Taxation of Companies in Portugal

Taxation of companies in Portugal means the payment of various types of taxes, namely corporate income tax (IRC), consumption tax (VAT), property tax (IMI and IMT) etc., to which Portuguese companies are subject. 

Nevertheless, the system for the taxation of companies in Portugal is one of the most advantageous in Europe, with comparative advantages in relation to the tax systems of other European countries, both for companies and shareholders.

Understanding taxation of companies in Portugal is an important step in setting up your company.

IRC – Corporate Income Tax

Corporate Income Tax (IRC) is a type of taxation of companies in Portugal which, as the name suggests, is levied on the income of various types of legal persons. This is the main tax for Portuguese companies and is regulated through the IRC Code. 

What type of Income is IRC Levied On?

As a form of taxation of companies in Portugal, IRC is levied on the income of 4 types of legal persons (Article 3 of the CIRC):

How is IRC Calculated in Portugal?

The amount of IRC payable is determined through the following calculation:

Note: the calculation above is a simplification of the method for determining the IRC due and should be interpreted for information purposes only.

• Taxable Profit
  Is quantified on the basis of net income for the year calculated in accordance with accounting standards, accrued by the positive changes in assets minus the negative changes in assets not reflected in that result, the adjustments provided for under the Corporate Income Tax Code (Article 17 of the CIRC) are subsequently accrued and deducted.
   
• Taxation Base
  Is calculated by deducting tax losses and benefits from taxable profit that was previously calculated (Article 15 of the CIRC).
   
• IRC Due 
  The previously calculated taxable base is multiplied by the respective rate (see rates table below) to get the taxable amount. After applying the deductions, the total amount of payable IRC is obtained. Withholding tax and payments on account are then deducted from this amount, resulting in the amount of IRC payable, to which local surcharge and autonomous taxation may also be added.

What are the IRC Rates in Portugal?

There are 3 IRC rates applicable to companies in Portugal. 

The Autonomous Region of Madeira and the Autonomous Region of the Azores may apply a reduction in the national IRC rate, up to a difference of 30%. Companies registered with the Madeira International Business Centre (IBCM) benefit from the lowest IRC rate in Portugal – 5%.

What are the IRC rates in Portugal:

For small and medium-sized companies, a reduction in the applicable IRC rate applies to the first €50,000 of the taxation base.

How is IRC Paid in Portugal?

As a method of taxation of companies in Portugal, IRC in Portugal is paid in three payments on account (PPC). Barring exceptions, payments on account are made in July, September, and on 15 December of the year to which the taxable profit relates.

Payments on account are calculated on the basis of the tax assessed during the tax period immediately before the period in which these payments are due. 

Additional Payments on Account

Companies that recorded taxable profit in excess of €1,500,000 in the previous tax period are subject to additional payments on account, the rates of which vary depending on the amount of taxable profit. 

Payments on account are made in July, September, and on 15 December of the year to which the taxable profit relates, barring exceptions stipulated by law.

*Companies located in the Madeira International Business Centre benefit from lower rates of Additional Payments on Account.

Local Surcharge (surtax)

Local surcharges are surtaxes that can be applied to Portuguese companies.

The State Surcharge applies to the part of the taxable profit exceeding €1,500,000, subject to and not exempt from IRC.

Surcharge rates vary depending on the amount of taxable profit:

*Companies located in the Madeira International Business Centre benefit from lower Surcharge rates.

Some municipalities may decide to annually implement a Municipal Surcharge, up to a maximum limit of 1.5%, on taxable profit subject to and not exempt from IRC.

For example, in the municipalities of Lisbon and Porto, the Municipal Surcharge rate is 1.5%. In the municipality of Funchal (Madeira), where NEWCO has its headquarters, the decision was made not to apply the Municipal Surcharge, as a form of taxation of companies in Portugal.

VAT – Value Added Tax

VAT is a type of taxation of companies in Portugal that is indirectly levied on purchased goods and services. As such, VAT is an indirect tax similar to VAT in the UK and USA and applies in all European Union/EEA countries.

The VAT mechanism allows for the deduction of VAT paid on goods and services. Each economic operator pays the state the difference between VAT collected and VAT paid. VAT therefore runs through the entire economic system up until the end consumer who pays the full amount of the tax.

Whenever the amount of tax deducted exceeds the amount due on taxable transactions in the corresponding period, this excess is deducted in the following tax periods (Article 22 of the VAT Code).

VAT rates in Portugal

Other Taxes for Companies in Portugal

In addition to IRC and VAT, there are other types of taxation of companies in Portugal. Therefore, companies operating in Portugal must also take into account other types of taxes, such as property taxes (IMI and IMT) and Stamp Duty.

IMI – Municipal Property Tax

Municipal Property Tax is a tax that applies to the property value of real estate located in Portugal.

As a form of taxation of companies in Portugal, the following rates apply:

 IMT – Municipal Property Transfer Tax

IMT applies to the transfer of property rights or partial rights, applicable to real estate property, located on Portuguese territory, and in other cases that the law considers equivalent to real estate transfer.

As a general rule, IMT is payable by the buyer of real estate. The tax obligation occurs at the time when a transfer of ownership takes place. IMT is applied on the value shown on the deed or on the contract, or to the taxable value of the property, whichever is greater.

There are several IMT rates, which vary depending on the type of property and its value.

IS – Stamp Duty

Stamp Duty applies in various situations, such as when signing lease contracts, in relation to inheritances and donations, cheques and credit instruments, gambling, granting of loans, guarantees, interest, etc.

Given the diverse nature of the tax, it is necessary to consult the General Stamp Duty Table in order to check whether a particular legal act is subject to this tax as part of the taxation of companies in Portugal.

The tax only applies to acts that have occurred on Portuguese territory.

Companies registered at the Madeira International Business Centre benefit from an 80% reduction in the applicable Stamp Duty rate.