Corporate tax in Portugal

All limited and incorporated businesses in Portugal pay Portuguese corporate tax. This guide explains what you need to know if you run a business, including sections on topics such as:

The corporate tax system in Portugal

If you own a company in Portugal, how much corporate tax you pay depends on the size of your profits.

In addition to this tax, you also need to pay a surcharge to your local municipality. If your company turns over more than €14,500 a year, you’ll need to register for VAT.

Companies in Portugal must file corporate tax returns on an annual basis and make payments in installments. 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. Self-employed sole traders and people with stakes in partnerships pay personal Portuguese income tax on their profits instead.

The main categories of companies subject to corporate tax are the following:

• 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 that isn’t 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 is treated as personal earnings. Thus, it is 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.

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 European Union average of 21.9%.

Businesses in Portugal may also need to pay surcharges on top of their corporate tax bill. These are as follows:

• Up to 1.5% local surcharge (Derrama) on the profit charged by the regional municipality
• 3% state surcharge (Derrama Estadual) on profit between €1.5 million and €7.5 million (2.1% in Madeira and the Azores)
• 5% surcharge on profit between €7.5 million and €35 million (3.5% in Madeira and the Azores)
• 9% surcharge on profit over €35 million (6.3% in Madeira and the Azores)

Corporate tax exemptions and credits in Portugal

Small and medium-sized businesses can pay a reduced Portuguese corporate tax rate of 17% (11.9% in Madeira, 12.5% in inland regions) on their first €50,000 of taxable profit.

New regime for start ups

In January 2024, a new corporate tax regime was introduced for start ups operating in Portugal. It means that qualifying companies can pay a corporate tax rate of 12% on the first €50,000 of profit.

To qualify, companies need to be considered ‘innovative’ with ‘high growth potential’. Additionally, they must have completed at least one round of venture capital financing or have received investment from the Portuguese Development Bank.

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 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 include:

• 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 in Portugal 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

Value-added tax 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 €14,500 on taxable goods and services. This will rise to €15,000 in 2025.

There are three rates of IVA 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 (e.g., meat, fruit, vegetables, cereals), books, newspapers, medicines, transport, and hotel accommodation.

Separate IVA rates apply to the Portuguese islands of Madeira (22%/12%/5%) and the Azores (16%/9%/4%).

Registering for VAT in Portugal

If you have a business that is liable for VAT in Portugal, you will need a VAT number – this is called a NIF (Número de identificação fiscal) for individuals or a NIPC (Número de identificação de pessoa coletiva) 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 Union’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 usually the end of May the following year.

How to file your corporate tax return in Portugal

Portuguese businesses must pay corporate tax in three installments, in July, September, and December. These payments on account are usually based on the previous year’s corporate tax assessment.

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 from the Portuguese Tax Authority.

These payments on account are usually based on the previous year’s corporate tax assessment.

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 fines in Portugal

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. There are caps on fines of €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.

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).

Useful resources

• Portuguese Tax Authority
• Portuguese Social Security
• ICEAW – find an English-speaking accountant in Portugal
• Portuguese Chamber of Commerce in the UK