Corporate Taxes in Portugal
Business taxes in Portugal has to be paid by every corporation established in the country on their revenues. However, if you own a business in Portugal, you must know about the various Portugal corporate tax rate that you are required to pay.
This article will give brief details on corporate taxes in Portugal. Along with that, it will talk about the different corporate tax rate in Portugal that residents as well as non-resident businesses have to pay.
Various business taxes in Portugal
If you incorporate a company in Portugal, you will have to register with the tax authorities. This is because all the local, as well as international firms, has to pay various corporate taxes in Portugal. This section of the article will describe the numerous corporate taxes in Portugal that has to be incurred by every firm that is incorporated in the nation.
1. Corporate Income Tax (CIT)
Residents’ businesses must pay business taxes in Portugal on their global revenue. Profits and losses that are allotted to a foreign PE of a Portuguese firm are optionally exempt from taxation.
Income from a non-resident business in Portugal that is related to a PE is indeed subject to corporate income tax. Income derived in Portugal attributed to non-residents without the need for a PE in Portugal is subject to special withholding tax (WHT) rates.
Businesses that are tax residents of Portugal’s mainland pay a flat CIT rate of 21% on the whole quantity of taxable revenue generated. In the Autonomous Region of Madeira and the Autonomous Region of the Azores, as well as PEs of international firms incorporated within, the average corporate income tax rate of 14.7% is applicable.
SMEs are subject to a lowered Portugal corporate tax rate of 17% on the initial EUR 25,000 in taxable earnings.
Additionally, possible surtaxes include:
- Some municipalities impose a regional surtax (Derrama) of approximately 1.5% on taxable earnings, before deducting any eligible carry-forward tax losses.
- If the taxed revenue exceeds EUR 1.5 million, but is less than or equal to EUR 7.5 million, a state surtax (Derrama Estadual) of 3% is applied.
- For over EUR 7.5 million & up to EUR 35 million, taxable revenue is subject to a 5% state surtax (Derrama Estadual), and similarly taxed earnings over EUR 35 million are applied a charge of 9%.
2. Value-added tax (VAT)
Following EU regulations, Mainland Portugal’s VAT rates are a 6% lowered rate, 13% intermediary rate, and 23% standard rate. Certain foodstuffs, certain food and drink facilities, musical equipment, agricultural implements, and decorative flowers are all subject to the intermediary rate of 13%.
The delivery of several important food products, periodicals, books, medicinal goods, etc. is all subject to the lowered rate of 6%. Goods supplied to other EU members and for export are not taxed.
If a company’s yearly sales reach €10,000 and they produce taxable goods, they must register and keep records of their VAT. Except for VAT-registered enterprises, with a revenue of no more than €650,000, who may choose to file quarterly returns, VAT returns should be submitted on a monthly basis.
3. Dividend Taxes
Dividend taxes are assessed at various percentages for tax-resident and non-resident companies. Corporations that are taxable residents of Portugal are subject to a 28% dividend tax rate. 25% dividend tax is charged if dividends from a Portuguese firm are received by a non-resident entity.
4. Social security contributions
Employers are expected to contribute to social security on behalf of their workers each month at the normal rate of 23.75% of their workers’ monthly total wages. The CIT allows for the deduction of social security contributions.
5. Capital Gains Tax
Capital gains are owed by both persons and business companies, for instance, when selling shares. Only 50% of the sale’s gain is taxable, though, if the stocks are not traded on a share market. The same tax rate of 28% applies to both residents and outsiders.
Who is liable to pay corporate taxes in Portugal?
Incorporated businesses are typically the only ones subject to the corporate tax rate in Portugal. Individuals who are solo proprietors or have ownership interests in partnership firms rather pay personal income tax on their earnings.
The following are the primary business types that have to pay the Portugal corporate taxes:
- Residential businesses are required to pay corporate tax on their global earnings.
- Non-resident firms have to pay Portugal corporate taxes on the profits generated from operating within the nation.
Business taxes in Portugal for Partnership firms and Sole Proprietors
If you are a sole proprietor, independent contractor, or operate a partnership, the money you make from your company is considered personal income. As a result, this income is subject to personal income tax rather than corporate income tax.
According to Portugal’s personal income tax structure, self-employment earnings from a company or service are classified as category B revenue.
Portugal's corporate taxes exemptions as well as credits
Streamlined tax system
Small companies and sole proprietors can choose to submit business taxes in Portugal under a simplified scheme in which they are taxed on turnover instead of gain if their yearly revenue is less than €200,000.
This is easier since you won’t need to provide your entire company’s financial records. 20% of earnings from sales revenue and 80% of earnings from other business-related and professional activities are liable to tax under the streamlined regime, with the required threshold owed. Expenditure reductions are not allowed under the streamlined regime.
Portugal’s Corporate tax credits
In Portugal, tax credit reductions consist of:
- Global double taxation reductions.
- Tax-related incentive reductions.
- Special deductions for advance payments.
Discounted corporate rates for SMEs
A small and medium-sized firm (SME), or a company with a revenue of less than €50 million, is subject to a Portugal corporation tax rate of 17% for the initial €25,000 in gains, with income over this amount subject to the ordinary rate of taxation. In certain smaller populations and interior locations, this standard rate may be as minimal as 12.5%.
Earnings from dividends and share capital gains
With a special provision accessible to Portuguese corporations, capital gains and losses on the transference of stock and dividend income may be shielded from Portugal’s corporate tax rate. The regulation applies to profits on share transactions conducted through mergers, asset exchanges, or share exchanges.
In accordance with the following guidelines:
- For a minimum of 1 year, the shares were owned.
- A minimum of 10% of the stock or voting privileges in the company from which the shares are exchanged are held by the taxpayer.
- The business from which the assets are exchanged does not have its headquarters in a country on a blacklist.
- The amount of real estate in Portugal that makes up the assets of the organization from which stocks are transferred is not greater than 50%.
Conclusion
After establishing a firm in Portugal, the firm needs to register with the relevant tax authorities for several tax purposes. All the firms that are established are liable to pay various business taxes in Portugal. The standard Portugal corporate tax rate is 21%.
If you have any more queries regarding corporate taxes in Portugal, you can consult Odint Consultancy. Your queries will be gladly answered by our professionals.
FAQ’s
The corporate tax rate is 21%, plus local surtaxes ranging from 0% to 1.5%, and state surtaxes of 3%, 5%, and 9% on taxable revenues over certain thresholds (€1.5 million, €7.5 million, and €35 million, respectively).
Yes. However, international firms have to pay Portugal corporate taxes on the profits generated from operating within the nation.
Employers are expected to contribute to social security on behalf of their workers each month at the normal rate of 23.75% of their workers’ monthly total wages.
Mainland Portugal’s VAT rates are a 6% lowered rate, 13% intermediary rate, and 23% standard rate.
A small and medium-sized firm (SME), or a company with a revenue of less than €50 million, is subject to a Portugal corporation tax rate of 17% for the initial €25,000 in gains, with income over this amount subject to the ordinary rate of taxation.
