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Portugal

General Information

Country Name: Portugal
Currency: Euro (EUR, €)
Primary Tax Authority: Autoridade Tributária e Aduaneira (AT)

Key Legislation:

  • Constitution of the Portuguese Republic (Constituição da República Portuguesa): Provides the framework for taxation and governance.
  • Personal Income Tax Code (Código do IRS): Governs the taxation of individuals.
  • Corporate Income Tax Code (Código do IRC): Covers the taxation of corporate entities.
  • VAT Code (Código do IVA): Regulates the application of Value Added Tax (VAT).
  • General Tax Law (Lei Geral Tributária): Sets out the procedural rules, obligations, and penalties for tax administration.

Fiscal Authority Allocation

Centralized System:
Taxation in Portugal is predominantly centralized, with the national government collecting the majority of taxes through the Autoridade Tributária e Aduaneira.

Taxes Collected by Central Authorities:
Key taxes, including personal income tax (IRS), corporate income tax (IRC), and VAT, are collected at the national level.

Corporate Income Tax (CIT)

  • Standard CIT Rate: 21% at the national level, with an additional municipal surtax of up to 1.5% depending on the municipality.
  • Small and Medium-Sized Enterprises (SMEs): A reduced CIT rate of 17% applies to the first €50,000 of taxable income for qualifying SMEs.
  • Taxable Income: Corporate entities are taxed on their worldwide income. Non-residents are only taxed on Portugal-sourced income.
  • Loss Carryforward/Carryback: Losses can be carried forward for up to five years. There is no loss carryback provision.
  • Tax Incentives: Portugal offers tax incentives for R&D, capital investment, and innovation projects, particularly under the “SIFIDE” regime.

Value-Added Tax (VAT)

  • Standard VAT Rate: 23%.
  • Reduced VAT Rates: 13% and 6% for certain goods and services, such as foodstuffs, books, and medications.
  • Exemptions: Certain services such as healthcare, education, and financial services are VAT-exempt.
  • VAT Scope: Applies to the supply of goods and services in Portugal, imports, and intra-EU acquisitions.

Personal Income Tax (PIT)

  • Progressive PIT Rates:
    • Up to €7,479: 14.5%
    • €7,479 – €11,284: 23%
    • €11,284 – €15,992: 26.5%
    • €15,992 – €20,700: 28.5%
    • €20,700 – €26,355: 35%
    • €26,355 – €38,632: 37%
    • €38,632 – €50,483: 45%
    • Over €78,834: 48%
  • Additional Solidarity Tax: A surcharge of 2.5% applies to taxable income between €80,000 and €250,000, and 5% for income above €250,000.
  • Taxable Income: Residents are taxed on their worldwide income, while non-residents are taxed only on Portuguese-sourced income.
  • Deductions and Credits: Individuals can deduct healthcare expenses, education costs, and mortgage interest, among others. Tax credits for family dependents and low-income earners are available.
  • Non-Habitual Residents (NHR): Portugal offers a beneficial tax regime for expatriates under the NHR program, which provides reduced tax rates for foreign-sourced income for up to 10 years.

Additional Mandatory Contributions

Social Security Contributions:
Employees and employers must make contributions to Portugal’s social security system, which provides coverage for healthcare, pensions, unemployment, and other benefits.

  • Employer Contributions: 23.75% of gross salary.
  • Employee Contributions: 11% of gross salary.

Withholding Taxes

  • Dividends: 25% withholding tax, reduced under tax treaties.
  • Interest: 25% withholding tax, which may be reduced by tax treaties.
  • Royalties: 25% withholding tax, also subject to reductions by tax treaties.
  • Tax Treaty Benefits: Portugal has an extensive network of double taxation treaties that help reduce withholding tax rates.

Transfer Pricing Rules

  • Documentation Requirements: Portugal requires that related-party transactions are documented and comply with the arm’s length principle.
  • Penalties: Transfer pricing adjustments can result in additional taxes and penalties, depending on the severity of non-compliance.

Special Tax Regimes

  • Madeira Free Trade Zone (Zona Franca da Madeira): Companies established in this zone benefit from reduced CIT rates (as low as 5%) and other tax incentives.
  • Non-Habitual Residents (NHR): As mentioned above, foreign residents may benefit from reduced taxation on foreign income and certain professions for up to 10 years under the NHR regime.

Other Taxes

  • Municipal Property Tax (IMI): Annual tax on real estate, with rates ranging from 0.3% to 0.45% of the property’s taxable value.
  • Stamp Duty (Imposto de Selo): Applies to various transactions, including real estate purchases, inheritances, and gifts, at rates of up to 10%.
  • Inheritance and Gift Tax: Heirs and beneficiaries in direct family lines (e.g., spouses and children) are exempt from tax, while others may face stamp duty.
  • Wealth Tax: An annual wealth tax applies to the value of properties above €600,000 (or €1.2 million for married couples), at a rate of 0.7%.

Double Taxation Agreements (DTAs)

Key Partner Countries:
Portugal has double taxation treaties with over 70 countries, including major trading partners such as Spain, Germany, and the United States, to prevent double taxation and reduce withholding taxes.

Local Taxes

  • Municipal Surtax: Municipalities in Portugal may levy a local surtax on corporate income, with rates ranging from 0% to 1.5%, depending on the municipality.

Compliance and Reporting

  • Corporate Tax Filing Deadlines: Corporate tax returns must be filed by May 31 of the following tax year.
  • VAT Filing Requirements: VAT returns are typically filed on a quarterly basis, although larger businesses must file monthly.
  • Penalties: Late filings or underpayments can result in interest charges and penalties. Serious tax evasion can lead to additional legal consequences.

Recent Developments

Digital Taxation:
Portugal is considering the implementation of a digital services tax, in line with broader EU efforts to tax the digital economy.

Green Taxes:
The Portuguese government has introduced measures to incentivize environmentally friendly investments, including tax credits for businesses that engage in renewable energy projects or sustainable practices.

Post-Pandemic Recovery:
Portugal has implemented various tax relief measures to support businesses and individuals affected by the COVID-19 pandemic, such as deferred payment schedules and temporary reductions in certain taxes.

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