Understanding the tax system for businesses in Portugal

Portugal has remained a popular destination to start a business, with a welcoming business environment and strategic location. There are many benefits for foreign nationals aiming to start a company in Portugal, or open a Portuguese branch of an existing business. However, it is important to have a clear understanding of the tax system in Portugal which relate to the different types of commercial entity, before the company formation process.

This guide will explore Portugal’s tax system for businesses, what business owners can expect, and whether Portugal has any tax incentives for foreign nationals.

Click on the links below to jump to that section:

How much is the tax liability related to businesses in Portugal?

Read about the tax system in Portugal, and the amount business owners can expect to pay.

Are there any tax deductions for foreign-owned businesses in Portugal?

Learn whether Portugal has any tax deductions for foreign nationals starting a company.

What are the tax advantages of setting up a company in Portugal?

Find out what are the advantages of starting a company in Portugal.

How can international lawyers help you set up a business in Portugal?

Find out how Giambrone & Partners can help you create a company in Portugal.

Frequently asked questions

Read the most common questions related to the tax system in Portugal for businesses.

How much is the tax liability for businesses in Portugal?

When setting up a company in Portugal, it is important to keep a record of your tax obligations and the amount of tax you must pay. This amount will vary depending on the legal structure (forma legal), the size of the company, and the value of the annual profit.

Corporate Income Tax - Imposto Sobre o Rendimento das Pessoas Coletivas

In Portugal, businesses pay corporate tax (IRC) at a flat rate of 21% of any taxable profits. This amount can be calculated related to the company size; small to medium-sized businesses pay a reduced corporate tax rate of 17% on their first €50,000 of taxable profit.

IRC is paid annually in Portugal and between the 16th of April and the 16th of May.

Find out how to register your company in Portugal here.

Value Added Tax (VAT) - Imposto Sobre o Valor Agregado

Another aspect to consider is VAT (known as IVA in Portugal). Value-added tax varies depending on the supply of goods and services, and is applicable to both resident and non-resident Portuguese companies.

The standard rate VAT is currently 23%; however, reduced rates of 13% and 6% apply to specific goods and services.

Businesses that exceed a certain turnover must register for VAT purposes. The threshold for registration is €13,500 and over on taxable goods. However, this figure is set to rise in 2024 (€14,500) and in 2025 (€15,000).

Once registered, businesses must charge and collect VAT on their sales, and they are entitled to deduct VAT that they have paid on their purchases (input VAT).

Derrama municipal (local surtax)

The Derrama municipal is a tax on profits and is set by the Portuguese council, a maximum of 1.5% is paid annually.

Giambrone & Partners’ Portuguese lawyers (Advogados) can help you obtain the necessary documentation to set up a company in Portugal, and open a Portuguese bank account.

Contact Giambrone & Partners today to find out more information.

Are there any tax deductions for foreign-owned Portuguese businesses?

In addition to other benefits Portugal offers to foreign nationals’ businesses , there are also certain tax deductions and incentives to support businesses and stimulate economic growth. Some key tax deductions include:

Research and Development (R&D) tax credit

Portuguese businesses that engage in R&D activities may benefit from a tax base rate of 32.5%. This incentive encourages businesses to invest in Portugal; especially in innovative and technological advancement.

Double taxation relief

Portugal has an extensive network of double taxation treaties with many countries, to avoid double taxation on income earned in multiple jurisdictions. Business owners must hold at least 10% of the share capital for a period of a year for this tax incentive.

Giambrone & Partners has capacity in various jurisdictions across Europe, including Spain, Portugal, and Italy. Our English-speaking Portuguese lawyers can guide you through the tax system when setting up a company in Portugal.

Find out more about how to set up a company in Portugal here.

What are the tax advantages of setting up a company in Portugal?

One of the significant tax advantages for businesses in Portugal is the territoriality principle. This principle means that companies are only taxed on income generated within Portugal, making it an attractive location for businesses with international operations.

In addition, Portugal offers a participation exemption for dividends and capital gains derived from qualifying shareholdings. This means that if a Portuguese company holds at least 5% of the share capital of another company and fulfils specific requirements, any dividends received or capital gains from the sale of those shares may be exempt from CIT.

Portugal also has actively promoted its business ecosystem in recent years. There are a variety of other incentives for entrepreneurs and early-stage businesses. This includes; tax breaks; access to grants and funding; and simplified administrative procedures to encourage innovation and foster entrepreneurship.

Find out more information on setting up a company in Portugal here.

How can international lawyers help you set up a company in Portugal?

To ensure your business is compliant with all taxation laws in Portugal, professional advice from tax experts and legal advisors, who are well-versed in Portuguese tax laws, should be sought.

Understanding the tax implications and taking advantage of available incentives will enable you to navigate the tax system effectively and make informed decisions for your business's long-term success in Portugal.

Giambrone & Partners has a team of English-speaking lawyers who are qualified in England and Wales and Portugal. They can guide and advise you in all aspects of setting up a company in Portugal, including guiding you and your business on the Portuguese tax system.

Contact Giambrone & Partners today to find out more information.

Frequently asked questions

What tax forms do expats in Portugal need to file?

Foreign nationals in Portugal are subject to a tax rate of 25% of all their earnings; submitted at Serviço de Finanças offices, or at Parish councils (câmara municipal).

Find out more about the common issues non-nationals may face may setting up a company in Portugal here.