Taxation of individuals

Resident individuals are taxed on income wherever they are produced, while non-residents are taxed only on Portuguese sources of income. A natural person is considered to be a resident if he remains in Portugal for at least 183 days within a 12-month period. Individuals who were not resident in Portugal in any of the five tax years prior to moving there can apply for special non-habitual tax residency status.
Married persons are taxed separately, but may choose to file a joint tax return unless one of the spouses is a non-resident.

  The types of income subject to personal income tax are: income from employment, professional and business income, investment income, real estate income, increases in equity and pensions. Investment income (interest, dividends, capital gains, royalties) and real estate income are subject to a flat rate of 28%. The remaining income is taxed at progressive rates. There are deductions for health and school expenses, as well as personal tax credits of varying amounts, depending on the number of family members.

The income of individuals is taxed on the basis of progressive rates from 14.5% to 48%. A 2.5% surcharge applies to receipts between 80,000 and 250,000 euros. For incomes exceeding 250 thousand euros, the additional rate is 5%.

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Social Contribution

Social security contributions are shared by the employee and the employer. Contributions are payable on the employee's gross salary at rates of 11% and 23.75% respectively by the employee and the employer. These contributions cover family, pension and unemployment benefits.

Non-residents can be exempted from social security in Portugal if they contribute to a compulsory social security system in a European Union (EU) country or in a country that has a bilateral social security agreement with Portugal, provided they are in possession of the relevant certificate of coverage.

In addition to social security contributions with a general rate of 23.75%, employers must take out an insurance policy to cover accidents at work. The premium varies according to the job and the risk classification.

The contribution rate applicable to self-employed workers is 21.4%. The monthly contribution base for self-employed workers corresponds to 1/3 of the relative salary determined in each reporting period and takes effect in that month and in the following two months. To determine the relative remuneration of the self-employed worker, the income received in the three months preceding the reporting month is considered. The relative remuneration corresponds to 70% of the amount of the services rendered and 20% of the revenues relating to the production and sale of the products.

A contribution rate of 10% is payable by employers if 80% or more of the remuneration received by the self-employed person comes from services for the same company, for the same person with an entrepreneurial activity or for the same group. A contribution rate of 7% is payable by employers when the economic dependence of the self-employed worker varies between 50% and 80%. The contribution is due after the social security institutions issue an assessment notice.

Taxation of legal persons

A company is resident if it has its registered office or place of effective management of the business in Portugal. Resident companies are subject to tax on profits wherever they are produced; non-resident companies are taxed only on profits produced on Portuguese territory. Permanent establishments of non-resident companies are only taxed on Portuguese-sourced profits.
Expenses are deductible to the extent that they are necessary to generate taxable income and are properly documented.
Small businesses can benefit from a simplified tax regime, whereby taxable income is determined as a percentage (depending on the activity) of turnover.
Realized capital gains are included in the calculation of taxable profits for corporation tax purposes, but capital gains on the sale of shares may be exempt.
The standard corporate tax rate is 21%. A reduced rate of 17% is applied to the first 15 thousand euros of profits. A state surcharge is applied to taxable profits at the following rates:

• 3% for profits over 1.5 million euros and up to 7.5 million euros,

• 5% on profits above 7.5 million euros and up to 35 million euros,

• 9% on profits exceeding 35 million euros.

A municipal surcharge is levied on taxable profits at rates of up to 1.5%, depending on the municipality, resulting in a combined maximum possible rate of 31.5%.
Transfer pricing rules generally follow OECD guidelines. Tax authorities can make price adjustments if there are special relationships between the parties.
Specific restrictions apply to the tax deductibility of interest expense (thin capitalization). Financial costs are deductible only up to the higher of 1 million euros or 30% of the gross operating margin. The amount that exceeds the limit in a given year can be carried over for the next five years, up to the 30% threshold.

 
Value Added Tax - VAT

Value added tax is generally levied on the supply of goods and services and on imports. For the mainland the following rates apply:

• Standard rate: 23%

• Rate 13%: some food products; admission to certain cultural events; restaurant and bar; some agricultural supplies; wine; mineral water; diesel for agriculture.

• Rate 6%: some food products; water supplies; some pharmaceutical products; medical equipment for the disabled; car seats for children; Baby diapers; national passenger transport; some books (excluding e-books); some newspapers and periodicals; TV license; social housing; renovation and repair of private homes; some agricultural supplies; hotel accommodation; some social services; some medical and dental treatment; collection of household waste, minor repairs of bicycles; home care services; fruit juices; firewood; flowers and plants for decorative use and food production; construction work on new buildings; some legal services.

The rates  are 22%, 12% and 5% in Madeira, and 18%, 9% and 4% in the Azores.

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Real estate tax  
A real estate tax is levied annually by municipalities. The rates range from 0.3% to 0.8% of the taxable value of the property and the amount is deductible for corporate tax purposes. A rate of 7.5% is applied if the owner of the real estate property is located in one of the jurisdictions considered "tax havens", or privileged tax regimes, by Portuguese law.
Entities or individuals owning residential property or building land are subject to an additional real estate tax, the tax base of which is the sum of the tax value of all properties owned.

Stamp duty
Without prejudice to exemptions, stamp duty is levied on various types of agreements, deeds and documents, as well as on certain transactions not subject to VAT, such as the acquisition of real estate, leases and subleases, loans, guarantees and other transactions financial, insurance premiums and certain bets.

Transfer tax
The real estate transfer tax is applied by municipalities with a maximum rate of 6% for the transfer of residential properties, 5% for the transfer of rural properties, 6.5% for the transfer of other urban properties and 10% if the buyer is in a privileged tax regime.

Other forms of taxation
Companies operating in certain sectors are subject to special taxes, such as the extraordinary contribution on the energy sector, the contribution of the banking sector or the extraordinary contribution of the pharmaceutical industry. Various environmental taxes apply, including a plastic bag tax. Tax incentives are provided for the purchase of electric and hybrid cars. There are different types of excise duties, such as the oil and energy tax, the alcohol and alcoholic beverages tax, the tobacco tax and the vehicle tax. The tax applicable to vehicles varies according to the type, fuel used, CO2 emissions and engine capacity of the vehicle. The higher tax is applicable to passenger cars that use petrol as fuel and the lower tax is applicable to motorcycles.

Declarations, instrumental obligations and payment of taxes
Individual tax returns must be filed between April 1st and May 31st of the following year. The payment of the tax is due by 31 August of the year following that to which the income refers.
Monthly VAT returns must be submitted when the annual turnover exceeds 650 thousand euros (otherwise the quarterly return is sufficient) by the tenth day of the second month following the reference month.
Quarterly returns must be submitted by the fifteenth day of the second month following the reference quarter.
The annual declaration of legal persons must be submitted by electronic transmission of data by the last day of May of the year following that in which the income is accrued. If the fiscal year ends on a date other than December 31, the annual return must be submitted by electronic data transmission by the last day of the fifth month following the end of the year.