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Corporate income tax (IRC in Portuguese) is regulated by the Corporate Income Tax Code that was approved via Decree Law 442-B/88 of 30 November, which came into force on 1 January 1989. This tax applies to the following entities according to the listed income:

Legal persons with head office or permanent management on Portuguese territory who perform a commercial, industrial or agricultural activity (commercial companies, cooperatives)

General Income/Profit

Legal persons with head office or permanent management on Portuguese territory who perform a commercial, industrial or agricultural activity (associations, foundations, civil societies without legal personality)

Overall Income (sum of the income of the categories in accordance with IRS rules)

Legal persons who are non-residents of Portuguese territory who perform their activity via a permanent establishment (branches)

Profit attributable to the permanent establishment located on Portuguese territory

Legal persons who are non-residents of Portuguese territory without a permanent establishment

Those who pay withholding tax on income earned in Portugal

 

Calculating the amount of payable IRC  

For those entities with a main activity of a commercial, industrial or agricultural nature:

 

Taxable profit

Taxable profit is quantified on the basis of net income for the year calculated in accordance with accounting standards, accrued by the positive changes in assets minus the negative changes in assets not reflected in that result, the adjustments provided for under the Corporate Income Tax Code are accrued or deducted.

 

Taxation base

The taxation base for IRC is calculated by deducting tax losses and benefits from taxable profit that was previously calculated.

 

Payable IRC

The previously calculated taxation base is multiplied by the respective rate (see rates table), thereby obtaining the taxable amount. After applying the deductions, the total amount of IRC owed is obtained. Withholding tax and advance tax payments are then deducted from this amount, resulting in the amount of payable IRC, to which may also be added surcharges and autonomous taxations.

 

Rates

Under the Autonomous Regions Finance Law (Madeira and Azores), these regions may reduce the national IRC rate by as much as 30%. As such, the following rates apply:

 

Mainland

Madeira

Azores

Resident entities and permanent establishments of non-resident entities

21%

14.7% or 5% (IBCM)

16.8%

Resident entities characterized as a small or medium enterprises, on the first €25,000 of the taxation base

17%

11.9%

13.6%

Click here for more information about IRC in Madeira.

 

Payment of IRC

Advance Tax Payments

Entities whose main activity is of a commercial, industrial or agricultural nature and those that are non-residents with a stable establishment in Portugal must pay corporate income tax (IRC) in three advance tax payments due in July, September and 15 December during the year when the taxable profit was earned, or in the case of companies that have adopted a fiscal year that does not coincide with the calendar year, during the 7th month, 9th month and on the 15th day of the 12th month of the respective taxation period. Advance tax payments are calculated on the basis of the tax paid during the tax period immediately before the period when such payments must be made.

Advance tax payments by companies whose turnover during the preceding taxation period is equal to or less than €500,000 are equivalent to 80% of the tax paid during that year divided into three equal amounts rounded up in euros. If turnover is more than €500,000, advance tax payments shall be 95% of the amount of the tax, also divided into three equal amounts rounded up in euros.

If the company ascertains, through information available to it, that the amount of the advance tax payment already made is equal to or greater than the amount owed, it is not required to make the third advance tax payment. Likewise, if the third advance tax payment is greater than the difference between the total tax the company believes it owes and the payments already made, the company may limit the amount of the third payment to that difference. If an amount greater than 20% of the amount that normally would have been paid has not been paid, penalty interest shall apply. 

If the payment is not made within the stipulated time periods, penalty interest shall immediately apply.

 

Special advance tax payment

Those entities with a main activity of a commercial, industrial or agricultural nature, and those that are non-residents with a stable establishment on Portuguese territory must make a special advance tax payment. The advance tax payment shall be made in March or in two instalments in March and October of the year they pertain to, or for companies that have adopted a tax year that does not coincide with the calendar year, during the 3rd and 10th month of the respective tax year.

The amount of the special advance tax shall be equal to 1% of turnover recorded in the previous taxation period, with a minimum limit of €850 and when greater, it is equal to this limit accrued by 20% of the excess amount, with a maximum limit of €70,000. The resulting amount is deducted by advance tax payments made during the previous taxation period.

The special advance tax payment shall not apply to the taxation period pertaining to the start of the professional activity, nor shall it apply to the following one, i.e., it shall only be obligatory in the third year that follows the start of the professional activity. It can be deducted during the taxation period that it pertains to, or if this is insufficient, up until the sixth taxation period that follows.

When the special taxation regime for corporate groupings is applicable, a special advance tax payment is owed for each company of the group, including the dominant company.

If business operations cease during the actual taxation period or up until the sixth taxation period that follows the period that the special advance tax payment pertains to, the part that could not be deducted in accordance with the aforementioned terms, when it exists, shall be reimbursed upon request by the taxpayer, and said request must be made during the 90 days that follow the cessation of operations.

Taxpayers can also be reimbursed for the part that was not deducted if they request such from the Tax Authority within a period of 90 days from the end of that period.

 

Additional advance tax payment 

The additional advance tax payment (PAC) shall be payable by companies that are also required to make advance tax payments (PPC) and special advance tax payments (PEC), and which during the previous taxation period had a taxable profit of over €1,500,000 (i.e., in cases where during the previous taxation period, state or regional surcharges are payable).

PAC must be paid in July, September and on 15 December of the year that the taxable profit pertains to, or if an annual taxation period different from the calendar year has been adopted, in the 7th month, the 9th month and on the 15th day of the 12th month of the respective taxation period, and its final payment shall be made during the periodic income declaration (Form 22 of IRC).

The amount of these payments is equal to the amount that results from application of the rates stipulated in the following table, applicable to the part of taxable profit that exceeds €1,500,000 related to the previous taxation period. Companies headquartered in the Autonomous Region of Madeira benefit from reduced rates, while companies that are registered with the International Business Centre of Madeira (IBCM) benefit from an additional reduction in the additional advance tax payment.

Taxable profit in euros (€)

General Rate (%)

Madeira Rate (%)

IBCM Rate (%)

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

2.5

1.8

0.36

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

4.5

3.2

0.64

Greater than 35,000,000

8.5

6

1.20

 

State/Regional Surcharge

An additional tax, in the form of a State Surcharge is also applicable to the part of taxable profit that exceeds €1,500,000 and is subject to IRC; or, in the case of taxpayers with a head office, permanent administration or stable establishment in the Autonomous Regions of Madeira and the Azores, in the form of a Regional Surcharge, whose rates vary according to taxable profit.

The companies that are established within the scope of the International Business Centre of Madeira as of 2015 shall benefit from lower Regional Surcharge rates for each taxation period with respect to income obtained within the scope of the IBCM and taxed at a rate of 5% (IRC).

As such, the following additional rates shall apply:

Taxable profit in euros (€)

General Rate (%)

Madeira Rate (%)

IBCM Rate (%)

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

3

2.1

0.42

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

5

3.5

0.70

Greater than 35,000,000

9

6.3

1.26

Payment of this tax shall be determined by calculating the difference between the Regional Surcharge owed and additional advance tax payments made during the same taxation period. If the amount of additional advance tax payments made during that taxation period is greater than the amount of Regional Surcharge owed, the difference shall be reimbursed.

 

Municipal Surcharge

Law 73/2013 of 3 September, which establishes the financial regime of the local municipalities and inter-municipal entities, stipulates that municipalities may annually decide to implement a Municipal Surcharge up to a maximum limit of 1.5% on taxable profit, subject to and not exempt from corporate income tax.

The Municipal Surcharge applies to taxable profit before deduction of reportable tax losses. In the municipalities of Lisbon and Porto the Municipal Surcharge rate is 1.5%, and taxpayers whose turnover during the previous year did not exceed €150,000 are exempt. In the municipality of Funchal, where NEWCO has its head office, the Municipal Surcharge rate is 0.5%.

Companies established within the scope of the International Business Centre of Madeira as of 2015 shall be subject to a reduction in the Municipal Surcharge for each taxation period.

To find out more about the rates applicable in other municipalities and any applicable reductions and exemptions, please contact us.

How we help our clients

NEWCO is an inward investment services provider specialized in the implementation of foreign investment in Portugal and Malta. With 30 years of experience and know how, we help our clients maximize the opportunities and minimize the risks of operating in a new country, allowing them to stay focused on their business. Contact us to find out how we can help you invest or relocate into Portugal, including Madeira, or Malta.

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