limited company, any profits generated by the company that are not declared on anyone's personal income tax return will be subject to Portuguese corporate tax. In Portugal, this can be a Private Limited Company (Sociedade por Quotas), a Public Limited Company (Sociedade Anomina) or a Limited Liability Partnership (Sociedade em Comandita).

See our guide to starting a business in Portugal for information on the different business structures in Portugal.

Tax under the 'simplified regime' for small businesses in Portugal

Corporate tax in Portugal for small businesses is made easier with a simplified option. Small businesses and sole traders with an annual turnover of less than EUR 200,000 can choose to pay business taxes through a 'simplified regime'. The simplified regime is where a tax is applied to business turnover rather than profit and is easier as it means that you don't have to submit full accounts. Under the simplified regime, 20% of income from product sales and 80% of income from and other business and professional services is subject to tax, with a minimum amount due. No expense deductions are permitted under the simplified regime.

How and when to pay Portuguese corporate tax

The Portuguese tax year runs from 1 January to 31 December. The deadline for completing Portuguese corporate tax returns is between 16 April and 16 May following the tax year. The Portuguese corporate tax due date is split into three instalments in July, September and December. Information on the tax calendar in Portugal can be found here.

To complete a Portuguese corporate tax return, you will need to fill in an IRS 22 form (available here in Portuguese). You can obtain an IRS 22 form from your local tax office or you can submit online through the Portuguese Tax Authority website. More information on how to fill in the Portuguese corporate tax return form and what is required is available on the Portuguese Tax Authority website here.

See our guide on income tax in Portugal for information about submitting a personal tax return form.

Portuguese corporate tax deductions and credits

Corporate tax in Portugal is paid on net profits. The following can be deducted as costs to arrive at your net profit amount:

  • manufacturing and production costs
  • labour costs
  • costs relating to conservation and repair
  • marketing costs
  • financial costs relating to the business (e.g. insurance, rent, bills)
  • administrative costs relating to the business
  • costs for any provisions needed for the day-to-day running of the business
  • any research and analysis costs
  • tax planning costs
  • depreciation and amortization
  • realised capital losses
  • indemnities paid on non-insurable risks

 

The following are allowed as tax credit deductions:

  • deductions for international double taxation
  • deductions concerning tax incentives
  • special advance payment deductions (if payments are made in two instalments in March and October, rather than three instalments in July, September and December)
 
Income tax Portugal

Portuguese corporate tax calculator

You can roughly calculate the amount of Portuguese corporate tax that you will have to pay by using the below formula:

Taxable profit (all business income MINUS business costs)

  • MINUS: Tax losses from previous accounting periods
  • MINUS: Tax incentives
  • EQUALS: Taxable income
  • MULTIPLIED BY: Tax rate
  • EQUALS: Assessed income for corporate tax purposes
  • MINUS: Tax credit
  • MINUS: Advanced payments
  • EQUALS: Portuguese corporate tax due

VAT in Portugal

VAT in Portugal (Imposto Sobre o Valor Agregado – IVA) was established in 1986 and is payable by all businesses with a turnover of more than EUR 10,000 on taxable goods and services.

There are three rates of VAT in Portugal:

  • General rate of 23% on taxable goods and services
  • Intermediate rate of 13% on food and drink goods and services
  • Reduced rate of 6% on certain essential necessities including certain foods (meat, fruit, vegetables, cereals, etc.), books, newspapers, medicines, transport and hotel accommodation

 

Separate VAT rates apply on the Portuguese islands of Madeira (22%) and Azores (18%). If you have a business that is liable for VAT in Portugal, you will need to get a VAT number. In Portugal this is called an NIF (Numero de Identificacao Fiscal) for individuals or an NIPC (Numero de Identificacao de Pessoa Colectiva) for companies. VAT is payable to the Portugues Tax Authority seven days after the reporting deadline periods, either quarterly or monthly.

Cross-border VAT in Portugal

There are EU rules regarding the charging of VAT to customers and businesses both inside and outside the EU. If you have a business in Portugal and sell goods or services to a consumer in another EU country, you need to register for VAT purposes in that country and charge the VAT rate applicable in that country, unless the total value of your sales to that country falls below a certain amount.

If you sell goods or services to another business based within the EU, you do not charge VAT if they have a valid VAT number. You can charge at the Portuguese rate of VAT if they do not have a VAT number.

No VAT is charged to any customers outside the EU, although any VAT you have paid on related expenses can be treated as a deduction.

See the European Commission's cross-border VAT rules and guidelines for VAT in the European Community for more information.

Portuguese social security contributions

If you are self-employed in Portugal, you will be responsible for making your own social security contributions. Whereas employed workers' contributions are topped up by payments from their employers, those self-employed have to pay the entire contribution themselves.

All self-employed workers in Portugal earning over EUR 2,515.32 must pay their contributions through the Portuguese Social Security (Seguranca Social). The general rate of contributions for self-employed workers in Portugal is 29.6%. Payments need to be made monthly between the 1st and 20th of the month.

In return for social security contributions as a self-employed worker, you are entitled to unemployment benefit, sickness allowance, parenting benefits, family allowance, invalidity benefit, old age pension and survivor's pension.

More information on social security for self-employed workers can be found here and information on contribution payments can be found here. Information on how to make social security payments is available here.

Corporate tax advice in Portugal

You can get advice on tax and social security issues from an English-speaking chartered accountant through the international directory on the Institute of Chartered Accountants in England and Wales (ICEAW) website here.

Further information

  • Website for the Portuguese Tax Authority
  • Portuguese corporate tax return (IRC22) form (in Portuguese)
  • Link to Portuguese Social Security website with information about self-employed contributions
  • Find an English-speaking accountant
  • British-Portuguese Chamber of Commerce website
  • Portugal Ventures (offering help to start-ups and entrepreneurs)
  • Portugal Global (offers support to business and self-employed)
 


Expatica

Expatica ask the expert
Need advice? Post your question on Expatica's free Ask the Expert service to see if we can help.

Comment here on the article, or if you have a suggestion to improve this article, please click here.

If you believe any of the information on this page is incorrect or out-of-date, please let us know. Expatica makes every effort to ensure its articles are as comprehensive, accurate and up-to-date as possible, but we're also grateful for any help! (If you want to contact Expatica for any other reason, please follow the instructions on this website's contact page.)


Captcha Note: Characters are case sensitive
The details you provide on this page will not be used to send any unsolicited e-mail, and will not be sold to a third party. Privacy policy .

0 Comments To This Article