The main taxes in Portugal are the personal and corporate income taxes and the value-added tax (VAT), which is levied on transactions in goods and services. There are also real estate transfer taxes and property ownership, customs duties and some excise duties, such as the car tax and the tobacco tax.

The largest source of state revenue comes from VAT, income taxes and social security contributions.

Tax rates in Portugal are, to a great extent, in line with the rates of most EU countries.

The corporate income tax rate is 20%. A municipal surcharge of up to 1.5% and a State surcharge ranging from 3% to 9% applied only to companies with an income worth more than €1.5 million.

Personal income tax rates range from 13% to 48%. Social security contributions are 34.75% of the income, of which 23.75% is paid by the employer and 11% by the employee.
VAT rates range from 6% to 23% in the Portuguese mainland and 4% to 22% in regions of Azores and Madeira.

Income obtained abroad by Portuguese residents and in Portugal by non-residents might be taxed in Portugal.

To avoid double taxation, Portugal has double taxation agreements with more than 85 countries, such as the United States of America, Poland, Russia, China, Canada and Germany.

The tax system in Portugal is monitored by the Tax and Customs Authority (Autoridade Tributária e Aduaneira), which is responsible for the management of taxes according to the rates defined by the tax legislation approved by the Parliament.

General tax rules are applied nationwide, but the autonomous regions of Azores and Madeira enjoy fiscal autonomy, which is why the rates of some taxes are lower in these regions than the rates applicable in mainland Portugal. Municipalities can obtain their own revenues through municipal taxes regarding the provision of certain municipal services or for the use of municipal assets.

Commercial companies with headquarters or effective management in Portugal and companies with a permanent establishment in Portugal are subject to corporate income tax.

In Portugal, an establishment is considered “permanent” when a foreign company carries out its activity in Portugal through a branch, office or other establishment, as well as if a person acts on behalf of the company in Portugal and has broker powers and powers to enter into transactions in the name of the company. Since 2021, if the company provides services by using employees or other persons hired in Portugal for this purpose for at least 183 days in a 12-month period, such company will also be deemed to have a permanent establishment.

The general CIT rate in the mainland is 20%, which is levied on the company's taxable income. If it is a permanent establishment of a foreign company, only the taxable profit attributable to the activity in Portugal will be taxed. In Madeira and Azores, it is 14.7%.

In the case of a small or medium-sized enterprise, the rate to be applied to the first €50,000 of the taxable income is 17% in the mainland and 11,9% in Madeira and Azores.

In general, business costs and expenses are tax deductible if they are properly documented and are essential to obtain taxable income or to maintain the source of production. However, there may be limitations on the deduction of certain costs, including, without limitation, interest expenses.

Corporate income tax is self-assessed and paid by companies when filing their annual income tax returns, which must be submitted by June 30 of each year if the tax year is the calendar year.

Presently, Portugal’s corporate tax rate (20%) is higher than the EU average (19.19%) but below the global average (23.85%).

Corporate income tax is added to the municipal surcharge levied on the taxable amount that is not exempt from IRC at the specific rate approved by each municipality (maximum limit of 1.5%). A reduced rate of surcharge may be applied to companies with a turnover of less than €150,000 in the previous year.

Most municipalities apply the maximum rate of 1.5%, such as Lisbon, Loures, Oeiras, Setúbal, Oporto, Braga, Guimarães and Portimão. Cascais, with 1.25%, is an example of a municipality near Lisbon with slightly lower rates.

The taxable profit over €1.500,000 is subject to the state surtax, which is calculated according to the following rates:

• From €1.5 million to €7.5 million: 3%;
• From €7.5 million to €35 million: 5%; and
• Over €35 million: 9%.

Companies might also be subject to autonomous taxation of certain expenses, in particular:

• Undocumented expenses: 50% to 70%;
• Charges with vehicles: 8.5% to 32.50%;
• Representation expenses: 10%; and
• Unbilled allowances to customers: 5%.

Non-resident companies that do not have a permanent establishment in Portugal may also be subject to corporate income tax if their income is obtained in Portugal and can be taxed in Portugal under the applicable double taxation agreements (e.g., dividends, capital gains, interest and royalties).

In general, income (excluding capital gains) deemed to be obtained in Portugal will be subject to a withholding tax at a rate of 25%, although that rate might be reduced to 15%, 10% or 5% under double taxation agreements.

The payment of dividends to companies established in another Member-State of the European Union that hold shares representing at least 10% of the share capital of the company established in Portugal during an uninterrupted minimum period of one year is exempt, provided that the company is an eligible company under the Parent Companies Directive. Interest and royalties may also be exempt from withholding tax if the payment is made to an affiliated company in another Member State of the European Union, provided that the relevant holding requirements are fulfilled.

Capital gains obtained by non-resident companies and without a permanent establishment in Portugal resulting from the sale of real estate located in Portuguese territory are subject to corporate income tax. Capital gains arising from the sale of shares and other securities issued by companies resident in Portugal might be corporate income tax exempt unless:

• The seller has its headquarters in a jurisdiction subject to a more favourable tax regime;
• More than 25% of the company is, directly or indirectly, owned by resident companies or persons, unless the shareholder is resident in an EU Member State, an EEA country, or a country that is a party in a double taxation agreement with Portugal and the stake fulfils some of the participation exemption requirements (e.g., a minimum 10% stake and a minimum holding period of one year); or
• More than 50% of the target company’s assets are real estate properties located in the Portuguese territory or, if the target is a holding company, more than 50% of any controlled company’s assets include real estate property located in Portugal.

PERSONAL INCOME TAX

Personal income tax is levied on the annual value of the income of the following categories after the corresponding deductions have been made:

• Category A: dependent work income;
• Category B: business and professional income;
• Category E: capital income;
• Category F: property income;
• Category G: assets increase; and
• Category H: pensions.

In general, income is subject to progressive rates, ranging between 13% and 48%.

To taxable income over €80,000, the following additional solidarity charges are applied:

• From €80,000 to €250,000: 2.5%; and
• Over €250,000: 5%.

Work income is subject to withholding taxes, which are different according to the income and employee’s family situation. Some benefits may be exempt from income tax up to certain limits (e.g., meal allowances, subsidies).

In general, the determination of business and professional income is based on the taxpayer’s accounts. When the amount of income does not exceed €200,000, taxpayers may apply for the simplified tax scheme under which taxable income is determined by the application of coefficients.

Health expenses, education and training expenses, household expenses and real estate expenses can be deducted, up to certain thresholds, from the taxpayer’s taxable income.

Certain incomes are subject to a flat rate of 28%, such as:

• Capital income (e.g., dividends, interest, royalties);
• Positive balance of capital gains and losses resulting from the sale of shares;
• Positive balance of capital gains and losses resulting from the sale of real estate; and
• Property income (e.g., rents).

Withholding tax might be applied to capital and property income. In any case, taxpayers may opt for the inclusion of such income.

Gains obtained from the transfer of real estate are not taxed when the permanent residence is sold, and the product of the sale is reinvested (after deducting the repayment amount of any loan for acquisition) in the acquisition of another permanent residence in Portugal between the 24 months before the sale and the 36 months following the sale.

Unlike residents who are taxed on their overall income obtained in Portugal and abroad, non-residents are taxed only on their income obtained in Portugal when such taxation is allowed under applicable double taxation treaties.

NON-HABITUAL RESIDENTS’ FRAMEWORK

Until 31 December 2023, non-residents moving to Portugal could choose to apply to the non-habitual resident status (NHR) and benefit from a more favourable tax regime for a 10-year period without the need to make any investment in the country.

The main tax advantages of the NHR status were the following:

• Employment and self-employment income obtained in Portugal was subject to a 20% flat rate if related to «high value-added» activity;
• Pensions obtained outside of Portugal were exempt from personal income tax or subject to a flat rate of 10%; and
• Other foreign source income was tax-exempt under certain conditions.

Following the approval of the 2024 State Budget, the NHR regime was revoked with effect as of 1 January 2024 and will no longer be available with the following exceptions:

• Residents that have obtained the NHR status until 31 December 2023;
• Non-residents that, as of the date the 2024 State Budget proposal was submitted to the Parliament (10 October 2023), were already in the process of becoming residents in Portugal and can provide evidence thereof (e.g. signed lease agreement);
• Non-residents that had an employment agreement or a residency permit/application as of 31 December 2023; and
• Non-residents who became residents for tax purposes by 31 December of 2024 and submit their application for NHR registration until 31 March 2025.

NEW R&D-RELATED INCENTIVES

Despite the revocation of the NHR regime, the 2024 State Budget approved incentives for non-residents who have not lived in Portugal in the last five years and who wish to work in Portugal on R&D-related activities.

The incentives include a flat rate of 20% applicable to employment and self-employment income obtained in Portugal during a 10-year period, provided that the non-residents fall in one of the following categories:

• Professors at colleges and investigators in scientific and technological system entities;
• Employees or members of corporate bodies in entities recognized as technology and innovation centres;
• Members of corporate bodies in companies that benefit from investment contractual benefits;
• "Highly qualified" employees in (i) companies with relevant investments that benefit or have benefited from investment tax benefits and (ii) industrial and service companies that export at least 50% of their turnover;
• Qualified employees and members of corporate bodies in entities that carry out economic activities recognized as relevant to the national economy;
• Personnel whose costs are eligible under the R&D tax incentive system;
• Employees and members of corporate bodies in start-ups; and
• Employees or other professionals developed in the autonomous regions to be defined by the respective regional governments.

SOCIAL SECURITY CONTRIBUTIONS

Income from employees, self-employed workers and members of corporate bodies are also subject to social security contributions, with the following rates being applied:

• Employees: 11% paid by the employee and 23.75% paid by the company;
• Self-employed workers: 21.4% paid by the worker and 10% paid by the client when the economic dependence exceeds 80%, and 7% when the economic dependence is lower than 80% but exceeds 50%; and
• Members of corporate bodies: 11% paid by directors and managers, 9.3% in the remaining situations and 20.3% or 23.75% paid by the company, respectively.

Some benefits are excluded from contributions, such as:

• Allowances up to the limits established for personal income tax purposes;
• The compensation for termination of the employment contract in case of collective dismissal; and
• Possible subsidies for medical care and medicine for employees and their families.

Portugal has entered into several social security conventions, establishing exemptions for workers who are temporarily working in Portugal, such as from the United States of America and Canada.

VALUE ADDED TAX

Value-added tax (VAT) is levied on the following transactions:

• Transfers of goods and services rendered for consideration;
• Importation of goods; and
• Intra-community transactions carried out in the national territory.

Natural or legal persons who carry out an economic activity or who, by carrying out a single taxable transaction, fulfil the assumptions of the actual incidence of personal income tax or corporate income tax are taxpayers subject to VAT.

Transfers of goods which are in Portugal at the moment of shipping to the purchaser or, if there is no shipment, that are in Portuguese territory when the goods are made available to the new purchaser are, as a general rule, subject to VAT in Portugal. Intra-community acquisitions are also subject to VAT in Portugal.

However, some transfers of goods are exempt from VAT:

• Intra-community transfers of goods;
• Exports, transactions assimilated to exports and international transport; and
• Transfers of goods intended to be placed in customs and fiscal warehouses to be subsequently exported to other countries.

Usually, the provision of services is subject to VAT in Portugal when:

• The purchaser is established in Portugal, in case the purchaser is subject to VAT; or
• The provider is established in Portugal if the acquirer is not subject to VAT.

However, some services are always subject to VAT in Portugal when they are executed in Portugal, such as:

• Real estate services (regarding real estate located in Portugal);
• Passenger transport by distance travelled in Portugal;
• Access to cultural, artistic, scientific, sporting, recreational, educational and similar events; and
• Short-term lease of a means of transport made available in Portugal.

There are other exceptions to the above-mentioned location rules (e.g., telecommunications services, broadcasting, and electronic services when the acquirer is a person who is established or living outside of the country).

The normal VAT rate applicable in mainland Portugal is 23%. Certain goods and services are subject to an intermediate VAT rate of 13% or a reduced rate of 6%.

In the Azores, the general VAT rate is 16%. The intermediate rate is 9%, and the reduced rate is 4%. In Madeira, the VAT rates are 22%, 12% and 4%, respectively.

VAT is levied on the value of the consideration obtained or to be obtained from the purchaser. From this amount, default interest, discounts, rebates, and bonuses that may be granted are excluded.

VAT is due at the moment when the services are provided or when the goods are in the purchaser’s disposition.

In addition to the above-mentioned transactions, the following transactions are also exempt from VAT:

• Medical and educational services;
• Transfer and renting of real estate;
• Certain financial operations; and
• Insurance and reinsurance operations.

As a rule, there is no tax deduction when the taxable person practices transactions exempt from VAT. However, in certain cases and subject to certain requirements, the law allows the deduction of VAT (e.g., Intra-Community transfers) or waiver of exemption (e.g., transfer and renting of real estate).

OTHER TAXES ON CONSUMPTION

In addition to VAT, other consumption taxes may be applied to products that entail environmental and public health costs. The following are Portugal’s main excise duties:

• Tax on alcohol, alcoholic beverages and beverages containing added sugar or other sweetening matter;
• Tax on petroleum products and energy; and
• Tax on tobacco.

The authorised warehouse keeper and the registered consignee are considered taxable persons.
These taxes are due to the taxable person at the moment of consumption or in the determination of losses to be taxed.

Embassies or consulates, international organisations recognised by the Portuguese State and the forces of a State party to the North Atlantic Treaty Organisation Products are exempt from subject excise duties.

CUSTOMS TAXES

As a member of the European Union, Portugal only imposes customs duties on imports of goods from countries that are not members of the EU Customs Union. Customs tariffs are set as a percentage of the price of the imported good and of the related costs which are included in the Common European Customs Tariff.

MUNICIPAL REAL ESTATE TRANSFER TAX

The municipal real estate transfer tax (Imposto Municipal sobre as Transmissões Onerosas de Imóveis, IMT) is a municipal tax that taxes the onerous transfers of property rights over real estate assets located in Portugal. As a rule, IMT is levied on the value of the contract through which the asset was transferred or on its taxable value, whichever is higher.

The acquisition of more than 75% of the share capital of a real estate company may also be subject to IMT if certain conditions are met (e.g. real estate represents more than 50% of the assets and is not allocated to a business activity).

Normally, IMT is paid prior to the transfer of the property. Before executing the deed of sale, the notary will require proof of the IMT payment, which must be done through the Tax Authority’s official website (Portal das Finanças).

IMT rates vary according to the type of asset:

• Land: 5%;
• Urban buildings used as primary residence: between 0 and 7.5%;
• Urban buildings used as secondary residences: between 1% and 7.5%;
• Other urban buildings and other onerous acquisitions: 6.5%; and
• Buildings (urban or land) or other acquisitions, the purchaser of which is resident in a country, territory or region subject to a clearly more favourable tax regime: 10%.

Some transactions are exempted from IMT, such as the acquisition of real estate by investment funds for rental housing and the acquisition of buildings for resale by real estate companies.

MUNICIPAL PROPERTY TAX

The municipal property tax (Imposto Municipal sobre Imóveis, IMI) is levied on the asset value of buildings located in Portugal. The owner, usufructuary or surface right holder of the building must pay IMI until April of every year.

IMI rates are different according to the type of real estate:

• Urban buildings: 0.3% to 0.45%;
• Land: 0.8%; and
• Buildings held by entities incorporated in offshore financial centers: 7,5%.

Urban buildings used for commerce, industry or services are not subject to IMI.

IMI is paid in a single instalment in May when the amount is equal to or less than €100, in two instalments paid in May and in November when the tax amount is over €100 and equal to or less than €500 or three instalments paid in May, August and November when the tax amount exceeds €500.

There are situations where exemptions or reductions might apply, such as urban buildings for personal and permanent residence, buildings of taxable persons with dependents, and urban buildings that have been allocated for touristic use. The exemption for personal use buildings only applies if the building’s taxable value does not exceed €125,000 and the owner’s taxable income in the year prior to the acquisition is less than €153,300. If these requirements are verified, the exemption will apply for three years. The buildings integrated into enterprises with a touristic purpose benefit from an exemption for seven years.

The Municipal Assemblies may apply a reduction of the IMI rate to the urban building for personal and permanent residence of the taxable person or her/his household, according to the number of dependents she/he is responsible for.

Natural and legal persons and undivided inheritances who are owners, usufructuaries’ or owners of a surface right located in Portugal are subject to an additional property tax at the following rates: (i) 0.7% on the value of properties exceeding €600,000 for natural persons (€1,200,000 for couples) and (ii) 0.4% of the value of the property for companies.

STAMP DUTY

The Stamp Duty is levied on various legal acts, documents, contracts and other transactions that are exempt from VAT, which are described in the General Stamp Tax Table, such as:

• Onerous acquisition of real estate: 0.8%;
• Donations: 10%;
• Lease and sublease: 10%;
• Business acquisition: 5%; and
• Health insurance contracts: 5%.

There are certain facts that may benefit from stamp duty exemption under special conditions, such as:

• Premiums and commissions related to life insurance; and
• The interest charged on loans for the acquisition, construction, reconstruction or improvement of one’s own housing.

Relevant legislation

Personal Income Code [Portuguese Only]

Corporate Income Code [Portuguese Only]

Value Added Tax Code [Portuguese Only]

Forms

Personal Income Tax Return – Form 3 [Portuguese Only]

Corporate Income Tax Return – Form 22 [Portuguese Only]

Vaue Added Tax Periodic Declaration [Portuguese Only]

Other documents

Tax and Customs Authority: «2018 Tax payment Obligations Calendar» [Portuguese Only]

Tax and Customs Authority: «Tax Periodic Declarations Calendar» [Portuguese Only]

List of Double Taxation Treaties [Portuguese] [English]

Macedo Vitorino's briefings

«Taxation in Portugal made easy» (2019)

«2022 Portuguese State Budget Proposal»

Important notice

This library includes standard forms, documents, copies of statutes of law and reports from national and international organisations and other resources intended for general informational and educational purposes only.

By using this library, you agree (i) that nothing in this library constitute or substitute legal or business advice, (ii) that the availability, transmission, receipt or use of this library is not intended and does not create an attorney-client relationship and (iii) to use the documents available in this site in compliance with all applicable laws. You should make sure that this library are not or have not become out-of-date by supervening laws or regulations or other events.

We are used to working on all aspects of corporate, commercial and tax laws. We act in regularly domestic and cross-border transactions, including mergers and acquisitions, financings and foreign investments involving tax matters.

We can assist you in any tax issues, including:

• Choosing the most suitable tax structure
• Dealing with transfer pricing issues
• Handling personal and corporate income tax obligations
• Complying with VAT, stamp duty and other taxes obligations
• Dealing with tax disputes

If you have any question or wish us to provide a budget, please contact us to: whyportugal@macedovitorino.com

For more information on our practices and expertise please go to www.macedovitorino.com/en/expertise