Companies in Portugal must pay Portuguese corporate tax on their profits. This guide explains how corporate tax in Portugal works, including advice on how to file and what credits are available.
All limited and incorporated businesses in Portugal pay Portuguese corporate tax. This guide explains what you need to know if you run a Portuguese business, with sections on:
- The corporate tax system in Portugal
- Who pays corporate tax in Portugal?
- Corporate tax rates in Portugal
- Corporate tax exemptions and corporate tax credits in Portugal
- VAT in Portugal
- Corporate tax year in Portugal
- How to file your corporate tax return in Portugal
- Other types of business tax in Portugal
- Corporate tax advice in Portugal
The corporate tax system in Portugal
If you own a company in Portugal, you’ll need to pay corporate tax, with how much you’ll pay depending on the size of your profits.
As well as corporate tax, you will need to pay a surcharge to your local municipality, and if your company turns over more than €10,000 a year you’ll also need to register for VAT.
Companies in Portugal must file corporate tax returns on an annual basis and make quarterly payments. Before calculating your overall profit, you’ll be able to deduct a range of expenses.
Who pays corporate tax in Portugal?
Corporate tax in Portugal generally only applies to incorporated companies, as self-employed sole traders and people with stakes in partnerships generally pay personal income tax on their profits instead.
The main categories of companies subject to corporate tax are as follows:
- Resident incorporated companies must pay corporate tax on their worldwide income.
- Resident unincorporated companies must pay corporate tax on any worldwide income that isn’t subject to personal income tax.
- Non-resident companies (those registered outside Portugal) must pay corporate tax on Portuguese income not subject to personal income tax.
Corporate tax for sole traders and partnerships
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.
Self-employment income from a business or profession is classed as category B income under the Portuguese personal income tax system. You can find out more about different categories of self-employment in our guide to starting a business in Portugal.
Corporate tax rates in Portugal
Businesses pay corporate tax in Portugal at a flat rate of 21% of any taxable profits. The rate has gradually come down in the last decade, leaving it slightly below the EU average of 21.51%.
Businesses in Portugal may also need to pay surcharges on top of their corporate tax bill. These are as follows:
- Up to 1.5% surcharge on the profit charged by the regional municipality;
- 3% surcharge on profit between €1.5 million and €7.5 million;
- 5% surcharge on profit between €7.5 million and €35 million;
- 9% surcharge on profit over €35 million
Corporate tax exemptions and corporate tax credits in Portugal
Small and medium-sized businesses can pay a reduced Portuguese corporate tax rate of 17% on their first €15,000 of taxable profit.
Simplified tax regime
Small businesses and sole traders with an annual turnover of less than €200,000 can choose to pay business taxes through a simplified regime, through which they pay tax on turnover rather than profit.
This is simpler because it means that you won’t have to submit full company 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.
The simplified regime does not allow expense deductions.
Corporate tax credits
Tax credit deductions in Portugal are:
- Deductions for international double taxation;
- Deductions concerning tax incentives;
- Special advance payment deductions (if you pay in two installments in March and October, rather than three installments in July, September, and December).
Deductible expenses for companies
Companies pay corporate tax on net profits. You can deduct the following costs when calculating your profit:
- Manufacturing and production costs
- Labor 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
- Research and analysis costs
- Tax planning costs
- Depreciation and amortization
- Realized capital losses
- Indemnities paid on non-insurable risks
VAT in Portugal
VAT in Portugal (Imposto Sobre o Valor Agregado, or IVA for short) was established in 1986. It is payable by all businesses with a turnover of more than €10,000 on taxable goods and services.
There are three rates of VAT in Portugal:
- General rate: 23% on taxable goods and services
- Intermediate rate: 13% on food and drink goods and services
- Reduced rate: 6% on certain essential necessities including certain foods (meat, fruit, vegetables, cereals, etc.), books, newspapers, medicines, transport and hotel accommodation
Separate VAT rates apply to the Portuguese islands of Madeira (22%/12%/5%) and the Azores (18%/9%/4%).
Registering for VAT in Portugal
If you have a business that is liable for VAT in Portugal, you will need to obtain a VAT number – this is called a NIF (Numero de Identificacao Fiscal) for individuals or a NIPC (Numero de Identificacao de Pessoa Colectiva) for companies.
VAT is payable to the Portuguese 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.
See the European Commission’s cross-border VAT rules for more information.
Corporate tax year in Portugal
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 the following year.
How to file your corporate tax return in Portugal
Portuguese corporate tax is paid in three installments which are in July, September, and December.
Your annual corporate tax return must be submitted online by self-assessment. Information on how to fill in the Portuguese corporate tax return form and what is required is available on the Portuguese Tax Authority website.
Portuguese corporate tax fines
The Portuguese Tax Authority has taken an aggressive approach to tax fraud and evasion, consequently, tax penalties can be high, even for minor offenses.
Interest is charged at a daily rate of 4% on the tax due if you file your corporate tax return late. Penalties are capped at €165,000 (if the delay is deliberate) or €45,000 (if it’s due to negligence).
Additionally, if you pay your taxes late, your company could face a fine of between 30% and 100% of the tax due, capped at €45,000.
Other types of business tax in Portugal
Capital gains on shares and dividend income
Capital gains and losses on the transfer of shares and dividend income can be exempt from corporate tax under a special rule available to Portuguese companies.
The rule covers gains on the share transfers during mergers, divisions, transfer of assets or exchange of shares. This is subject to the following rules:
- The shares have been held for at least one year
- The taxpayer holds at least 10% of the shares or voting rights in the entity from which the shares are transferred
- The company from which the shares are transferred is not based in a blacklisted jurisdiction
- The assets of the company from which shares are transferred are not comprised of more than 50% of real estate located in Portugal
Corporate tax advice in Portugal
Filing your tax return can be a complicated business, so it can make sense to seek advice from an account or tax expert.
You can get advice on tax and social security issues from an English-speaking chartered accountant through the international directory through the Institute of Chartered Accountants in England and Wales (ICEAW).