Corporate Tax in Portugal: A 360° View On All Costs
Corporate taxes in Portugal work as in any country: as a business owner, you must pay them. And it’s true what they say: setting up a company in Portugal is challenging. In addition to the process itself, there are 6 mandatory taxes to pay as a company: IRC, Payments on Account, Municipal and State Surcharges, Autonomous Taxation, VAT, and Social Security (but others may be added if you buy a physical office in the country).
As they have different names in Portugal, we’ll break them down throughout this article, explaining their purpose and why they exist.
What You’ll Learn:
Corporate Tax in Portugal: The Full Breakdown
IRC: Imposto sobre o Rendimento das Pessoas Coletivas
Pagamentos por Conta
Derrama Municipal and Derrama Estadual
Tributação Autónoma
IVA: Imposto Sobre o Valor Acrescentado
TSU: Taxa Social Única
Corporate Tax in Portugal: The Full Breakdown
Here’s the thing: tax evasion in Portugal is a reality, and the Portuguese Tax Authority is getting stricter by the day. So, you better know all the taxes you’ll pay as a company upfront. Buckle up and take notes.
IRC: Imposto sobre o Rendimento das Pessoas Coletivas
IRC is one of the most essential corporate taxes in Portugal. You can also refer to it as the Corporate Income Tax, which works very similarly to the IRS (Personal Income Tax), which individuals pay based on what they earn in Portugal.
When it comes to businesses, IRC applies to:
Resident companies and other entities whose main activity is commercial, industrial, or agricultural – with an office in Portugal
Non-resident entities with a permanent establishment in Portugal
Non-resident companies with a permanent establishment in Portugal if they hold a fixed place of business – through which they operate (like a local branch, office, building site, construction projects, or through dependent agents)
Non-resident entities (i.e., companies and other corporations without a permanent establishment in Portugal) are only taxed on Portuguese-sourced income
In short, any company profiting in Portugal must pay IRC. But its percentage varies depending on where your business is – on the mainland or the islands (Madeira or Azores). So, here’s a breakdown of those rates:
21% in Mainland Portugal
20% in the Autonomous Region of Madeira
16.8% in the Autonomous Region of the Azores
However, if you own a medium-sized company – with agricultural, commercial, or industrial economic activity – a rate of 17% applies to the first €25,000 and the standard rate to the rest.
Pagamentos por Conta
Called Payments on Account in English, this isn’t, in fact, considered a corporate tax in Portugal but a fiscal obligation instead.
Suppose your company is involved in agricultural, industrial, or commercial activities (or you have a non-resident business with an establishment in Portugal), made a profit, and paid IRC last year. In that case, you must pay Pagamentos por Conta to the Tax Authority annually (by submitting the form Modelo 22).
This obligation is nothing but an advanced IRC payment.
In other words, this tax is deducted once you submit the Periodic Declaration of Income. And, as it happens with other taxes and obligations, different rates apply. So, to calculate this one, you must know how much you profited last year – and repeat the process annually (as long as you make a profit, of course). Here’s how to calculate Payments on Account:
For a turnover equal to or under €500,000:
(IRC paid in the last year - Withholdings made in the previous year) x 80%For a turnover higher than €500,000
(IRC paid in the last year - Withholdings made in the previous year) x 95%
And that’s how you predict the tax value (IRC) you pay in advance.
Derrama Municipal and Derrama Estadual
First, let’s translate both taxes: you can refer to Derrama Municipal as the Municipal Surcharge. In turn, Derrama Estadual means State Surcharge.
As these surcharges are related, you should learn them together to understand why they exist. Once again, both have to do with where your business is – because, according to location, rates vary. So, first of all, you need to ask yourself:
Is your business on the Mainland? Madeira? Or Azores?
What about the municipality? Where’s your business established?
Now that you get why they exist and what they mean, it’s time to understand their rates.
As with IRC (the Corporate Income Tax), the Municipal Surcharge rates depend on where your business is. In turn, the State Surcharge depends on the size of your profits.
So, if your business is on the Mainland, this is what you’ll pay:
Municipal Surcharge: it varies from municipality to municipality, at a percentage of up to 1.5% on taxable profit
State Surcharge:
3% on profit between €1.5 million and €7.5 million
5% on profit between €7.5 million and €35 million
9% on profit over €35 million
However, if your business is in the Azores or Madeira:
Municipal Surcharge: up to 1.5% local surcharge on the profit charged by the regional municipality
State Surcharge:
2.1% on profit between €1.5 million and €7.5 million
3.5% on profit between €7.5 million and €35 million
6.3% on profit over €35 million
Tributação Autónoma
You can translate this fiscal obligation into Autonomous Taxation – another cost when opening a company in Portugal.
This tax regime applies to some of your business expenses – that aren’t directly related to its activity. Rates vary, but you must pay this obligation regardless of how much the company profits. Instead of allowing full deduction, the Autonomous Taxation regime establishes a fixed rate for expenses such as:
Vehicles: expenses related to the purchase, use, maintenance, and repair of vehicles used by your company
Representation Expenses: costs associated with meals, networking events, and other relationship activities with customers or suppliers
Subsistence and Meal Allowances: amounts you pay to employees to cover travel, accommodation, and meal expenses – during their work schedule
Undocumented Expenses: expenses that don’t have invoices associated with the company's NIPC (your company’s tax number)
Corporate Bonuses: bonuses over €27,500, paid to managers, administrators, or senior managers – representing a portion greater than 25% of the company's annual remuneration
Autonomous Taxation rates vary according to your company’s expenses. They can start at 5% and end at 70%, but it’ll ultimately depend on how much you spend and where.
IVA: Imposto Sobre o Valor Acrescentado
You may know this tax as VAT (Value Added Tax).
This tax applies to the entire economy in addition to the value attributed to goods or services. For companies, the payable amount is the difference between the IVA charged on sales and the IVA borne on purchases and other expenses (related to the business activity) – though there are some exceptions depending on your business.
As with other corporate taxes in Portugal, there’s more than one IVA rate.
It all depends on where your company is (in the Mainland, Madeira, or Azores) and what goods or services you sell. There are 3 IVA rates to focus on – which are then divided into locations:
| Mainland | Madeira | Azores | |
|---|---|---|---|
| General Rate (taxable goods and services) | 23% | 22% | 16% |
| Intermediate Rate (food and drink goods and services) | 13% | 12% | 9% |
| Reduced Rate (necessities, including certain foods, books, newspapers, medicines, transport, and hotel accommodation) | 6% | 5% | 4% |
TSU: Taxa Social Única
The TSU is a mandatory Social Security (SS) contribution when incorporating a business in Portugal.
However, this is a shared contribution between employers and employees, and it exists to prevent future, unpredictable situations – of greater financial or social precariousness, such as unemployment, illness, or retirement.
In most cases, the total TSU rate corresponds to 34,75% of each employee's gross salary:
Employers pay 23.75%
Employees pay 11%
Navigating the landscape of corporate taxes in Portugal is a long process. From the fundamental Corporate Income Tax (IRC) to supplementary obligations like Payments on Account, each aspect contributes to the financial responsibilities of running a business in the country.
In addition, you must consider regional and state surcharges across different locations. As Portugal strengthens its tax enforcement measures, being well-informed about these obligations is essential for your business. Once you open a physical office, these and other taxes apply. You can always start by hiring in Portugal without one, but it all depends on your business goals.
