Portuguese companies are subject to subject to all legislative and regulatory frameworks applicable in Portugal. As such, from the time the company is established and begins its activity it must fulfil a series of obligations and duties, otherwise it shall face serious penalties. Some of the main obligations and duties applicable to the Portuguese companies are set out below.
Portuguese companies must keep accounting records in Portuguese and should be set out according to the accounting standards.
An accountant is responsible for all record books. This accountant must be a certified accountant (member of Câmara de Contabilistas Certificados - the official Portuguese accountants’ society). Portuguese law also requires that all accounting documents are kept in Portugal.
All transactions of companies based in Portugal must be duly reported in the accounts with the originals of the supporting documents.
Our clients must send us all the original supporting documents every month (bank statements, invoices, receipts, contracts and any other document or information relative to any operation implemented) relative to all transactions undertaken by the company, before the deadline for submitting the tax return terminates (see tax calendar).
Incoming invoices must meet the requirements and contain the information provided in Directive 2006/112/EC, as amended by Directive 2010/45/CE.
Non-compliance with the statutory deadlines referred to above or any amendments that imply the correction of already submitted tax returns, will generate heavy fines payable by our clients.
Correct form for invoices
Companies’ invoices must comply with specific accounting rules and the physical invoice cannot simply be produced by a word processor. Invoices must be issued by a computer invoicing software – in which case the same must contain the Portuguese expression “Processado por computador” (“Computer Processed”) – duly authorised by the Portuguese tax authorities.
Invoices must be dated, sequentially numbered and contain the following elements:
a) The names, firm or corporate name and registered office or domicile of the supplier of goods or service provider and the recipient or purchaser, as well as the corresponding tax identification numbers of taxable entities;
b) The quantity and usual designation of the goods supplied or services rendered, specifying the data required to determine the applicable rate; packages not actually traded should be referenced separately, with expressed mention that its return was mutually agreed upon;
c) The price, net of tax, and other elements included in the taxable amount;
d) The applicable rates and total amount of tax due;
e) The reasons justifying the non-application of the tax, if applicable;
f) The date on which the goods have been made available to the buyer, in which the services were performed or where payments were made prior to the transactions, if that date is different from the invoice issue date.
In cases where the transaction or transactions to which the invoice relates, include goods or services subject to different tax rates, the elements mentioned in b), c) and d) above should be listed separately at the applicable rate.
Invoices must be issued by the 5th day following the time when VAT is due (as soon as the goods or services are made available to the buyer) and must be issued at least in duplicate. In the provision of taxable services in another EU Member State, invoices shall be issued until the 12th day of the month following that in which the tax is due.
The details of the invoices must be reported to the VAT Administration, by electronic data transmission. For that purpose, The SAF-T invoicing file that must be submitted to the tax authorities no later than the 12th of the month following that to which it relates.
When issuing invoices (or their equivalent) and sales slips, taxpayers should use invoicing software that has been duly certified by the tax authorities (Autoridade Tributária - AT). Invoices and their equivalent can be filed electronically as long as they have been processed by computer.
Non-compliance with the abovementioned rules leads to specific fines being levied.
- Annual turnover greater than € 3,000,000;
- Total balance sheet value above € 1,500,000;
- Total number of employees exceeds 50.
Registration of accounts
The registration of companies accounts is subject to compulsory registration in the respective Commercial Registry.
The application for registration of the accounts must be made until the 15th July.
Failure to comply with the registration of the accounts, precludes the registration of any facts about the company, except the appointment and removal from office of directors and supervision, for any reason other than the passage of time, administrative authority decisions, court actions, decisions, procedures and provisional measures, including seizure, pledge of shares or quotas or other rights over them, and other acts or measures affecting the free disposal and any other deposit registrations.
Companies that, for two consecutive years, fail to comply with the registration of accounts, are subject to an administrative procedure of dissolution and liquidation of the company.
Compulsory requirement to use bank accounts
All transactions of companies in Portugal must be duly reported in one or more bank accounts exclusively assigned to the associated business activity. All transactions relating to capital contributions, loans or advance payments from shareholders must be made through such accounts. Other transactions from or to companies must also be made through these accounts.
Payment of invoices or similar documents greater than € 1,000 must be carried out by using payment methods that allow the recipient to be identified, namely by current account cheque or bank transfer.
Portuguese banks will always request a copy of the supporting documents for any transaction above €12,500.
We suggest to our clients, in order to comply with the requirements stated above, that all company transactions are duly documented and reported in the respective bank accounts.
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 taxation period immediately before the period when such payments must be made, net of deducted withholding tax not subject to compensation or refund.
Advance payments by companies whose turnover during the taxation period immediately preceeding the period when such payments must be made 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.
Companies are not required to make advance tax payments when the tax of the immediately preceeding taxation period is less than € 200.
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 payments
Companies engaged, primarily, in commercial, industrial or agricultural activities, as well as non-residents with permanent establishment on Portuguese territory, are subject to a special advance tax payment, paid during March or in two installments during March and October of the year to which it relates to or, in the case of companies that have adopted a fiscal year that does not coincide with the calendar year, during the 3rd and 10th month of the respective fiscal year.
The special advance tax payment corresponds to an amount equal to 1% of turnover for the previous tax year, with the minimum of € 850 and, when surpassed, the payment shall be equal to this minimum amount plus 20% of the excess, with a ceiling of € 70.000. To the amount discharged, advance payments made in the previous tax year can be deducted.
Companies licensed to operate within the International Business Centre of Madeira as of the 1st of January 2015 benefit from a reduction of the special advance tax payment, in proportion to the applicable corporate tax rate (in this case, a reduction of 76,2%).
The special advance tax payment is not applicable on the first two tax periods (start-up and the next), i.e. only on the third year after the start of the company’s activity there is an obligation to make such payment.
When the special tax regime for groups of companies is applicable, the special advance tax payment is due by each of the group companies, including the dominant one.
The special advance tax payment can be deducted in the same tax period to which it relates or, if insufficient, until the next six tax periods.
In case of cessation of activity in the same tax period or until the following six tax periods to which the special advance tax payment refers to, what could not have been deducted as described above is refunded upon request, within 90 days following the cessation of activity.
Companies may also be reimbursed from what was not deducted upon request to the Tax Administration, within 90 days following the end of that period.
Employment compensation fund
The Employment Compensation Fund (ECF), the Equivalent Mechanism (EM) and the Employment Compensation Guarantee Fund (ECGF) are funds that have been created to ensure employees receive at least half the amount of the severance payment they are entitled to upon termination of their employment contract. If the employer does not provide the severance payment upon termination of the employees’ contracts, the WCGF will pay the worker half of the compensation owed, upon the employee’s request. If payment is made, or if compensation is not owed upon termination of the contract, the employer shall be entitled to be reimbursed for all amounts paid, including any increase.
The creation of these funds has led to new obligations for declarations and contributions by employers for job contracts begun after 1 October 2013.
The employer can join the Employment Compensation Fund by completing a declaration found at the website: www.fundoscompensacao.pt when the first worker is hired.
The employer must include the employees in the ECF on or before the start date of the employment contracts. After signing the first employment contract covered by the ECF, the employer sends details of all new hirings to include them in the ECF and in the ECGF. The employer must advise ECGF of all new hirings on or before the start date of the employment contracts.
The employer shall send all employer and employee identification information and employment contract information that has been signed, along with any changes made to such information to www.fundoscompensacao.pt within five days. Any updates to the basic amount and seniority payments after respective changes are made to these amounts must be sent prior to when the effects of such changes take effect.
The amount that the employer pays the ECF is 0.925% of the basic wage and seniority payments payable to each employee who is covered.
The amount that the employer pays to the ECGF is 0.075% of the basic wage and seniority payments payable to each employee who is covered.
Payments are due as of the start of each employment contract and until it terminates, except for periods when there is no counting of seniority. They shall be paid on a monthly basis, 12 times per year and they take into account 12 basic monthly wages and seniority payments per employee that is covered. Payments shall be made within the scheduled time periods for paying contributions and dues (between the 10th and 20th of each month) as regards to the previous month.
The employer shall use the website www.fundoscompensacao.pt to validate the payable amount and this validation shall issue a payment document that contains the ATM reference number, time period and amount payable, which includes the part for ECF and the part for ECGF.
Payments can be made by ATM, electronic transfer or homebanking.
Failure to comply with these rules shall entail payment of interest, plus default payment penalties. Lack of voluntary payment of amounts owed after 3 months shall imply legal action.
Instead of going for the WCF, employers can opt for the EM, where he shall be bound to grant the employee a guarantee equal to that which would have resulted if the employee had been linked to the WCF. The EM can only be created by the employer regarding institutions that are subject to Bank of Portugal supervision, as long as they are legally authorized to manage and market this instrument.
These funds are regulated by the following legal instruments:
- Law 70/2013 of 30 August;
- Decree-Order 294-A/2013 of 30 September;
- Regulation 390-A/2013 of 14 October;
- Regulation. 390-B/2013 of 14 October.
Within the scope of the services that it supplies to its clients, NEWCO guarantees its clients compliance with these obligations, advising that all accounts and all other compliance of its clients’ companies should always be entrusted to NEWCO.
Reporting of inventories
Companies that are required to take inventory must report to the Tax Authorities an inventory of stock quantities as they exist at 31 December. This information must be sent no later than 31 January in electronic format in a file with pre-defined structure and characteristics.
Deduction of tax losses
Tax losses calculated during a particular year can be deducted from taxable profits during one of the 5 subsequent years if they exist. They shall be deducted on a first-in first-out basis (FIFO method). However, this deduction is limited to 70% of the taxable profit calculated during the respective year.
If at the end of the taxation period when the deduction is made it is determined that in relation to the period of the losses there has been a change in ownership of more than 50% of the shareholder capital or a majority of the voting rights, a deduction shall no longer be possible, unless the following conditions exist:
- the change in ownership results in a change from direct ownership to indirect ownership or from indirect to direct ownership;
- the change results from operations performed within the scope of the special regime applicable to mergers, divisions, contributions of assets and exchange of shares;
- change in ownership takes place due to succession;
- the purchaser has uninterruptedly directly or indirectly held more than 20% of shareholder capital or the majority of voting rights of the company since the start of the taxation period that the losses pertain to;
- the purchaser has been an employee or governing body member of the company at least since the beginning of the taxation period that the losses pertain to.
In cases of recognized economic interest and subject to request submitted to the Tax and Customs Authority, authorization may be given not to apply this limitation.
If there are objective indicators that a company is no longer active although it still legally exists, the State may initiate the process of compulsory administrative dissolution and liquidation of the company.
The law provides for compulsory dissolution of companies that have not performed any business activity for two consecutive years. Likewise, if the tax authority notifies the relevant registration body that the company has in fact been inactive or makes the compulsory declaration of terminated activity, as per applicable tax legislation, the company shall also undergo compulsory dissolution. In addition, the relevant registration body is compelled to undertake the administrative dissolution procedure when for two consecutive years the company has not submitted financial statements and the tax authority has communicated to the relevant registration that no income tax returns were filed for the same period.
Obligations in the cessation of business activities
The cessation of activity occurs:
- For entities with head office or place of effective management in Portuguese territory, on the date of closure of the liquidation, or on the date on which the conditions of liability to tax in Portugal cease to exist;
- For entities that have neither head office nor effective management in Portuguese territory, on the date on which they cease to exercise their activity through a permanent establishment or cease to obtain income in Portuguese territory.
Portuguese companies must submit the declaration of cessation of activity within 30 days from the date of cessation.
Within the same period, the income declaration must be sent for the tax period in which it occurred, regardless of whether that day is a working day or not. This time limit also applies to the sending of the declaration for the immediately preceding tax period, when the respective deadlines have not yet elapsed.
The annual declaration of accounting and tax information, in the event of cessation of activity and relating to the tax period in which it occurred, must be sent within the same period, 30 days from the date of cessation of activity. This deadline also applies for the submission of the declaration relating to the immediately preceding tax period, when the respective deadlines have not yet elapsed.
Portuguese companies are obliged to keep in good order, during the 10-year period, a tax documentation file for each tax period, with various accounting and tax elements.
In addition, when the company is liquidated, the partners have to appoint a custodian of the books, documents and other elements of the company's bookkeeping, which must be kept for a period of five years.
At the time of registration of the liquidation or cessation of activity, as the case may be, the representative residing in national territory must be compulsorily appointed for tax purposes, for compulsory communication to the tax administration services.
NEWCO is available to provide these services to its clients, maintaining the tax documentation process for 10 years and appointing both a custodian and the representative for tax purposes.