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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 7% 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.
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 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 is 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).
COMPLIANCE AND DEADLINES
The annual corporation tax return is to be filed before the end of the 5th month following the financial year end, which is 31st December by default. Other periodic reporting obligations include VAT returns and withheld income tax and social security contributions.
TAXABLE PROFITS CALCULATION
Portuguese accounting standards follow International Financial Reporting Standards (IFRS) closely and EU Directives apply to intra-community business transactions.
Deductibility of losses
The tax deductibility of losses can be carried forward during 5 years, but is limited 70% of taxable profits.
Investment Incentives
There are several tax incentives to investment available to Portuguese businesses and they may be used to bring the corporation tax liability to a more favourable effective rate.
Special Rates for SMEs
A corporation tax rate of 17% is levied on the first €15,000 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.
AUTONOMOUS TAXATION OF CERTAIN EXPENSES AND PAYMENTS
Certain expenses incurred or payments made by businesses are subject to autonomous taxation at the following rates, even if no corporation tax is due, and aggravated by 10% in the event a tax loss is assessed for the year .
A Portugal taxpayer id number ("NIF") is a must for anyone intending to conduct a transaction subject to registration in Portugal, from the purchase of insurance to purchasing or renting real estate (except for the renting of tourist accommodation).
Unless they are EU-resident, in order to obtain such a number, individuals or businesses must under applicable law appoint a resident tax representative.
FQ Partners acts as a tax representative in Portugal of non-resident individuals and businesses and, if needed, will obtain taxpayer id numbers for them under power of attorney.
