Company tax

21% for mainland Portugal

Corporation tax rate for foreign companies

Resident companies are taxed on their worldwide income. Foreign companies are subject to the same taxes as local companies, but they are only taxed on Portuguese-source income. The tax rate on investment income that is both derived by non-resident entities subject to a privileged tax regime in their country of residence and included on Portugal's blacklist is 35%. Certain withholding taxes apply to income generated in Portugal that is attributable to non-residents without a permanent establishment in the country.

Capital gains taxation

Capital gains are generally included in taxable profits and taxed at the standard corporate rate. Gains on the disposal of shares may be exempt if the following conditions are met: 1) the shareholder is not considered a transparent entity 2) the entity has held at least 10% of the capital of the subsidiary for at least 12 months 3) if the entity is a foreign company the corporate income tax in its country of residence covers at least 60% of the tax due in Portugal. The exemption does not apply if the dividend payment is tax-deductible. Since 1 January 2018, capital gains on the indirect sale of certain properties are also subject to corporate income tax.
If tangible fixed assets, biological assets, or intangible assets (excluding those acquired from or sold to related parties or investment properties) are sold after being held for at least one year, 50% of the resulting gains can be exempted from taxes if the entire proceeds from the sale are reinvested within a specified timeframe. However, this reinvestment rule does not apply to gains evaluated in the context of mergers, demergers, or asset-for-share transactions, nor does it apply when assets are transferred for reasons unrelated to the taxpayer's business activities.

Main allowable deductions and tax credit

Expenses incurred to generate profits and certain provisions (including bad debt and inventory losses) are deductible from the corporate tax base. With certain limitations, impairment losses on doubtful debts are deductible for tax purposes when insolvency or recovery has been requested or the credits have been claimed in court. Small companies also benefit from special tax regimes. Start-up and research expenses are deductible for tax purposes in the respective tax year.

Donations to authorised charitable institutions are allowable at up to 0.8% of turnover, with the possibility for an increase of the amount actually spent up to 150%, same as for donations of computers, software equipment, training, and consultancy in the area of computers granted to the national government, municipalities, foundations, museums and other charitable institutions. Donations to authorised educational, sport and environmental institutions are allowable at up to 0.6% of turnover, with the possibility for an increase of the amount actually spent up to 140%. Contributions made to the state, municipalities, and foundations in which the state or municipalities have an initial capital stake can be fully deducted, and there is also a potential to increase the deductible cost by up to 140%.

Pension, invalidity, and health schemes are tax-deductible up to a rate of 15% of annual staff expenses, only if, among other conditions, they are available to all employees and the management and disposition of the benefits are outside the control of the taxpayer. Companies may only deduct net financing expenses up to the higher of the following limits: EUR 1 million or 30% of the earnings before depreciation, amortisation, taxes, and net financing expenses, adjusted for tax purposes.

A tax credit covering 32.5% of research and development expenditure is available for the year in which these expenses are incurred and can be carried forward for a period of eight years. Companies can claim an additional tax credit of 50% of R&D expenditure if their expenditure exceeds the average in two fiscal years (capped at EUR 1.5 million). Other tax incentives are available for qualifying new investment projects, fixed-asset investments, intellectual property, and the creation of jobs.

Costs incurred by SMEs in 2021 and 2022 with joint external promotional activities are tax deductible for 110% of the respective amount.

For the assessment of the 2022 taxable profit, costs and losses associated with the consumption of electricity and natural gas, exceeding the amount from the previous tax year and excluding any received funding, can be considered for 120% of their respective value. Similarly, costs and losses incurred or borne in acquiring specific goods used in agriculture can be considered for 140% of their respective amount for the purpose of assessing the 2022 taxable profit.

Net operating losses can be carried forward (up to 65% of taxable profits) without time limitation. The carryback of losses is prohibited.

Other corporate taxes

Other taxes levied include property transfer tax (Imposto Municipal sobre as Transmissões Onerosas de Imóveis or IMT - payable by the buyer at a maximum rate of 6.5% on the transfer of residential property, 5% on the transfer of rural property, 7.5% on the transfer of other urban property and 10% if the purchaser is located in a listed tax haven); municipal real estate holdings (Imposto Municipal sobre Imóveis or IMI - 0.3% to 0.45% for urban real estate, 0.8% for rural real estate, 7.5% for property owners residing in a tax heaven); stamp duties (0.5% to 10%, the latter being applicable to certain donations and inheritances).

A standalone tax of 35% is levied on indemnities and compensation as well as bonuses paid to members of the board and managers (if exceeding 25% of their annual remuneration and EUR 27,500). Certain deductible expenses are subject to a standalone tax, including entertainment expenses (10%), undocumented expenses (taxed at 50%, or 70% in the case of taxpayers enjoying a partial or total tax exemption), expenditures on private cars (taxed at rates from 5% to 35% depending on the acquisition price of the car), daily allowances and employees' travelling costs (taxed at 5%).

A special contribution is levied on companies operating in the financial sector, with two different tax bases: the contribution is applicable at a maximum of 0.11% on base I and at 0.00030% on base II.

Social security contributions paid by the employer amount to 23.75% of the monthly gross remuneration.

A carbon tax due by the user in the amount of EUR 2 applies on air, sea and river travel. A levy amounting to EUR 0.30 per package applies to disposable plastic and aluminium packages (the latter contribution shall not apply to single-use beverages and will come into force as of September 2023).

Special taxation rules apply to entities engaged in activities such as oil exploration, prospecting, and production, and to those operating in the gaming industry.

Other domestic resources

Portuguese Tax and Customs Authority

Doing Business: Portugal, to obtain a summary of taxes and mandatory contributions

Tax rate

Allowable deductions and tax credit

Business expenses are generally deductible at different rates, including entertainment expenses and per diems.
Tax credits may be claimed according to the family composition, children (fixed amount of EUR 600 per dependant, plus an additional deduction of EUR 126 when the dependents are aged up to 3 years and an additional EUR 300 per dependent for the second and subsequent dependents who are not older than 6 years old), certain general expenses (35% of the expenses incurred by any member of the household, limited to EUR 250 per taxpayer) and health expenses (15%, up to a limit of EUR 1,000), interest on certain loans and financial leasing rent, education expenses (30% of expenses incurred for each member of the household, capped at a global limit of EUR 800), retirement home expenses, VAT borne in certain sectors, qualifying pension fund contributions, donations (without limits if made towards central, regional or local administration and foundations or 15% for other beneficiaries), alimony payments (20%), and more.
150% of union fees may be deducted against employment or pension income, up to a limit of 1% of the gross employment or pension income. EUR 4,104 of pension income is tax-exempt.

A partial exemption is available on employment income earned by taxpayers aged between 18 and 26 (28 in case of conclusion of a PhD) that do not qualify as dependents and earn a yearly gross income equal to or lower than EUR 29,179. The taxable income is reduced by 50% in the first year capped at 12.5 times the amount of the Social Support Index (“Indexante dos Apoios Sociais” or “IAS”); 40% in the second year capped at 10 times the amount of the IAS; 30% in the third and fourths years capped at 7.5 times the amount of the IAS; 20% in the fifth year capped at five times the amount of the IAS.

A tax deduction is permitted for the full amount of VAT paid by any member of the household on the purchase of public transport tickets, as long as the expense is supported by an invoice. This deduction already applies to monthly passes. The same tax deduction is applicable to periodical magazines and journals, including those in digital format, that are subject to the reduced VAT rate.

Special expatriate tax regime

Non-residents are liable to income tax only on Portuguese-source income, including remuneration borne by a Portuguese company or permanent establishment. They are taxed at a flat rate of 25% on their taxable remuneration.

A taxpayer who has become tax-resident in Portugal for a certain year and has not been taxed as resident in Portugal for any of the previous five years may apply for the special tax regime for "non-habitual tax residents". Non-habitual residents are taxable on worldwide income, but may be exempt from tax on certain foreign-source income. In general terms, non-habitual residents are taxed at a flat rate of 20% in respect of employment income (Category A) and self-employment income (Category B) arising from high-value activities of a scientific, artistic, or technical nature. Entrants in the regime that became Portuguese tax residents as from 1 April 2020 are liable to a 10% tax rate on pension income. For further information, click here.

A tax exemption also applies to outbound expatriates, who are resident individuals assigned abroad for a period longer than 90 days.
Foreign residents may be exempt from social security in Portugal if they contribute to a compulsory social security system in a European Union country or a country that has a bilateral social security agreement with Portugal.