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If you’re thinking about opening a company in Portugal, understanding how corporate tax (IRC) works is one of the first steps to making smart decisions. Portugal’s tax system is structured, investor-friendly, and offers several incentives for new businesses—but it can also feel a bit technical if you’re not familiar with it.
This guide gives you a clear, straightforward overview of IRC so you know what to expect, what benefits you can tap into, and how to stay compliant from day one.
Who Pays Corporate Tax in Portugal?
Companies that are tax resident in Portugal are subject to corporate income tax on their worldwide income. A business is treated as resident if its registered office or place of effective management is located in Portugal.
Non-resident companies, on the other hand, are taxed only on income earned in Portugal, usually through withholding tax. The exact withholding rates can differ based on any double taxation treaties in place.
Portugal Corporate Tax Rate
Portugal applies a tiered corporate income tax (IRC) structure. The general rate is 20% for companies earning more than €50,000 in taxable profits, while smaller businesses benefit from a reduced 16% rate on profits up to that threshold.
On top of this, larger companies may face a state surcharge (derrama estadual), which applies to profits above €1.5 million and ranges from 3% to 9%, potentially pushing the total effective tax rate above 30%.
Most businesses are also subject to a municipal surcharge (derrama municipal) of up to 1.5%, depending on the municipality where the company is based. For those choosing to operate in the Madeira or Azores regions, significantly lower corporate tax rates apply—some dropping to 8.75%—making these areas attractive options for strategic tax planning.
How to Pay Corporate Tax in Portugal
Companies in Portugal pay corporate tax through the Portal das Finanças, the Portuguese Tax Authority’s online platform. Before anything else, every company must obtain a tax identification number (NIPC) and register for corporate income tax (IRC).
Portugal’s tax year usually follows the calendar year, running from 1 January to 31 December, although companies can request approval to use a different accounting period. The annual corporate tax return must be filed by 31 May of the following year.
Portugal uses a pay-as-you-earn system for corporate tax, meaning companies must make advance payments during the year. For most businesses, these instalments are due in July, September, and 15 December, with each payment typically equal to one-third of the previous year’s tax bill.
Corporate Tax Calculation
Let’s say your company has a turnover of €3,000,000 and operates with a 15% profit margin. This gives you a taxable profit of €450,000.
Applying Portugal’s corporate tax rates:
- First €50,000 × 16% = €8,000
- Remaining €400,000 × 20% = €80,000
- Total corporate tax due: €88,000
Employer Social Security Contribution
For starting a business in Portugal, you must know that employers are required to pay a significant contribution to the social security system for each employee. The standard employer social security rate is 23.75% of the employee’s gross monthly salary. This contribution covers several areas, including pension, unemployment, sickness, parental benefits, and workplace injury protection.
Employees also contribute, but at a lower rate of 11%, which is deducted directly from their salary. Together, these payments fund Portugal’s social protection system.
Taxes on Goods and Services (VAT) in Portugal
Portugal applies Value Added Tax (VAT), known locally as IVA, on most goods and services sold within the country. The system follows EU VAT rules and includes three main rates:
- 23% standard rate – applied to most goods and services.
- 13% intermediate rate – used for certain food products, restaurants, agricultural items, and cultural services.
- 6% reduced rate – for essential goods such as basic food items, newspapers, books, medical supplies, and some transportation services.
The Autonomous Regions benefit from lower VAT: Madeira and Azores both apply reduced regional rates.
Businesses registered for VAT must charge the appropriate rate on sales, submit periodic VAT returns (monthly or quarterly), and pay any VAT due to the Portuguese Tax Authority. Companies can also deduct input VAT paid on business expenses, as long as those costs are eligible.
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Frequently Asked Questions
What is the corporate tax rate in Portugal?
Portugal applies a 20% standard rate on taxable profits above €50,000 and a 16% reduced rate on profits up to that threshold. Surcharges may apply depending on profit levels and municipality.
Do Portuguese companies pay tax on worldwide income?
Yes. Companies considered tax resident in Portugal are taxed on their worldwide income. Non-resident companies are taxed only on Portuguese-source income.
When do companies file their annual corporate tax return?
The annual IRC return (Modelo 22) must be submitted by 31 May of the following year. The financial reporting submission (IES) is usually due by 15 July.
Are there tax incentives for businesses in Portugal?
Portugal offers several incentives, including reduced rates in Madeira and the Azores, R&D tax credits, investment incentives, and relief for startups or companies operating in specific sectors.
How is a company considered tax resident in Portugal?
A company is tax resident if it has its registered office or its place of effective management in Portugal. Resident companies are taxed on worldwide income.
Are foreign companies taxed if they operate in Portugal?
Yes. Non-resident companies are taxed on income generated in Portugal, usually through withholding tax or via a permanent establishment.
What deductible expenses can reduce corporate tax?
Typical deductible expenses include employee salaries, business rent, utilities, professional services, depreciation, and other costs directly related to generating income.
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