TAX IN PORTUGAL

TAX IN PORTUGAL

Taxable resident entities are corporate bodies having their registered office address or their effective place of management in Portugal, and they are generally subject to Portugal’s corporation tax on their worldwide net profits.

Non-resident entities having a permanent establishment in Portugal are liable to Portugal corporation tax on the net profit of said establishment, but not otherwise (after-tax profits distributed by the permanent establishment are not subject to further taxation). A non-resident business is deemed to have a permanent establishment in Portugal if it has a fixed place of business in the country (a branch, an office, or a construction site) or acts through a resident-dependent agent. Non-resident entities having no permanent establishment in Portugal are only taxed on Portugal-sourced income.

Standard Rates

The corporation tax rate is 21%, plus a municipal surtax of between 0% and 1.5%, and a State surtax of 3% on taxable profits exceeding €1.5 million, 5% on taxable profits exceeding €7.5 million, and 9% on taxable profits exceeding € 35 million. This State surtax is payable in advance and calculated as 2.5% and 4.5% of the slice of the previous financial year’s profits exceeding €1.5 million and €7.5 million, before any carried forward losses and ignoring group taxation.

Corporation tax in respect of the previous financial year is payable in the 5th month of the new financial year. But by default, a resident business is required to make payments on account of the tax in respect of the current financial year, payable in the 7th, 9th, and 12th months of the current financial year. The payable amounts for a business having an annual turnover of fewer than €0.5m are 80% of the tax assessed in respect of the previous financial year, or 95% if the turnover is higher, except that the payment due by the 12th month may be skipped in the event the current year’s tax amount is expected not to warrant it. Then, by the 5th month of the new financial year, the business either pays the excess tax due or gets reimbursed for any excess payment made.

Participation Exemption and Foreign Tax Credit

No corporation tax is levied on dividends and capital gains derived from participations of >10% in other companies, whether Portuguese or foreign (participation exemption), subject to some conditions.

A credit is granted to tax on profits paid abroad, or else to the fraction of corporation tax corresponding to foreign taxable income, whichever is the lowest, capped at the amount of tax paid abroad under an applicable double taxation agreement.

Capital Gains

As a rule capital gains are included in taxable profits and capital losses may be deducted therefrom, but a 50% relief can be obtained where the total amount of the disposal proceeds are reinvested in the previous financial year or up until the end of the second subsequent financial year in the acquisition, manufacture or construction of tangible fixed assets or non-consumable biological assets and are used for the business of the acquiring entity (shares are excluded and so are, from 2017, investment properties).

Investment Incentives

There are several tax incentives for investment available to Portuguese businesses and they may be used to bring the corporation tax liability to a more favorable and effective rate.

Special Rates for SMEs

A corporation tax rate of 17% is levied on the first €25,000 of profits made by an SME, i.e. a business having a turnover of less than €50 million, and profits that exceed this threshold are taxed at the standard rate. This initial rate can be as low as 12.5% in some low-density and interior regions.

Value Added Tax (VAT)

VAT rules follow those of the EU and the applicable rates in Continental Portugal are as follows: 6% reduced rate, 13% intermediate rate, and 23% standard rate. Businesses that make taxable supplies are required to register and account for VAT if their annual turnover exceeds €10,000. VAT returns must be filed on a monthly basis, except that VAT-registered businesses having a turnover not exceeding €650,000 may opt for quarterly returns.

Surtaxes

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 installments.

A regional surtax (Derrama Regional) applies in the Autonomous Region of Madeira and in the Autonomous Region of the Azores at the following rates:

• 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.

Representation in the tax authorities in Portugal by Law Firm Prykhodko and partners – includes consulting, and preparation of all the necessary documentation of relations with the tax authorities of Portugal and the EU on tax issues.

What is included in the duties of a tax lawyer of Law Firm Prykhodko and partners:

• Consulting on taxes in Portugal
• Calculation of taxes in Portugal
• Preparation of tax documents in Portugal
• Tax representation in Portugal
• Settlement of tax disputes in Portugal

What is the cost of a tax consultation in Portugal? Leave your phone number and our specialists will contact you.