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 is 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 21%. A municipal surcharge of up to 1.5% and State surcharge ranging from 3% to 9% applied only to companies with an income worth more than EUR. 1.5 million.

Personal income tax rates range from 14.5% 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 4% to 23%.

Portugal offers incentives to foreign citizens who change their residence tax to Portugal through the RNH regime for non-frequent residents, allowing a 20% special income tax rate.

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), responsible for the management of taxes in according to the rates defined by the tax legislation, approved by the Assembly of the Republic.

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.

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Commercial companies, with headquarters or effective management in Portugal, and companies with 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 21%, 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 is 14.7%.

In the case of a small or medium-sized enterprise, the rate to be applied to the first EUR. 25,000 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, that must be submitted until June 30 of each year, if the tax year is the calendar year.

Presently Portugal’s corporate tax rate (21%) is slightly higher than the EU average (19.19%) but below the global average (23.85%).

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Corporate income tax is added with the municipal surcharge levied on the taxable amount 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 EUR. 150,000 in the previous year.

Most municipalities apply the maximum rate of 1.5%, such as Lisbon, Loures, Setúbal, Oporto, Braga, Guimarães, Évora and Faro. Oeiras with 1.4% and Cascais with 1.25% are examples of municipalities near Lisbon with slightly lower rates.

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The taxable profit over EUR. 1,500,000, is subject to the state surtax, which is calculated according to the following rates:

  • From EUR. 1.5 million to EUR. 7.5 million: 3%;
  • From EUR. 7.5 million to EUR. 35 million: 5%; and
  • Over EUR. 35 million: 9%.
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Companies might also be subject to autonomous taxation of certain expenses, in particular:

  • Undocumented expenses: 50% to 70%;
  • Charges with vehicles: 10% to 35%;
  • Representation expenses: 10%; and
  • Unbilled allowances to costumers: 5%.
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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 are 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.
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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 14.5% and 48%.

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

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

Work income is subject to withholding taxes which are different according to the income and worker’s family situation. Some benefits may be exempt from IRS 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 EUR. 200,000, taxpayers are covered by the simplified regime under which taxable income is determined by the application of coefficients unless they choose to have their income calculated using his/her/its accounts.

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-permanent residents’ regime

Non-residents in Portugal may choose to become tax residents in Portugal under the non-frequent resident status (residente não habitual, RNH) and benefit from a more favourable tax regime on certain income obtained in Portugal or outside of Portugal, without the need to make any investment in the country.

To obtain the RNH status the following requirements must be fulfilled:

  • Not having been a Portuguese tax resident in the five preceding years;
  • To be registered as a tax resident and requesting the RNH status upon such registration or by 31 March of the following year; and
  • In case of employment income obtained in Portugal and self-employment income obtained both in and outside of Portugal, having a «high value-added» activity.

High value-added activities eligible for RNH status include, among others, architects, engineers, plastic artists, actors and musicians, auditors, doctors and dentists, teachers and psychologists, liberal professions, technicians and similar and investors, directors and managers.

The main advantages of the RNH status are:

  • Employment and self-employment income obtained in Portugal will be subject to a 20% flat rate;
  • Pensions obtained outside of Portugal will be exempt from personal income tax; and
  • Other foreign source income will be tax exempt, provided it may be taxed outside of Portugal under the applicable tax conventions or the OECD model (if not a tax haven) or, in case of employment income, it is effectively taxed in the source country.

These advantages will extend over a period of ten consecutive years, including the year of registration as a tax resident in Portugal. The enjoyment of the right to be taxed as a non-permanent resident, in each year of the ten-year period, depends on being made, in that year, an evaluation of the criteria so that it can be concluded the existence of residence in Portuguese territory.

If the beneficiary loses his/her NHR status because he/she ceased to comply with one the NHR requirements, he/she regain the NRH status on the year when he/she meets those requirements again.

The application for registration as a habitual resident can only be filled after registering as a resident in Portuguese territory.

Other benefits of being a RNH beneficiary include a stamp duty exemption on donations or inheritances for the spouse, descendants or ascendants of the beneficiary and a stamp duty rate of 10% on donations or inheritances for other individuals and family members.

Social Security contributions

Income from employees, self-employed workers and members of the corporate bodies is 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 case of contracting entities, if the economic dependence exceeds 80%, and 7% in other cases; and
  • Members of corporate bodies: 11% paid by directors and managers and 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 workers 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.

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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 that carry out an economic activity or who, by carrying out a single taxable transaction, fulfil the assumptions of 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 being 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 that is established or living out 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 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 5%, respectively.

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

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 comsumption

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 as 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.

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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 the 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 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 residence: 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 tax havens: 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 EUR. 100, in two instalments paid in May and in November when the tax amount is over EUR. 100 and equal to or less than EUR. 500 or three instalments paid in May, August and November when the tax amount exceeds EUR. 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 which have been allocated for touristic use. The exemption for personal use buildings only applies if the building’s taxable value does not exceed EUR. 125,000, and the owner’s taxable income in the year prior to the acquisition is less than EUR. 153,300. If these requirements are verified the exemption will apply for three years. The buildings integrated in 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 his/her household, according to the number of dependents he/she 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 EUR. 600,000 for natural persons (EUR. 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 of real estate: 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.
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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 & Associados' briefings

«Taxation in Portugal made easy» (2019)

«2018 Portuguese State Budget»

 

Important notice

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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

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