Tax rates in Portugal

Company Tax

21% for mainland Portugal

Tax Rate For Foreign Companies

Resident companies are taxed on their worldwide income. Foreign companies are subject to the same taxes as local companies, but they are only taxed on Portuguese-source income. The tax rate on investment income that is both derived by non-resident entities subject to a privileged tax regime in their country of residence and included on Portugal's blacklist is 35%. Certain withholding taxes apply to income generated in Portugal that is attributable to non-residents without a permanent establishment in the country.
A Portuguese company can opt to exclude profits and losses of its foreign permanent establishment (PE) from taxation if: (i) the PE's profits are taxed (not exempt) under a tax specified in the EU Parent/Subsidiary Directive or a similar tax with a rate at least 60% of Portugal's corporate income tax (12.6%), (ii) the PE is not in a blacklisted jurisdiction, and (iii) the effective tax is at least 50% of what would be due under Portuguese law (unless specific conditions are met). This regime excludes profits up to the amount of previous 12 years' PE losses used to reduce Portuguese taxable income. The regime must apply to all PEs in the same jurisdiction and is mandatory for at least three years.

Capital Gains Taxation

Realized capital gains are included in taxable corporate profits, but share disposal gains may be exempt under the participation exemption. The acquisition cost of capital assets disposed of after two years can be adjusted for inflation using official indices.
Fifty percent of gains from disposing of tangible fixed assets, biological assets, and intangible assets (excluding those from related parties or investment properties) held for at least one year can be excluded from tax if reinvested within a specified period. This does not apply to gains from mergers, demergers, or asset-for-share deals, nor to transfers unrelated to the business.
Capital gains from the indirect disposal of certain immovable property in Portugal are subject to corporate tax. This includes nonresident companies disposing of shares in another nonresident company if, within the past 365 days, over 50% of the share value is tied to immovable property in Portugal, subject to conditions.
Under Portugal’s participation exemption, dividends received and capital gains realized by a resident company from a domestic or foreign shareholding are tax-exempt if the shareholder, not a transparent entity, has held at least 10% of the capital or voting rights for at least 12 months. The subsidiary must not be in a listed tax haven and must be subject to a qualifying income tax.

Main Allowable Deductions and Tax Credits

Expenses incurred to generate profits and certain provisions (including bad debt and inventory losses) are deductible from the corporate tax base. With certain limitations, impairment losses on doubtful debts are deductible for tax purposes when insolvency or recovery has been requested or the credits have been claimed in court. Small companies also benefit from special tax regimes. Start-up and research expenses are deductible for tax purposes in the respective tax year.

Donations to authorized charitable institutions are allowable up to 0.8% of turnover, with a possible increase of the actual amount spent up to 150%. This also applies to donations of computers, software, training, and consultancy in computing to the national government, municipalities, foundations, museums, and other charitable institutions. Donations to authorized educational, sport, and environmental institutions are allowable up to 0.6% of turnover, with a potential increase of the actual amount spent up to 140%. Contributions to the state, municipalities, and foundations where the state or municipalities have an initial capital stake can be fully deducted, with a possible increase in the deductible amount up to 140%.

Pension, invalidity, and health schemes are tax-deductible up to a rate of 15% of annual staff expenses, only if, among other conditions, they are available to all employees and the management and disposition of the benefits are outside the control of the taxpayer. Companies may only deduct net financing expenses up to the higher of the following limits: EUR 1 million or 30% of the earnings before depreciation, amortisation, taxes, and net financing expenses, adjusted for tax purposes.

A corporate tax credit of 32.5% is available for qualifying research and development (R&D) expenses, which can be carried forward for eight years. Taxpayers can claim an additional incremental credit of 50% on R&D expenses exceeding the average spent in the previous two years, capped at EUR 1.5 million. For SMEs not actively engaged in business for at least two years and not previously benefiting from the increased rate, the base rate is increased by 15 percentage points, resulting in a 47.5% credit on qualifying expenses. This tax credit can offset up to the total corporate income tax liability and is available until 31 December 2025.

Tax losses from tax years starting on or after 1 January 2023 can be deducted against future taxable profits indefinitely. This rule also applies to tax losses from years before 1 January 2023 if their carryforward period is still active. However, the deduction of carried forward tax losses is limited to 65% of the taxable income. Loss carrybacks are not allowed.

Until 31 December 2027, tax benefits for investment projects over EUR 3 million may be granted for up to 10 years. These benefits include a corporate tax credit of 10% to 25% of investment expenses and exemptions from real property tax, transfer tax, and stamp duty. The annual credit is capped at 25% of the total tax benefit or 50% of the corporate income tax liability. From 2024, eligible expenses include certain salaries for personnel with level 7 or 8 NQF qualifications.
A corporate tax credit of 10% to 30% is available for acquiring new tangible and intangible assets, with some exceptions. This credit can offset up to 50% of the corporate income tax liability and be carried forward for 10 years. Eligible expenses now include specific salary costs for NQF level 7 or 8 personnel.
Income from patents, designs, industrial models, and software copyrights may be tax-exempt, determined by a specific formula. SMEs in inland areas receive an additional 20% tax deduction for job creation expenses, totaling a 120% deduction.
A wage increase incentive allows a 50% additional deduction, totaling 150%, for expenses related to a minimum 5% wage increase for employees with indefinite contracts in 2024.
A capitalization incentive provides an annual deduction based on the 12-month Euribor rate plus 1.5 percentage points (2 points for micro companies, SMEs, or small mid caps) applied to net equity increases. This deduction increases by 50%, 30%, and 20% in 2024, 2025, and 2026, respectively. To offset rising energy costs, a special scheme offers a 20% additional deduction, totaling 120%, for 2024 expenses exceeding those of 2021.
For agricultural production, an additional 40% deduction, totaling 140%, is available for expenses on fertilizers, soil amendments, feed, and other items.
A new incentive for renewing freight transport fleets offers tax exemptions for vehicles sold and reinvested in newer vehicles from 2024. This is subject to EU de minimis aid rules. There are also incentives for acquiring electric and hybrid cars.

Other Corporate Taxes

Other taxes levied include property municipal real estate holdings (Imposto Municipal sobre Imóveis or IMI - 0.3% to 0.45% for urban real estate, 0.8% for rural real estate, 7.5% for property owners residing in a tax heaven); stamp duties (0.5% to 20%, the latter being applicable to gamblings).

Real estate transfer tax (Imposto Municipal sobre as Transmissões Onerosas de Imóveis or IMT), imposed by municipalities, is up to 7.5% on residential property transfers, 5% on rural property transfers, 6.5% on other urban property transfers, and 10% if the purchaser is in a listed tax haven or controlled by an entity in a listed tax haven. An additional 0.8% stamp duty also applies. This tax is also due on the acquisition of shares in certain companies (e.g., an SA or an Lda) if more than 50% of the company's asset value is from real estate in Portugal (valued at the higher of tax or book value), the real estate is not used for agricultural, industrial, or commercial activity, or is used for real estate trading, and a shareholder gains 75% or more of the company’s share capital through the transaction.

A standalone tax of 35% is levied on indemnities and compensation as well as bonuses paid to members of the board and managers (if exceeding 25% of their annual remuneration and EUR 27,500). Certain deductible expenses are subject to a standalone tax, including entertainment expenses (10%), undocumented expenses (taxed at 50%, or 70% in the case of taxpayers enjoying a partial or total tax exemption), expenditures on private cars (taxed at rates from 5% to 35% depending on the acquisition price of the car), daily allowances and employees' travelling costs (taxed at 5%).

A special contribution is levied on companies operating in the financial sector, with two different tax bases: the contribution is applicable at a maximum of 0.11% on base I and at 0.00030% on base II. Moreover, the aforementioned credit institutions are also subject to a solidarity surcharge, levied upon the same taxable base as the bank levy, the rate being 0.02% on Base I and 0.00005% on Base II.

Social security contributions paid by the employer amount to 23.75% of the monthly gross remuneration.

A carbon tax due by the user in the amount of EUR 2 applies on air, sea and river travel. A levy amounting to EUR 0.30 per package applies to disposable plastic and aluminium packages (the latter contribution shall not apply to single-use beverages and its implementation has been postponed several times).

Special taxation rules apply to entities engaged in activities such as oil exploration, prospecting, and production, and to those operating in the gaming industry.

Other Domestic Resources

Portuguese Tax and Customs Authority

Tax Rate

Allowable Deductions and Tax Credits

Business expenses are generally deductible at different rates, including entertainment expenses and per diems.
Tax credits may be claimed according to the family composition, children (fixed amount of EUR 600 per dependant, plus an additional deduction of EUR 126 when the dependents are aged up to 3 years and an additional EUR 300 per dependent for the second and subsequent dependents who are not older than 6 years old), certain general expenses (35% of the expenses incurred by any member of the household, limited to EUR 250 per taxpayer) and health expenses (15%, up to a limit of EUR 1,000).
Households can benefit from a 15% VAT deduction on services like vehicle maintenance, accommodation, restaurants, beauty salons, and veterinary expenses, up to a global limit of EUR 250. For veterinary medicines, the deduction increases to 35% of the VAT. Additionally, 30% of the VAT on sports and recreational activities, including gym and fitness club expenses, can be deducted if these are included on invoices submitted to tax authorities, all within the same global limit.

Household members can also deduct 100% of the VAT on public transportation passes and tickets, as well as subscriptions to periodicals, including digital versions. This deduction also falls under the overall limit. Furthermore, 20% of alimony payments can be deducted without a limit, though this amount is taxed at the same rate. Donations to central, regional, or local government entities and foundations are deductible up to 25% without a limit, but donations to other entities are limited to 15%.

Education expenses for any household member are deductible up to 30%, with a global limit of EUR 800. If the expenses include rent for members aged 25 or under attending a recognized educational institution more than 50 km from home, the limit increases to EUR 1,100. Real-estate expenses, such as interest from loans taken before 31 December 2011 and rents for primary residences, are deductible up to EUR 296 and EUR 600, respectively, with potential increases based on income.

Expenses for retirement homes are deductible at 25%, with a global limit of EUR 403.75. Contributions to individual retirement saving plans (PPR) are deductible up to 20%, with limits based on age: EUR 400 for those under 35, EUR 350 for those between 35 and 50, and EUR 300 for those over 50. Individuals with disabilities can deduct EUR 2,037.04, with a phased deduction ranging from 2 to 0.5 times the social support index (IAS) over four years following a disability reassessment, provided they have maintained a disability of 20% or higher.

Contributions to individual accounts under a public capitalization regime are deductible up to 20%, with limits of EUR 400 for those under 35 and EUR 350 for those over 35. Additionally, 5% of annual expenses for domestic worker remuneration, up to EUR 200, can be deducted if certain conditions are met.

Union fees paid to Portuguese trade unions can be deducted from employment or pension income, provided the fees do not contribute directly to health, education, elderly support, home, insurance, or social security benefits. The deduction amount is 200% of the total fees, capped at 1% of the taxpayer’s gross employment or pension income.

The 2024 State Budget introduced a tax incentive for research and innovation, applicable to individuals who become Portuguese tax residents in a specific year, provided they have not been residents in Portugal for the past five years, have never benefited from the NHR regime or the former resident regime, and engage in activities specified in the relevant legislation. To apply for this regime, different procedures based on the activity and eligibility criteria must be followed. The regime offers a special 20% tax rate on net employment and business/professional income from designated activities and exempts foreign-sourced employment, business/professional income, investment income, rental income, and capital gains.

Special Expatriate Tax Regime

Non-residents are liable to income tax only on Portuguese-source income, including remuneration borne by a Portuguese company or permanent establishment. They are taxed at a flat rate of 25% on their taxable remuneration.

A taxpayer who has become tax-resident in Portugal for a certain year and has not been taxed as resident in Portugal for any of the previous five years may apply for the special tax regime for "non-habitual tax residents". Non-habitual residents are taxable on worldwide income, but may be exempt from tax on certain foreign-source income. In general terms, non-habitual residents are taxed at a flat rate of 20% in respect of employment income (Category A) and self-employment income (Category B) arising from high-value activities of a scientific, artistic, or technical nature. Entrants in the regime that became Portuguese tax residents as from 1 April 2020 are liable to a 10% tax rate on pension income. New entries to the NHR regime were disallowed after December 31, 2023, except under a specific transitional regime that permits new entries in 2024 if certain eligibility conditions are fulfilled. For further information, click here.

A tax exemption also applies to outbound expatriates, who are resident individuals assigned abroad for a period longer than 90 days.
Foreign residents may be exempt from social security in Portugal if they contribute to a compulsory social security system in a European Union country or a country that has a bilateral social security agreement with Portugal.

The 2024 State Budget introduced a tax incentive for research and innovation, applicable to individuals who become Portuguese tax residents in a specific year, provided they have not been residents in Portugal for the past five years, have never benefited from the NHR regime or the former resident regime, and engage in activities specified in the relevant legislation. To apply for this regime, different procedures based on the activity and eligibility criteria must be followed. The regime offers a special 20% tax rate on net employment and business/professional income from designated activities and exempts foreign-sourced employment, business/professional income, investment income, rental income, and capital gains.