Resident companies in Portugal are taxed on their worldwide income.
There is an optional regime to exclude from taxation the profits and losses allocated to a foreign PE of a company resident, for tax purposes, in Portugal. The regime applies provided that (i) the profit allocated to that PE is subject to and not exempt from a tax foreseen in Article 2 of the European Union (EU) Parent/Subsidiary Directive (Council Directive 2011/96/EU) or a tax similar to the Portuguese CIT where the legal rate is not lower than 60% of the standard CIT rate (meaning 12.6%), (ii) the PE is not located in a black-listed jurisdiction, and (iii) the effective tax on income is not lower than 50% of the tax that would be due under the CIT Code (except when certain requirements are met). The regime is not applicable to the profit allocated to the foreign PE up to the amount of the losses attributable to that PE that have been taken into account by the Portuguese taxpayer when computing the respective taxable income of the previous 12 tax years. This is an optional regime that must cover, at least, all the PEs located in the same jurisdiction, and is mandatory for a minimum three-year period.
CIT is also applicable to Portugal-source income attributable to a PE of a non-resident company in Portugal. Special withholding tax (WHT) rates apply to income generated in Portugal that is attributable to non-residents without a PE in Portugal (see the Withholding taxes section for more information).
A flat CIT rate of 21% applies on the global amount of taxable income realised by companies resident for tax purposes in mainland Portugal (also applicable to Portuguese PEs of foreign entities). The standard CIT rate is 14.7% in the Autonomous Region of Madeira and in the Autonomous Region of the Azores, including PEs of foreign entities registered therein.
A reduced CIT rate of 17% (11.9% in the Autonomous Region of Madeira and in the Autonomous Region of the Azores) applies to small and medium-sized enterprises (SMEs) and small-medium capitalisation (Small Mid Caps) companies (resident entities and PEs in Portugal of non-resident entities) on the first EUR 50,000 of taxable income (the standard CIT rate shall apply on the excess). Additionally, SMEs and Small Mid Cap companies carrying out their activity and having their effective management in inland territories of Portugal mainland can benefit from a rate of 12.5% (8.75% in the case of the Autonomous Region of the Azores and in the case of beneficiary territories of the Autonomous Region of Madeira) on the first EUR 50,000 of the taxable amount, also being subject to the standard CIT rate on the excess. In both cases, reference is made to the concept of micro, small, and medium-sized companies as foreseen in the EU Commission Recommendation 2003/361, and to the concept of Small Mid Cap as aligned with the European Investment Bank and the European Investment Fund concerning the definition of micro, small, and medium capitalisation enterprises.
Entities that do not carry out a commercial, industrial, or agricultural activity as their main activity are subject to a 21% CIT rate on the global amount of their taxable income (14.7% in the Autonomous Region of Madeira and the Autonomous Region of the Azores).
The following surtaxes may also apply:
- A local surtax (Derrama) of up to 1.5% of taxable income, prior to the deduction of any available carryforward tax losses, is levied in certain municipalities. The local surtax is assessed and paid when filing the CIT return.
- A state surtax (Derrama Estadual) applies (prior to the deduction of any available carryforward tax losses) at the following rates:
- 3% applicable to the taxable profit exceeding EUR 1.5 million and up to EUR 7.5 million.
- 5% applicable to the taxable profit exceeding EUR 7.5 million and up to EUR 35 million.
- 9% applicable to the taxable profit exceeding EUR 35 million.
The state surtax is levied on resident taxpayers carrying on commercial, industrial, or agricultural activity and by non-residents with a PE in Portugal. The state surtax is paid in three instalments.
A regional surtax (Derrama Regional) applies in the Autonomous Region of Madeira and in the Autonomous Region of the Azores at the following rates:
- 2.1% applicable to the taxable profit exceeding EUR 1.5 million and up to EUR 7.5 million.
- 3.5% applicable to the taxable profit exceeding EUR 7.5 million up to EUR 35 million.
- 6.3% applicable to the taxable profit exceeding EUR 35 million.
Autonomous taxation applies at different rates on certain expenses incurred by entities subject to CIT. It is self-assessed in addition to CIT (even if no CIT is due) at the following rates:
- Representation and entertainment expenses: 10%.
- Mileage allowance: 5%.
- Per diem allowance: 5%.
- Non-documented expenses: 50% (70% for partially or fully exempted taxpayers).
- Company car expenses (including depreciation, rentals, leasing, insurance, maintenance, repairs, fuel, and taxes), except vehicles allocated to public transport, or vehicles that are taxed as income in kind for PIT purposes, depending on the type of vehicle, the acquisition cost, and regardless of the year of acquisition, at the following rates:
Cost of acquisition (EUR) Type of vehicle (%) Plug-in hybrid* Vehicle natural gas (VNG) Other Fully electric Lower than 27,500 2.5 2.5 10.0 - Between 27,500 and 35,000 7.5 7.5 27.5 - Equal to or higher than 35,000 15.0 15.0 35.0 Exceeding 62,500 - - - 10.0
- Dividends distributed to wholly or partially exempt taxpayers regarding participations held, uninterruptedly, for less than one year: 23%.
- The total amount of the expenses incurred with any compensation paid as a result of the termination of functions of managers or board members if not related to the productivity targets previously established under the existing labour relation; or the amount that exceeds the remuneration that would be received by the manager or the board member until the term of the labour agreement, in case of redundancy prior to that term; or, in all cases, if the liability for the payment is shifted to another entity: 35%.
- The total amount of the expenses incurred with bonuses paid to managers or board members if the respective amount corresponds to more than 25% of the annual salary and exceeds EUR 27,500: 35%.
- Amounts due or paid to legal or natural persons resident outside the Portuguese territory and subject to a more clearly favourable tax regime, as well as payments made to open accounts of financial institutions resident or domiciled in a jurisdiction with a clearly more favourable tax regime, unless proof is made that the operations effectively took place and do not have abnormal conditions or exaggerated amounts: 35% or 55%.
All of the above-mentioned rates of autonomous taxation are increased by 10% if the taxpayer has tax losses in the tax year in which the expenses are incurred (this does not apply in the first and second years of activity).