Tax System in Portugal

In Portugal, there are the following taxes:

  • Corporation:
    • Corporate income tax (IRC) with a basic rate of 21% (up to 15.000 euro 17%),
    • Local tax (Derrama) at a rate dependent on the municipality, up to 1.5%,
    • Additional tax rate for companies with higher profit (3%: 1.5-7.5 m € and 5% over 7.5 m €)
  • Individuals (IRS):
    • Tax rates from 14.5% to 48.0%,
    •  Additional IRS rates: 3.5% for income above 6,790 euros, 2.5% for incomes above 80,000 euros, 5.0% for income above 250,000 euros,
  • Value Added Tax (VAT): rates from 4% to 23%,
  • Tax on real estate transactions (IMT) with rates ranging from 0% to 8%,
  • Property Tax (IMI) with rates from 0.3% to 7.5%,
  • Stamp duty (IS) with rates from 0.04% to 35%.

Corporate income tax (IRC)

The basic rate is 21% IRC.

Annual tax report must be submitted by the end of May, or, when the tax year is different from the calendar year, to the last day of the fifth month following the end of the tax year.

Advance payments of the tax calculated on the basis of the corporate tax from the previous year and are payable within one year. Deadline for submission of the annual tax return is also the date of final settlement of tax payments.

If the fiscal year equals the calendar year, the tax is paid in advance in installments in July, September and December to 15, when the fiscal year differs from the calendar year, the tax is payable by the end of the seventh month, ninth month and 15 day of the twelfth month of the tax year.

From the third year of operations it is required to pay “special” advance payments (PEC), of 1% of the turnover in the preceding period. At least 1,000 euros.

Tax losses are to be deducted from the taxable income in the next four to six years, depending on the year in which they occurred. )
In Portugal there is no settlement of tax losses from income earned in the previous year(s) before losses (ie. loss carry back).

Income tax on individuals (IRS)

The tax is calculated according to progressive rates, depending on the level of the amount of the tax threshold. Income tax is charged on the amount of income, after taking into account deductions and tax credits.

Certain categories of income are subject to withholding tax. In certain cases the withholding tax is the final tax burden.

IRS rates in 2015:

Revenue in euro Tax rate Amount to be deducted

< 7.000 14.50%
> 7000 <20,000 28.50% 980,00
> 20,000 <40,000 37.00% 2.680,00
> 40,000 <80,000 45.00% 5.880,00
> 80,000 48.00% 8.280,00

To this it is necessary to add additional IRS rates, that continue in force in 2015.

Value Added Tax (IVA)

VAT taxation system in Portugal is based on the EU directive, which is used by all of its member states.

In mainland Portugal there are three tax rates of VAT:

    – 6%: food, public transport, medical products and services of hotel accommodation,
    – 13%: Delivery of flowers, some groceries,
    – Standard 23%

VAT rates in Madera are respectively 22%, 12% and 5%, and in the Azores: 16%, 9% and 4%.

Exempt from VAT: Insurance, education, finance, health care.

The right to deduct VAT is dependent on the type of activities performed by the operator, the right to full deduction exists only when there exist VAT taxable activities.

Depending on the level of turnover of VAT declarations there are two possible ways of VAT reporting:

    – monthly: the declaration until the 10th of a month +2, or
    – quarterly: the declaration until the 15th of the month +2 after each quarter.

Property Taxes

COST OF BUYING REAL ESTATE IN PORTUGAL

Buying and owning property in Portugal is associated with the need to incur the following costs:

1. The real estate transaction tax – IMT (Imposto Municipal sobre as Transmissões).

In the first transaction of the real estate, the amount of tax charged is as follows (mainland Portugal):

The value of property acquired – marginal tax rate of IMT:
Up to € 92,407 0%
From € 92,407 to € 126,403 2%
From € 126,403 to € 172,348 5%
From € 172,348 to € 287,213 7%
From € 287,213 to € 574,323 8%
Above € 574,323 6%
   
In the case of another real estate deal, holiday property or for rent, the amount of tax charged, is as follows:

The value of property acquired marginal tax rate of IMT
Up to € 92 407 1%
From € 92,407 to € 126,403 2%
From € 126,403 € to € 172,348 5%
From € 172,348 to € 287,213 7%
From € 287,213 to € 550,836 8%
Above € 550,836 6%
   
The IMT tax, for transfer of ownership of land and buildings classified as agricultural, it is of 5%. Other situations: IMT of 6.5%.

2. Stamp duty – IS (imposto to Selo): 0.8% of the value of the real estate.

3. Local property tax – IMI (Imposto Municipal sobre Imóveis), is determined by the cities and municipalities. The maximum rates of tax payable in relation to the cadastral value of the property (VPT) are:
    a) 0.8% of the property classified as agricultural;
    b) 0.3% to 0.5% of real estate classified as construction.

4. The annual stamp duty – IS (Imposto to Selo): the rate of 1% for the real estate with cadastral value of the property (VPT) of over 1.000.000 €.

5. Notary, which usually does not exceed 250 €.

6. Fee or commission of the agent (if the buyer decides to have his services) – depends on the amount of the transaction and the specific contract.

7. The costs of the registry in “Real Estate Registration Office” (Registo Predial): about 250 €.

Prepared by Tomasz Litwiński
Statutory Auditor, Tax Advisor
www.litwinski.pt
Lisbon, January 2015