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 Portuguese company. 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 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, and (ii) the PE is not located in a black-listed jurisdiction. 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 five tax years (12 tax years in case of small and medium-sized enterprises [SMEs]). 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 SMEs on the first EUR 25,000 of taxable income (the standard CIT rate shall apply on the excess). Additionally, SMEs that are located in Portuguese inland regions benefit from a rate of 12.5% on the first EUR 25,000 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, concerning the definition of micro, small, and medium-sized 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:
- Autonomous Region of Madeira
- 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 Region of the Azores
- 2.4% applicable to the taxable profit exceeding EUR 1.5 million and up to EUR 7.5 million.
- 4% applicable to the taxable profit exceeding EUR 7.5 million up to EUR 35 million.
- 7.2% 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 fully electric cars, vehicles allocated to public transport, or vehicles that are taxed as income in kind for personal income tax (PIT) purposes, depending on the type of vehicle (certain plug-in hybrids, vehicles moved by vehicular natural gas, and other vehicles), the acquisition cost, and regardless of the year of acquisition:
- Acquisition cost lower than EUR 27,500: 5% / 7.5% / 10%.
- Acquisition cost between EUR 27,500 and EUR 35,000: 10% / 15% / 27.5%.
- Acquisition cost of EUR 35,000 or more: 17.5% / 27.5% / 35%.
- Dividends distributed to wholly or partially exempt taxpayers regarding participations held 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%.
- Payments made to open accounts of financial institutions 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%.
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).
In 2021, a transitional provision applies to cooperatives, as well as micro, small, and medium-sized companies. It foresees that the aggravated autonomous taxation (10%) is not applicable in the following circumstances: (i) the taxpayer assessed taxable profits in one of the previous three tax years, having complied timely with the filing of the CIT return and the annual statement concerning the two previous tax years or (ii) the activity started in 2020 or 2021 or those years correspond to the first or second year of activity.