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Tax Guide 2022 | CIT

Last reviewed 27 July 2022

Taxpayers and taxable income


Taxpayers and taxable income

Taxpayers

Taxable income

Legal persons with head-office or place of effective management in the Portuguese territory, which carry out commercial, industrial or agricultural activities (corporations, cooperatives, etc)

Profit

Legal persons with head-office or place of effective management in the Portuguese territory, which do not carry out commercial, industrial or agricultural activities (associations, foundations, civil partnership)

Overall income (sum of income from all categories for Personal Income Tax purposes)

Non-resident legal persons that carry out their activity through a permanent establishment in the Portuguese territory (e.g. branch)

Taxable profit allocated to the permanent establishment in the Portuguese territory

Non-resident legal persons without a permanent establishment in the Portuguese territory

Overall income (sum of income from all categories for Personal Income Tax rules) – generally subject to withholding tax



Assessment of the taxable income


Assessment of the taxable income

 

Taxable income

The taxable income of entities that carry out commercial, industrial or agricultural activities as their main activity is computed as follows:

  Net profit of the year
(+)(-)   Tax adjustments (included in Box 07 of the CIT return)
(=) Taxable income
(-) Tax losses
(=) Taxable profit
(x) CIT rate
(=) Tax assessed
(+) State Surtax
(=) Total tax assessed
(-) Tax deductions
(=) CIT assessed
(-) Withholding taxes / Payment on account / Additional payments on account
(=) CIT payable or refundable
(+) Municipal Surtax
(+) Autonomous taxation
(=) Total tax payable or refundable

 

Depreciation and amortization

Tangible fixed assets
(examples)
Annual rates
straight line
(%)

Property:

Industrial buildings

5

 

Office and commercial buildings

2

General-purpose equipment

Workshop:

Carpentries

12.5

 

 

Locksmiths

14.28

 

Machinery – tools:

Light

20

 

 

Heavy

12.5

 

 

Electronic equipment

20

 

 

Labware

14.28

 

 

Office equipment (e.g.: photocopier)

20

 

 

Furniture

12.5

 

 

Computers

33.33

 

 

Computer software

33.33

 

 

Mobile devices

20

Vehicles:

Light passenger and mixed-use vehicles

25

 

Heavy passenger vehicles

14.28

 

Heavy transportation vehicles/trailers

20

Intangibles

Development projects

33.33%

Industrial property such as patents, trademarks, permits, manufacturing processes, molds or other similar rights acquired for a consideration (1) (2)

For exclusive utilization within a limited period

Amortization rate is given by the period during which the exclusive utilization occurs

Without a limited period

First 20 tax years upon initial booking in the accounts

Goodwill/transfer of a going concern (TOGC)(1) (2)

Goodwill from business restructurings (except tax neutral restructuring or if related with shareholdings)

First 20 fiscal years after the initial booking in the accounts

Other situations

Amortization is not allowed, except in situations of effective and proved perishment, if authorized by the tax authorities upon request

(1) The cost of acquisitions of intangibles from entities subject to a more favourable tax regime, as per the list published is disallowed as tax deductible cost.
(2) The cost of acquisitions of intangibles from related parties for transfer pricing purposes is disallowed as a tax deductible cost.


 

Tax deductible impairment losses

The following impairment losses are allowed as tax deductible costs:

a) those related to bad debts, duly accounted for as such, whenever the risk of non-recovery is duly justified, i.e in case of:

  • company insolvency and recovery proceeding or enforcement procedure;
  • debts claimed in a court or arbitration court;
  • overdue debt.

b) those related to outstanding receipts that are accepted by insurance companies;

c) those recognized by entities subject to the supervision of the Bank of Portugal, including branches in Portugal of credit institutions, and other financial institutions resident in another member State of the European Union or in the European Economic Area as for specific credit risk, securities and other instruments;

d) those related to exceptional devaluation of tangible fixed assets, intangible assets, biological and non-consumable assets and investment property, accepted by the tax authority upon request;

e) those related to inventories when the respective net realisable value allows proper and independent valuation.


 

Tax deductible provisions

The following provisions are allowed as tax deductible costs:

a) Those related to contingencies and liabilities derived from undergoing lawsuits for facts that would determine the respective consideration as costs of the relevant tax period;

b) Those related to contingencies resulting from after-sales services and guarantees foreseen in contracts for the sale of goods or rendering of services;

c) Those related to mandatory technical provisions as imposed by the Portuguese Insurance Institute, made by insurance companies that are subject to supervision as well as by any branch in Portugal of insurance companies established in another member State of the European Union;

d) Those related to costs of repairing of environmental damages, whenever required by law.

 

Tax capital gains and capital losses

Tax capital gains and capital losses are computed as follows:

Tax capital gains/Tax capital losses = Sales proceeds – (Acquisition Value - Accumulated depreciation/amortisation - Accepted Impairment Losses) x inflation index

 

Shareholdings

Capital gains stemming from the disposal of shareholdings are not subject to taxation if among other requirements, the shares have been held, uninterruptedly, for a period of not less than 12 months, and the taxpayer holds directly, or directly and indirectly, at least 10% of the share capital or of the voting rights.

Capital gains stemming from the disposal of shareholdings acquired before January 1st 1989 are not subject to taxation.

 

Reinvestment relief 

It allows for a 50% relief from taxation relating to the positive difference between the capital gains and capital losses origination from a transfer for consideration of certain assets, provided that the sales proceeds are reinvested in the previous tax year, in the tax year in which the transfer occurs or in the two following tax years.

In case of partial reinvestment, a partial relief (proportional to the investment made) will apply.

In case the reinvestment is not fully accomplished during the reinvestment period, the difference (or the proportional difference) will be considered as taxable income in the second tax year following the disposal, raised by 15%.


 

Participation exemption on dividends received

Requirements

Entity that receives profits

  • A CIT taxpayer, resident in Portugal for tax purposes, that is not tax transparent, or
  • A permanent establishment in Portugal of:
    • an entity resident in a EU member state that meets the requirements foreseen in Article 2 of Council Directive 2011/96/EU, of 30 November;
    • an entity resident in a EEA member state, bound to administrative cooperation on tax matters in the same terms as those equivalent to the EU’s, provided that such entity meets the requirements foreseen in Article 2 of Council Directive 2011/96/EU, of 30 November;
    • an entity resident in a state which is not listed as tax haven, with which Portugal has concluded a convention for the elimination of double taxation, currently in force, foreseeing exchange of information, provided that such entity is subject and not exempt from a tax similar to CIT.

Entity that distributes profits:

  • It is subject to CIT, or to a tax mentioned in Article 2 of Council Directive 2011/96/EU, of November 30th, or to a tax similar to CIT to which the applicable legal rate is not lower than 60% of the CIT standard rate (21%) – the latter requirement is not relevant in case the entity is not covered by CFC rules;
  • Is not resident in a tax haven. 

The participation exemption regime does not apply in the following circumstances:

  • The profits distributed correspond to amounts that are tax deductible at the level of the distributing company;
  • There is an arrangement, or a series of arrangements that are not carried out based on valid economic reasons and lack economic substance;
  • Lack of compliance with the obligations foreseen in the Central Register of Beneficial Owner (“RCBE - Registo Central do Beneficiário Efetivo”), or where beneficial owner, as stated in the statement filed, is resident in a tax haven (except, in the latter case, if the beneficiary entity is not part of an arrangement or series of arrangements that are not based on valid economic reasons and lack economic substance).

 

Tax losses

Taxable losses can be offset against taxable income for 5 years. This period is of 12 years in case of micro, small and medium sided companies. The deduction of taxable losses is capped at 70% of the taxable profit assessed in the tax year in which the taxable losses are used. It is possible to deduct first the taxable losses which carry forward period ends first.Taxable losses generated in 2020 can be carried forward for 12 years. This period applies to large companies, as well as to micro, small and medium sized companies. 

The same 12 year period applies in case of taxable losses generated in 2021. For the taxable losses assessed in 2020 and 2021, the deduction is capped at 80% of the taxable profit assessed in the tax year in which the taxable losses are used.

The tax years 2020 and 2021 are disregarded for the purposes of computation of the carry forward period of existing taxable losses with reference to the first day of the 2020 tax year.

Year in which the taxable losses are generated  
2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033
2014   X X X X X          
2015   X X X X X X X X        
2016   X X X X X X X X X      
2017   X X X                  
2018   X X X X                
2019   X X X X X              
2020 X X X X X X X X X X X X  
2021   X X X X X X X X X X X X
2022     X X X X X            


Adjustments to the taxable income

 

Adjustments to the taxable income

 

Transfer pricing

Concept

Transactions between associated enterprises, whether or not subject to CIT, should be subject to terms and conditions identical to those which would normally be accepted and agreed upon between independent entities in comparable transactions (arm’s length principle).

These transactions can be of the following the nature:

  • commercial transactions, including any transaction or series of transactions regarding assets or intangibles, rights or services, even if carried out within any agreement, namely a cost sharing agreement or intragroup services;
  • financial transactions;
  • business restructuring operations, that imply changes in existing business models, termination or significant changes to existing agreements, specially, in case they imply the transfer of assets, intangibles, rights on intangibles or compensation for damages or loss of future revenue.

In addition, the arm’s length should be considered for the purposes of assessing capital gains or capital losses in transactions taken place between individuals subject to Personal Income Tax and an entity with whom special relations exist.

When determining the terms and conditions in transactions with associated enterprises, the taxpayer shall adopt one of the following transfer pricing methods:

  • Comparable uncontrolled price, resale minus, cost plus, transactional profit split method, transactional net margin method;

  • Other method, technical or economic acceptable asset assessment model, whenever the above methods cannot be used given the unique or extraordinary character of the transactions, or the lack or little information and reliable comparable data.

Lack of compliance with transfer pricing rules allows for the tax authorities to make adjustments to the taxable profit, for the amounts corresponding to the amounts that would be obtained in case of transactions between independent entities, in normal market conditions.

Portuguese transfer pricing legislation was recently amended following Decree 268/2021, of 26 November, revokes Decree 1446-C/2001, of 21 December. The Decree entered into force on 27 November 2021 but concerning the requirements for the preparation of transfer pricing documentation it applies to tax years starting on or after 1 January 2021. 

There are several relevant amendments, of which we highlight:

  • Transactions involving intangibles - it is mandatory to disclose intangibles related with associated transactions, as well as respective economically relevant risks, inherent terms, functional analysis and assessment of the cohesion between the terms agreed and the behaviour of the entities involved; need to check that the entity that incurs the economically relevant risks  has control and is financially able to assume the risk related with developments, improvements, maintenance, protection and exploitation of the intangible;
  • Restructuring operations - it is explicitly mandatory that restructuring operations are at arm’s length; this includes assessing the need for a compensation to the entity being restructured, underlying reason, expected benefits and actual and existing options for the entities involved;
  • Corresponding adjustment - detailed and accurate description of the mechanism to solve tax litigation and elimination of double taxation including available procedures;
  • Explicit mention that the Portuguese Authority uses as reference the amount corresponding to the median of the benchmark of results of the economic analysis performed, in case of proposing positive transfer pricing adjustments to the taxable income; and
  • New details annexes to be part of Master File and Local File (annex I and II), in cost contribution agreements (annex III( and intragroup services (annex IV).

 

Transfer Pricing documentation

Taxpayers with total revenues above € 10,000,000 (formerly € 3,000,000) with reference to the tax year to which the obligation concerns, are required to prepare and organize the transfer pricing documentation file 

Taxpayers with total revenues exceeding € 10,000,000 are not required to prepare transfer pricing documentation in respect of transactions with related parties whose amount in the year concerned does not exceed, per entity, € 100,000, and € 500,000 in total, considering the respective market value.

The above-mentioned exemptions are not applicable if transactions are carried out with taxpayers subject to a more favorable tax regime, as provided in paragraphs 1 or 5 of Article 63-D of the General Tax Law.

The structure of transfer pricing documentation has been revised. It now specifically considers a double structure: Master File (“Dossier Principal”) and Local File (“Dossier Específico”).

Small and medium sized companies (as per Decree-Law 372/2007, of 6 November) can prepare a simplified file (“Dossier Simplificado”).

Transfer pricing documentation shall be prepared in Portuguese language. If documents are not in Portuguese, there is no need for translation if the Portuguese Tax Authorities are able to understand the contents.

Failure to present transfer pricing documentation is subject to penalties.

Taxpayers monitorised by the Large Taxpayers Unit and required to prepare and organise the transfer pricing documentation must send the transfer pricing documentation to the Portuguese Tax Authorities by the 15th day of the 7thth month after the taxpayer’s fiscal year-end (regardless of being or not a working day).

For other taxpayers, the delivery of the transfer pricing documentation is only mandatory upon notification of the Portuguese Tax Authorities.

 

Company Simplified Information (IES) / Annual statement

Transfer pricing information should be reported in Annex H of the Company Simplified Information/Annual Statement, as follows:

  • Identification of the associated enterprises and nature of their relationship; 

  • Annual amounts and nature of the transactions;

  • Transfer pricing methods used and any respective changes;

  • Value of any adjustments to the taxable profit resulting from non-compliance with the ‘arm's length’ principle when determining the terms and conditions of transactions;

A statement, made by the taxpayer, of whether any transfer pricing documentation was prepared or updated.

In respect of the 2020 tax year, for compliance with the tax obligations in 2021, the current standard forms of the Company’s Simplified Information / Annual Statement are still valid.
 

Country-by-Country Reporting (CbCR)

Form 55 – Country-by-Country Reporting

Where turnover in the preceding tax year is equal to, or higher than, € 750,000,000, the ultimate parent entity of a multinational group of companies, is required to file the Country.by-Country Reporting form (concerning each tax year) The CbCR includes financial and tax information, by country or jurisdiction,concerning each  entity part of that group.

Notwithstanding, an entity resident in Portugal for tax purposes which is not the ultimate parent of the group (substitute ultimate parent entity) may be liable to fulfill this obligation in the following circumstances:

  • In case it is directly or indirectly owned by a non-resident entity which is not subject to the CbCR obligation;
  • Although there is an international agreement between Portugal and the jurisdiction of which the ultimate parent company is a resident, there is not a qualified agreement in force between the relevant authorities to be complied with within the deadline foreseen for the submission of the CbCR form; or
  • There is a systemic failure in the jurisdiction of tax residency of the ultimate parent entity designated to the tax authorities as reporting entity.

The CbCR obligation must be fulfilled by filing the Form 55 until the end of a 12th month period after the closing of the tax year of the group.
 

Form 54 - Communication of the reporting entity of the group

Each entity, resident or with a permanent establishment in Portuguese territory, that is part of a multinational group of companies subject to the CbCR obligation, must communicate to the Portuguese Tax Authorities the reporting entity of the group, the respective tax jurisdiction, its tax identification number and address, by filing, electronically, the Form 54.

Form 54 must be submitted by the last day of May or, in case of taxpayers that adopt a tax  year different from calendar year, by the last day of the 5th month after the end of that tax year (regardless of being or not a working day).


Advance pricing agreements

It is possible to conclude unilateral, bilateral or multilateral advance pricing agreements with the tax authorities, aiming at establishing the terms and conditions of commercial and financial transactions with associated enterprises. These may be valid for a maximum of four years.

The conclusion of an advance pricing agreement implies the payment of a fee to Portuguese Tax Authorities, calculated according to the taxpayer turnover.

In November 2021, a Decree was published that amended the rules applicable to Advance Pricing Agreements (Decree 267/2021, of 26 de November). The main amendment concerns the possibility that the effects of the agreement between the taxpayer and the Portuguese Authority can retroact to the previous 2 tax years, being valid for a maximum of 4 years.

 

Controlled Foreign Companies (CFC)

Profits or income obtained by non-resident entities that are subject to a clearly more favorable tax regime are imputed to the Portuguese resident taxpayers subject to CIT that hold either directly or indirectly, even if through a representative, fiduciary or intermediary, at least 25% of their share capital, voting rights or attribution rights over the income or the assets of those non-resident entities.

An entity is considered as being subject to a clearly more favorable tax regime when:

  • it is resident in a tax haven;
  • the tax on profits effectively paid is less than 50% of the tax that would be due in accordance with the CIT Code.

Upon the distribution of profits or income by a CFC entity to a Portuguese resident taxpayer, the amount that the Portuguese entity proves to have already been imputed in previous tax years, is deductible to the taxable income of the year in which the distribution takes place, up to the amount of the taxable income assessed.

CFC rules do not apply to non-resident entities provided that the sum of the respective income that derives of one or more of the following categories of income does not exceed 25% of their total income:

  • Royalties or other income from intellectual property, image rights or similar rights;
  • Dividends and income from the sale of shareholdings;
  • Income from financial leasing;
  • Income from transactions arising from activities that are specific to the banking sector, even if not carried out by credit institutions, as well as from insurance and other financial activities, carried out with associated enterprises as determined under no. 4 of Article 63 of the Corporate Income Tax Code;
  • Income of invoicing companies derived from the goods and rendering of services to and from associated enterprises, as determined under n.º 4 of Article 63 of the Corporate Income Tax Code, with little or no economic added value;
  • Interest and other investment income.

CFC does not apply in case the non-resident entity is resident or established in another EU member state, or in a EEA member state bound by administrative cooperation on tax matters, and the Portuguese taxpayer proves that the incorporation and existence of the foreign entity relies on valid economic reasons, and, finnaly, that such entity carries out an agricultural, commercial, industrial activity or renders services, using staff, equipment, assets and facilities.

 

Limitation on the tax deductibility of net financing expenses

Regime

Net financing expenses are allowed as tax deductible expenses, but they are capped at whichever is higher:

  • € 1,000,000; or
  • 30% of earnings before depreciations, net financing expenses and taxes (EBITDA).

Any exceeding net financing expenses in a given tax year are deductible in the following 5 tax years, after deducting the net financing expenses of that same tax year, with the above-mentioned caps.

In case the net financing expenses do not exceed 30% of the RBITDA, the remaining amount is added to the maximum deductible amount (30% of the EBITDA), up to the following 5 tax years.
 

Definition of financing expenses

Financing expenses include:

  • Interest on bank overdrafts, short-term and long-term loans or any other amounts due or allocated to debt financing;
  • Interest from bonds (convertible bonds, subordinated bonds, zero-coupon bonds and other similar products);
  • Amortization of discounts or premiums related to loans;
  • Amortization of ancillary costs incurred in connection with loans obtained;
  • Financial charges related to finance leases, depreciation or amortization of costs incurred with loans that are capitalized in the cost of acquisition of assets;
  • Amounts computed based on the return of an investment under the applicable transfer pricing rules;
  • Notional interest amount within the context of derivatives or risk hedging instruments related with the granting of loans;
  • Guarantee fee on financing agreements;
  • Negotiation charges, and similar costs, related to loan granting.

Net financing expenses correspond to the financing expenses that are relevant for the purpose of computation of the taxable profit. This expense value is upon deduction, capped at the respective amount, of the amount of interest and similar income, subject and not exempt from tax.

Tax EBITDA

The relevant earnings prior to depreciation, amortization, net financing expenses and taxes correspond to the taxable profit or taxable loss, non assessable or non exempt, added to the net financing expenses and tax deductible depreciation and amortisation.

Special Regime of Group Taxation

 

Special Regime of Group Taxation

 

Characteristics

The Special Regime of Group Taxation (“RETGS – Regime Especial de Tributação dos Grupos de Sociedades”) allows for the global taxation of a group of companies considering the algebraic sum of the respective positive and negative results.

Taxable profit of the group = Σ individual taxable profit + Σ individual taxable losses
 

Requirements 

  • A company (dominant) holds, directly or indirectly, including through a company resident for tax purposes in a European Union or European Economic Area member state (in the latter case if bounded to administrative cooperation in the field of taxation in similar terms as those applicable in the European Union), at least 75% of the share capital of another company(ies) (controlled entities), and such shareholding grants more than 50% of the voting rights;
  • All group companies are resident for tax purposes in Portugal and are subject to the CIT general regime at the highest CIT rate;
  • The dominant company owns the relevant shareholding for more than 1 year (or from the date of incorporation);
  • The dominant company is not controlled by any other company resident in Portugal;
  • The dominant company has not waived the application of the regime in the three previous years.

The special regime of group taxation does not apply to companies that:

  • have been inactive for more than 1 year or have been dissolved;
  • are undergoing a special procedure of recovery or bankruptcy;
  • have registered tax losses in the previous three tax years (unless companies have been held by the parent company for more than 2 years);
  • are subject to a CIT rate lower than the standard CIT rate and do not waive the application of that lower CIT rate (this option should be maintained for a minimum 3-year period);
  • adopt a tax year different to that of the dominant company;
  • are not incorporated as limited liability company (“Lda - Sociedade por Quotas”), joint stock company (“SA - Sociedade Anónima”), ordinary limited partnership or publicly owned undertakings.

 

Tax obligations

The option to be taxed under the regime should be made:

  • until the end of the 3rd month of the tax year in which the regime shall apply;
  • by filing an electronic standard form with the tax authorities.

Any change to the group should be reported:

  • until the end of the 3rd month of the tax year in which the new companies is to be included in the group;
  • until the end of the 3rd month of the tax year following the one in which a company (or companies) leaves the group as a result of the disposal of the shareholding or of the non-compliance with other requirements, as well as other changes in the composition of the group namely as a result of a merger or a demerger. If the change is the outcome of the ceasing of activities of a company that is part of the group and such closing does not require registration at the Commercial Registry office, such change should be reported to the tax authorities within 30 days from the closing of the activity.

 

Specificities of the regime

Payments on account

While the regime is in place, payments on account are computed based on the taxable profit of the group, deducted from the withholding tax incurred. Payment is made by the dominant company.
 

Additional payment on account 

While the regime is in place, the additional payments on account are computed individually, per each company that is part of the group. Payment is made by the dominant company.

Municipal Surtax 

It is levied on the individual taxable profit of each entity that is part of the group.
 

Tax losses

Taxable losses generated individually by a company that is part of a group are fully deductible to the sum of the taxable profits obtained by the remainder companies that are part of the group, realised in the same tax year. 
 

Limitation on the tax deductibility of net financing expenses 

As a general rule, the tax deductibility of net financing expenses is capped at the higher of € 1 million or 30% of the tax EBITDA. This rule applies individually to each company that is part of a group taxed under the special regime of group taxation, unless there is an option to apply it to the whole group. In that case, the EBITDA tax to consider corresponds to the sum of all companies that are part of the group (this option should be maintained for a minimum 3-year period).
 

Autonomous taxation 

Aggravated autonomous taxation rates apply in case the group has assessed taxable losses. However, in case the group assess taxable profit, none of the companies that are part of the grou pis subject to an aggravated autonomous taxation rate, regardless of individually assessing taxable losses.
 

Withholding taxes 

As a rule, all payments made between companies that are part of a group taxed under the special regime of group taxation are not subject to withholding tax.



Simplified tax regime

 

Simplified tax regime 

Resident taxpayers that are not exempt or subject to a special tax regime and engaged primarily in commercial, industrial or agricultural activities may opt for the simplified tax regime, if the following conditions are met:

  • The gross annual income obtained in the immediately preceding tax year does not exceed € 200,000;
  • The total assets in the immediately preceding tax year do not exceed € 500,000;
  • The entities are not legally obliged to have their accounts audited;
  • Their share capital is not held in more than 20%, directly or indirectly, by entities that do not fulfill any of the conditions foreseen in the previous paragraphs (except if the shareholders are venture capital companies or venture capital investors);
  • The accounting guidelines for micro-entities GAAP as foreseen in Decree-Law nr. 36-A/2011 of the 9th of March are adopted;
  • They have not waived to the application of the simplified tax regime in the three previous years, with reference to the data at which the regime starts to apply.

In the simplified tax regime, the taxable income is assessed as follows:


Income
 

Taxation (coefficients)

Sale of goods, as well as the rendering of services related to restaurants and beverage sectors, hotel and similar activities, except those related to private accommodation activities (house or flat)

0.04 (1)

Income from activities specifically listed in the table mentioned in Article 151 of the Personal Income Tax Code

0.75

Other income arising from the provision of services, as well as operating subsidies

0.10 (1)

Non-operating subsidies

0.30

Income derived from the temporary transfer or use of intellectual or industrial property, know-how related with the industrial, commercial or scientific sector, other capital income, positive income from immovable property, positive balance from capital gains and capital losses and other equity variations

0.95

Acquisition value of assets received for free, assessed in accordance with Article 21 no. 2 of the CIT Code

1.00

Income arising from private accommodation activities (house or flat)

0.35

1) These coefficients as well as the cap mentioned in the following paragraph are reduced by 50% and 25%, respectively, in the first and second years of activity.

The option for the simplified tax regime must be formalized in the statement of commencement of activity (or in the statement of changes), to be filed by the end of the 2nd month of the tax year in which the regime should start to apply.



Rates

 

Rates

 

Cit rates

Entities

Portugal mainland

Madeira

Azores

Resident entities and permanent establishments in Portugal of non resident entities (1) (2)

21%

14.7%

14.7%

Resident entities and permanent establishment of non resident entities, qualifying as small or medium companies (1) (2) (3)

17% (for the first € 25,000 of taxable income)

21% (for the remainder taxable income)

11.9% (for the first € 25,000 of taxable income)

14.7% (for the remainder taxable income)

11.9% (for the first € 25,000 of taxable income)

14.7% (for the remainder taxable income)

Resident entities that do not carry out a commercial, industrial or agricultural activity as their main activity

21%

14.7%

14.7%

(1)   Municipal Surtax may also apply.
(2) State Surtax may also apply.
(3) Micro, small or medium-sized enterprises carrying their activity and having their effective management in inland areas (as established by Decree). The rate applicable to the first € 25,000 of taxable income may be reduced to 12.5%.

 

Autonomous taxation 

Certain expenses incurred or borne by entities subject to CIT are subject to autonomous taxation (1)(2)(3) at the following rates.

Expenses

Rate 2019 (%)

Expenses with light passenger vehicles, light commercial vehicles and motorcycles (see detailed table below)

5 / 7.5 / 10 / 15 / 17.5 / 27.5 / 35

Representation expenses

10

Non-documented expenses

50 / 70

Payments made to entities resident in a clearly more favourable tax regimes or to bank accounts opened in financial institutions resident or domiciled therein

35 / 55

Daily allowances and car mileage paid to employees, for using their own vehicle, not charged to clients

5

Costs or expenses with indemnities resulting from the cease of functions of managers and board members  

35

Costs or expenses with bonus and other variable remunerations paid to managers and board members  

35

Profits distributed to entities wholly or partially exempt from CIT

23

(1) Autonomous taxation rates are increased by 10% when taxpayers realise tax losses in the tax year to which the above facts concern (this rule does not apply in the first and second years of activity).
(2) Included in the temporary COVID-19 tax measures, the 2022 State Budget Law foresees in the 2022 tax year the aggravated 10 pp autonomous taxation does not apply to cooperatives, micro, small and medium sized companies:
- That generated taxable profit in one of any of the three previous tax years, having timely filed the annual tax return and the annual return of tax and accounting information;
- If the 2022 tax year corresponds to the year of commencement of activity or one the two following tax years.
(3) Autonomous taxation may be waived in certain situations and / or provided that certain requirements are met. 

 Autonomous taxation on expenses with vehicles

 

Cost of acquisition / type of vehicle

Plug-in Hybrids*

VNG

Eletric

Other

Acquisition cost lower than € 27,500

5%

7.50%

0%

10%

Acquisition cost between € 27,500 and € 35,000

10%

15%

0%

27.50%

Acquisition cost equal or higher than € 35,000

17.50%

27.50%

0%

35%

*That carry a battery that can be charged using a connection to the power gird, having a minimum electric autonomy of 50 km e official emissions of less than 50gCO2/km.

 

State Surtax / Regional Surtax

 

Rate (%)

Taxable income (€)

Portugal mainland

Madeira

Azores

From 1,500,000 to 7,500,000

3%

2.1%

2.4%

From 7,500,000 to 35,000,000

5%

3.5%

4%

Above 35,000,000

9%

6.3%

7.2%

 

Withholding tax rates(1)


Withholding taxes can be waived or reduced under internal rules, tax treaties or EU Directives, under certain conditions.

Residents and nonresidents 

Income

Residents
(%) (2)

Nonresidents
(%) (3)

Remuneration of board members

21.5

25

Commissions

25

Services

25

Lease of agricultural, industrial, commercial or scientific equipment

25

Technical assistance

25

Dividends

25

25

Interest of bank deposits

25

25

Interest on shareholders loans

25

25

Interest from debt securities

25

25 (4)

Investment income paid or made available to entities resident in blacklisted jurisdictions

N/A

35

Investment income paid or made available in accounts opened on the name of one or more owners but on behalf of third parties not identified

35

35

Income from repurchasing agreements

25

25 (4)

Royalties

25

25

Income from participation units in venture capital investment funds

10

– (5) (6)

Income from participation units in forest resources real estate investment funds

10

– (5) (6)

Income from participation units/shareholdings in real estate investment funds and real estate companies

25

10 (6)

Income from participation units/shareholdings in securities investment funds and securities companies

– (6)

Other investment income

25

25

Rental income

25

25


(1) Under certain conditions, exemption or reduction of the withholding tax rate is possible under domestic law, Conventions for the elimination of Double Taxation or EU Directives.
(2) Payment on account of the final tax due, except in case of investment income paid or made available in accounts opened on the name of one or more owners but on behalf of non-identified third parties.
(3) Flat rate, except in case of rental income.
(4) Exemption available under Decree-Law no. 193/2005, of the 7th November, which provides for the Special Regime of Taxation of Income from Debt Securities.
(5) Withholding tax at a rate of 10% if the beneficiary of the income is held, directly or indirectly, in more than 25% by resident entities or individuals.
(6) Taxation at a rate of 35% if the beneficiary of the income is an entity resident for tax purposes in a jurisdiction subject to a clearly more favorable tax regime.  

Waiving of withholding taxes 

Resident Entities

Depending on the nature of the entity, or of compliance with certain conditions, the applicable withholding tax may be waived.

Nonresidents

Depending on the nature of the entity, or of compliance with certain conditions, the applicable withholding tax may be waived.

Namely, the domestic withholding tax can be waived in case of:

  • Distributed profits and reserves: ownership of at least 10%, direct, or directly and indirectly, of the sharecapital or of the voting rights, for 1 year (among other requirements);
  • Interest and royalties: ownership of at least 25% of the share capital, for 2 years (among other requirements).


Payment


Payment

 

Payments on account

Payments on account are due in July, September and the 15th of December of the respective tax year or Year N (otherwise in the 7th, 9th and until the 15th day of the 12th month of the tax year adopted, if different from the calendar year).

Turnover

Rate (%)

≤ € 500.000

(CIT assessed in N-1 - withholding taxes in N-1) x 80%

> € 500.000

(CIT assessed in N-1 - withholding taxes in N-1) x 95%

If the amount of the payments on account exceeds the CIT due, the taxpayer is entitled to a refund corresponding to that difference.

In case the two first completed payments on account are equal or higher than the final CIT due in that tax year, the taxpayer may decide to limit, or not to make the third payment on account.

 

Additional payments on account 

Additional payments on account (“PAC - Pagamento Adicional por Conta”) are to be paid in three installments in July, September and until the 15th day of December (or in 7th, 9th and until the 15th day of 12th month of the tax year, if different from the calendar year).

Taxable income (previous tax year)

Rate (%)

From € 1,500,000 to € 7,500,000

2.5*

More than € 7,500,000 up to € 35,000,000

4.5**

Above € 35,000,000

8.5***

* 1.8% in the Autonomous Region of Madeira and in the Autonomous Region of the Azores.
** 3.2% in the Autonomous Region of Madeira and in the Autonomous Region of the Azores.
*** 6% in the Autonomous Region of Madeira and in the Autonomous Region of the Azores.

In case the amount of additional payments on account exceeds the State Surtax due, the taxpayer is entitled to a refund corresponding to that difference.

 

Credit for international juridical double taxation

A credit for international juridical taxation is granted, capped at the lower of:

  • foreign tax paid; or
  • portion of CIT, computed prior to the deduction, corresponding to the income earned abroad and subject to taxation, net of costs and loss incurred directly or indirectly.

In case a convention for the elimination of double taxation applies, said deduction cannot exceed the foreign income paid in accordance with such convention.



Tax benefits to resident entities


Tax benefits to resident entities 

Tax Incentive to Recovery (“Incentivo Fiscal à Recuperação” or “IFR”)


CIT taxpayers whose tax year corresponds to calendar year, incurring investment expenses namely in the acquisition of tangible assets, non consumable biological assets and intangibles, are entitled to a CIT credit. The investment period runs from 1 July to 31 December 2022 (the investment period runs from the start of the 7th month until the end of the 12th month of the tax year, in case of entities whose tax year starts after 1 January 2022). There is an overall cap of EUR 5 million for the eligible expenses; the CIT credit available corresponds to:

a) 10% of the eligible expenses incurred in the tax year concerned capped at the average of the eligible investments expenses incurred in the three previous tax years;

b) 25% of the eligible expenses incurred in the tax year concerned, in the amount that exceeds the amount mentioned in a).

Taxpayers starting their activity on or after 1 January 2021 are entitled only to a tax credit of 10% on eligible expenses.
The annual tax credit is capped at 70% of the tax assessed. For companies taxed under the special regime of group taxation the tax credit applies to the tax assessed by the group capped at the individual amount that would apply to each individual company incurring the eligible expenses. The tax credit can be carried forward for 5 years in the case of insufficiency of tax assessed.

The benefit cannot cumulate with any other benefits of the same nature in respect of the same eligible investment expenses.

The taxpayer cannot distribute profits or terminate labour contracts based on collective redundancy or layoff from the first day of the seventh month of the tax period and for a 3-year period.

R&D (SIFIDE II)

SIFIDE II will be in force until 2025, foreseeing a CIT credit for R&D expenses, under the following stated conditions:

  • 32.5% of expenses incurred in the tax year;

  • 50% of the surplus of expenses incurred in the tax year, with reference to the average of the two previous tax years, capped at € 1,500,000.

The percentage of 32.5% is increased by 15% in case of micro, small and medium companies that do not benefit from the 50% surplus rate due to not having completed two years of activity.

The tax credit can be carried forward for 5 years.

Contractual tax regime for investment projects

The contractual tax regime applies until 31 December 2027.

Investment projects may benefit from a CIT credit, ranging from 10% to 25% of the eligible investments, as well as exemptions and reductions from property taxes and exemptions from Stamp Tax. Eligible investments should amount to or exceed € 3,000,000. 

Eligible investment projects should have technical, economic and financial viability and contribute to the creation or maintenance of jobs, as well as meet the following conditions:

  • Regarded as relevant for the strategic development of the national economy; or
  • Contribute to the reduction of regional asymmetries; or
  • Contribute to the fostering of technological innovation and national scientific research, improvement of the environment or to reinforce competitiveness and efficiency of production.

The CIT credit corresponds to 25% of the CIT assessed and up to its full amount.

The tax benefits granted should comply with the maximum limits foreseen for regional state aid in the region of the investment.

Contractual tax benefits cannot be combined with any other tax benefits of the same nature in respect to the same eligible investments. This however does not apply in respect to the benefit of deduction for retained and reinvested profits, provided that the applicable caps are not exceeded.

Tax Regime to Investment Support (RFAI) 

RFAI applies until 31 December 2027.

RFAI applies to relevant investments in fixed assets and intangibles.

A CIT credit is granted according to the eligible region in which investments are made:

Location of the investment

Amount of the investment

% of deduction (of the eligible investment)

Autonomous Region of Madeira

Up to € 1,500,000

35%

 

Above € 1,500,000 (on the remainder)

15%

North, Central region, Alentejo and Autonomous Region of the Azores

Up to € 15.000.000

25%

Above € 15.000.000 (on the remainder)

10%

Algarve, Greater Lisbon, Setúbal península

Regardless of the amount

10%

The CIT credit is capped at 50% of the CIT assessed in each tax period, except in the tax year of commencement of activity and in the following two tax years (provided that the company does not result from a demerger).

Any unused credit may be carried forward for ten years (provided the mentioned cap is not exceeded).

Additionally, exemptions or reductions from property taxes and exemptions from Stamp Tax may be granted on the acquisition of real estate which qualifies as relevant investment.

The mentioned tax benefits should respect the limits applicable to regional aid in force in the region in which the investment is made. RFAI cannot cumulate with other tax benefits of the same nature in respect to the same eligible investments. This however does not apply in respect to the benefit of deduction for retained and reinvested profits, provided that the applicable caps are not exceeded.

Deduction for retained and reinvested profits (DLRR)

The deduction for retained and reinvested profits provided for a tax incentive to micro, small and medium-sized companies. It allows a CIT credit of 10% of the retained profits reinvested in eligible investments within 4 years as from the respective realization. The deduction is capped at € 12,000,000 of retained and reinvested profits, and 25% of the CIT assessed.

Conventional Remuneration of Share Capital (RCCS)

This tax benefit provides for a deduction to the taxable profit of the amount corresponding to 7% of the contributions, up to € 2 million, upon the incorporation of an entity or of an increase in share capital. It applies both to cash or conversion of credits, and the use of profits generated in the relevant tax year.

The deduction to the taxable profit will be made in the tax period in which the contributions are made as well as in the following 5 tax years.

The limitation on the tax deductibility of net financing expenses of the taxpayers that use this benefit shall corresponds to the highest of either € 1 million and 25% of the EBITDA (30%, as a general rule).

Patronage

Donations granted to certain entities engaged mainly in social, cultural, environmental, scientific or technological, sports and educational initiatives are allowed as tax deductible costs of the year, under certain conditions and cap at certain amounts (additional tax deduction are also available).

Madeira

Madeira International Business Center (MIBC) 

The Madeira International Business Center (MIBC) special tax regime allowed licensing of entities until 31 December 2023.

Entities licensed to operate under the IV MIBC special tax regime (IV MIBC regime) are eligible for the following tax benefits:

  • Reduced 5% CIT rate, applicable until 31 December 2027 (on thresholds of taxable income, depending on the number of eligible jobs created);

  • Tax exemption on dividends received and capital gains, under the participation exemption regime (at least 10% ownership, held for 1 year);

  • Withholding tax exemption on dividend distributions to shareholders (with certain exceptions);

  • Withholding tax exemption on interest, service fees and royalties paid to non-resident entities (exceptions apply);

  • Exemption from Stamp Tax, property tax, property transfer tax, regional surtax and municipal surtax and other charges (capped at 80% per tax and per act or period).

  • The overall benefits granted under the IV MIBC regime cannot exceed the highest of:

(i) 20.1% of the annual gross added value generated in the Autonomous Region of Madeira (ARM);

(ii) 30.1% of the annual staff costs incurred in the ARM;

(iii) 15.1% of the annual turnover generated in the ARM.

Autonomous Region of the Azores

Entities resident in the Autonomous Region of the Azores benefit from a CIT credit ranging from 20% to 40% of the profits reinvested in certain fixed assets.

Autonomous Region of the Azores

Entities resident in the Autonomous Region of the Azores benefit from a CIT credit ranging from 20% to 40% of the profits reinvested in certain fixed assets.

Tax benefits to nonresidents

 

Tax benefits to nonresidents

 

Capital gains

Exemption

A CIT exemption applies to capital gains realized by nonresidents on the transfer of:

  • shareholdings in Portuguese resident companies;
  • other securities issued by Portuguese resident companies;
  • autonomous warrants issued by Portuguese resident companies and traded in the stock exchange;
  • derivatives traded in the stock exchange;
  • participation units in Capital Venture Funds traded in the stock exchange.

The positive balance between the capital gains and the capital losses on the sale of participation units is taxed at 10% when the owner of such income, being a non-resident entity, is not exempt.
 

Exceptions:

The above mentioned exemption does not apply in the following circumstances:

  • Entities which are resident in a tax haven;
  • Entities which are held in more than 25% by Portuguese resident companies, except if the seller:

(i) is resident, for tax purposes, in a EU or EEA member state (in the latter case bounded to administrative cooperation in tax matters in similar terms as those of the EU), or in a jurisdiction with which Portugal has concluded a convention for the elimination of double taxation, that is in force and encompasses exchange of information;

(ii) is subject, and not exempt from, a tax mentioned in Council Directive 2011/96/UE, of 30 November, or from a tax identical or with a similar nature to CIT (as long as the applicable legal rate is not lower than 12.60%),

(iii) holds a direct, or direct and indirect participation of at least 10% of the share capital or of the voting rights of the distributing entity during the year prior to the transfer;

  • Disposal of participations in Portuguese companies whose assets are comprised in more than 50% by immovable property located in Portugal;
  • Disposal of participations in non-resident companies, when at any moment during the previous 365 days the value of those participation results directly or indirectly in more than 50% of immovable property or of rights in rem in immovable property located in the Portuguese territory. The exception occurs when immovable property allocated to a specific activity has a commercial, agricultural or industrial nature and it does not consist of purchase and sale of such proprerty.
     

Collective Investment Vehicles (CIV) 

An exemption applies to income realised by non-residents entities, and derived from participation units and shareholdings respectively, in investment funds and investment companies. The same applies to income stemming from participation units in venture capital funds, except if the recipient is resident in a tax haven or is held, directly or indirectly, in more than 25%, by a Portuguese resident entity, in which case withholding tax applies at the rate of 10%. Income from participation units and shareholdings respectively in real estate investment funds and real estate investment companies are subject to withholding tax at the rate of 10%.

Income from participation units and shareholdings in real estate investment funds and real estate investment companies respectively, are subject to withholding tax at the rate of 10%.

 

Special taxation regime for debt securities issued by non-resident entities

Income from public and non-public debt securities issued by non-resident entities, deemed to be obtained in Portugal under the PIT and CIT Codes, benefits from an exemption of PIT and CIT. This exemption applies when the income is paid by the Portuguese State as a guarantor of obligations taken by companies in which the Portuguese State, along with other EU Member States, is a shareholder.

© 2022 PwC. This communication is of an informative nature and intended for general purposes only. It does not address any particular person or entity nor does it relate to any specific situation or circumstance. PricewaterhouseCoopers Tax Services TLS, Lda. We will not accept any responsibility arising from reliance on information hereby transmitted, which is not intended to be a substitute for specific professional business advice.

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