Portugal's corporate tax system, known as IRC (Imposto sobre o Rendimento das Pessoas Coletivas), applies to all companies and other legal entities with their registered office or place of effective management in Portugal. The standard rate of 21% positions Portugal in the mid-range among EU member states, while the 17% reduced rate for SMEs on the first EUR 50,000 of taxable profit provides meaningful relief for smaller businesses. Combined with municipal and state surcharges, the effective tax burden depends significantly on the company's size, location, and eligibility for special regimes.
This guide covers the complete IRC framework as of 2026, including rates, surcharges, advance payments, deductions, loss carry-forwards, and filing obligations.
For VAT obligations, see our guide on Portugal VAT (IVA) Guide. For special tax regimes, see Portugal NHR Tax Regime and Madeira International Business Centre.
IRC Tax Rates
Standard Rate
The standard IRC rate is 21%, applicable to taxable profit of all resident companies. This rate applies to the worldwide income of companies with their registered office or place of effective management in Portugal.
SME Reduced Rate
Companies certified as PME (Pequena e Media Empresa) by IAPMEI benefit from a reduced rate of 17% on the first EUR 50,000 of taxable profit. Profit exceeding EUR 50,000 is taxed at the standard 21% rate.
To qualify for PME status, the company must meet all of the following criteria:
- Fewer than 250 employees
- Annual turnover not exceeding EUR 50 million, or total balance sheet not exceeding EUR 43 million
- Not more than 25% owned by entities that do not qualify as SMEs
- PME certification obtained through IAPMEI's online platform
Autonomous Regions
Companies operating exclusively in the autonomous regions of Madeira and the Azores benefit from reduced IRC rates:
| Region | Standard Rate | SME Rate (first EUR 50K) |
|---|---|---|
| Mainland Portugal | 21% | 17% |
| Madeira | 14.7% (30% reduction) | 11.9% |
| Azores | 14.7% (30% reduction) | 11.9% |
| Madeira Free Zone (MIBC) | 5% | 5% |
The 30% reduction for the autonomous regions of Madeira and the Azores applies automatically to companies that conduct their activities exclusively within those regions. A company registered on the mainland that also has operations in Madeira or the Azores must apportion its taxable profit between regions, with the reduced rate applying only to the portion attributable to the autonomous region. The Madeira International Business Centre (MIBC) offers an even more favorable 5% rate but requires specific licensing and substance requirements. See our dedicated guide on the Madeira International Business Centre for eligibility criteria.
Surcharges
Derrama Municipal
The Derrama Municipal is a local surcharge levied by each municipality on the taxable profit of companies with activities in their territory. The maximum rate is 1.5% of taxable profit. Each municipality sets its own rate annually, and many municipalities in less developed regions set the rate at 0% or a reduced percentage to attract businesses.
Major city rates (approximate, as rates are set annually):
- Lisbon: 1.5%
- Porto: 1.5%
- Braga: 1.5%
- Coimbra: 1.5%
- Funchal (Madeira): 1.5%
Companies operating in multiple municipalities must apportion the Derrama based on the proportion of payroll costs in each municipality.
Derrama Estadual (State Surcharge)
The Derrama Estadual is a progressive surcharge applicable to companies with taxable profit exceeding EUR 1.5 million:
| Taxable Profit Bracket | Surcharge Rate |
|---|---|
| Up to EUR 1,500,000 | 0% |
| EUR 1,500,001 to EUR 7,500,000 | 3% |
| EUR 7,500,001 to EUR 35,000,000 | 5% |
| Above EUR 35,000,000 | 9% |
Effective Tax Rate Summary
For a mainland company in Lisbon with varying profit levels:
| Annual Taxable Profit | IRC Rate | Derrama Municipal | Derrama Estadual | Effective Rate |
|---|---|---|---|---|
| EUR 30,000 (SME) | 17% | 1.5% | 0% | 18.5% |
| EUR 100,000 (SME) | 17%/21% blended | 1.5% | 0% | ~21.5% |
| EUR 500,000 | 21% | 1.5% | 0% | 22.5% |
| EUR 3,000,000 | 21% | 1.5% | 3% (on excess) | ~23.5% |
Understanding the combined effect of IRC, Derrama Municipal, and Derrama Estadual is essential for accurate tax planning. A company with EUR 50,000 in taxable profit that qualifies as an SME in Lisbon faces an effective rate of approximately 18.5%. The same company without SME certification would face 22.5%. Over a decade, this difference compounds substantially. PME certification through IAPMEI is free and should be obtained by every eligible company as a matter of course.
Taxable Income Calculation
Revenue Recognition
Taxable income is calculated starting from the accounting profit determined under Portuguese accounting standards (SNC - Sistema de Normalizacao Contabilistica), with adjustments required by the IRC Code. Revenue is generally recognized on an accruals basis, meaning income is taxed in the period it is earned, not when payment is received.
Deductible Expenses
Business expenses are generally deductible if they are incurred wholly and exclusively for the purpose of generating taxable income. Common deductible expenses include:
- Employee salaries and benefits (including the mandatory 13th and 14th month payments)
- Social security contributions (employer's 23.75% share)
- Rent and utilities
- Professional services (accountants, lawyers, consultants)
- Marketing and advertising
- Depreciation and amortization (using official rates published by the tax authorities)
- Bad debts (subject to specific conditions and time limits)
- Interest on business loans (subject to thin capitalization rules)
Non-Deductible Expenses
Certain expenses are specifically disallowed or limited by the IRC Code:
- IRC itself and any surcharges
- Fines, penalties, and interest on tax debts
- Costs not documented with proper invoices
- Excessive executive compensation (above market rates)
- Entertainment expenses (only 50% deductible, subject to autonomous taxation)
- Vehicle expenses for passenger cars (subject to limits based on vehicle value)
- Expenses related to tax haven jurisdictions (unless the taxpayer demonstrates the transaction has economic substance)
Autonomous Taxation
Portugal applies autonomous taxation (tributacao autonoma) to certain expense categories at specific rates, regardless of whether the company is profitable:
| Expense Category | Tax Rate |
|---|---|
| Undocumented expenses | 50% (70% if tax-exempt entity) |
| Entertainment expenses | 10% |
| Passenger vehicle expenses (acquisition value up to EUR 27,500) | 10% |
| Passenger vehicle expenses (EUR 27,500 to EUR 35,000) | 27.5% |
| Passenger vehicle expenses (above EUR 35,000) | 35% |
| Payments to tax haven entities | 35% (55% if not substantiated) |
| Bonuses to managers/directors above EUR 27,500 | 23% (if no variable remuneration policy) |
Companies reporting tax losses see these rates increased by 10 percentage points.
Loss Carry-Forward
Tax losses can be carried forward for a period of 12 years (extended from 5 years in recent reforms). However, the deduction of carried-forward losses is limited to 65% of the taxable profit of the year in which the deduction is made. This means that even with significant accumulated losses, a company will always pay some IRC on profitable years.
Loss carry-back is not permitted under Portuguese tax law.
The 12-year loss carry-forward period is generous by European standards and particularly beneficial for startups and capital-intensive businesses that may incur losses in their early years. However, the 65% utilization limit means that a company with EUR 1 million in carried-forward losses and EUR 100,000 in current-year profit can only offset EUR 65,000 of losses, resulting in taxable profit of EUR 35,000. Companies should factor this limitation into their long-term tax planning, particularly when structuring investment programs or expansion phases that are expected to generate initial losses.
Tax Incentives and Benefits
SIFIDE II (R&D Tax Credit)
The SIFIDE II program provides a tax credit for research and development expenditure:
- Base rate: 32.5% of eligible R&D expenditure
- Incremental rate: 50% of the increase in R&D expenditure compared to the average of the two previous years
- Maximum incremental credit: EUR 1.5 million
RFAI (Investment Tax Incentive)
The RFAI program offers tax credits for productive investments in certain regions:
- 25% of investments up to EUR 15 million
- 10% of investments above EUR 15 million
- Applicable to investments in tangible and intangible fixed assets in eligible regions
Patent Box
A 50% exemption on income derived from the licensing or transfer of patents, industrial designs, and software copyrights registered with the relevant authorities. The exemption applies to net income after deducting costs directly attributable to the intellectual property.
DLRR (Deduction for Retained and Reinvested Earnings)
SMEs can deduct up to 10% of retained and reinvested earnings from their taxable profit, up to EUR 12 million. The investment must be made in eligible tangible fixed assets within three years.
Filing Obligations
Annual IRC Return (Modelo 22)
The annual IRC return must be filed electronically through the Portal das Financas by the last business day of May of the year following the tax year (for companies with a January-December fiscal year). Companies with a non-calendar fiscal year must file within five months of the end of their fiscal year.
Annual Information Declaration (IES/DA)
The IES (Informacao Empresarial Simplificada) is a combined annual filing that satisfies obligations to the tax authorities, commercial registry, statistics office (INE), and Bank of Portugal. It must be filed by July 15 of the year following the fiscal year.
Advance Payments (Pagamentos por Conta)
Companies must make three advance payments of IRC during the tax year, based on the previous year's tax liability:
| Payment | Due Date | Amount |
|---|---|---|
| First payment | July 31 | One-third of total advance |
| Second payment | September 30 | One-third of total advance |
| Third payment | December 15 | One-third of total advance |
The total advance payment is:
- 80% of the previous year's IRC for companies with turnover up to EUR 500,000
- 95% of the previous year's IRC for companies with turnover above EUR 500,000
Companies in their first year of activity are exempt from advance payments.
Additional Payment on Account (Pagamento Adicional por Conta)
Companies subject to the Derrama Estadual must also make additional advance payments in three installments (same dates as regular advance payments), calculated based on the previous year's Derrama Estadual liability.
SAF-T Reporting
All companies must maintain their accounting records in a SAF-T (Standard Audit File for Tax Purposes) compliant format. Monthly SAF-T files for invoicing must be submitted to the tax authorities by the 5th of the following month. The annual SAF-T accounting file must be submitted together with the IES.
Withholding Tax
Dividends
Dividends paid by Portuguese companies are subject to withholding tax at the following rates:
- To resident individuals: 28%
- To EU/EEA corporate shareholders (holding 10%+ for 12+ months): 0% (EU Parent-Subsidiary Directive)
- To non-resident companies (no treaty): 25%
- To non-resident companies (with treaty): Typically 5-15% depending on the treaty
Interest and Royalties
- Interest paid to non-residents: 25% (reduced under tax treaties)
- Royalties paid to non-residents: 25% (reduced under tax treaties)
- EU Interest and Royalties Directive may eliminate withholding between associated companies in EU member states
Transfer Pricing
Portugal follows OECD Transfer Pricing Guidelines. Companies must document transactions with related parties using the arm's length principle. Transfer pricing documentation requirements apply to companies exceeding certain thresholds, and the documentation must be available by the tax return filing deadline.
Companies with annual net revenue exceeding EUR 3 million must prepare and maintain a transfer pricing file. The Country-by-Country Reporting (CbCR) requirement applies to multinational groups with consolidated revenue exceeding EUR 750 million.
Tax Calendar Summary
| Obligation | Deadline |
|---|---|
| Monthly SAF-T invoicing submission | 5th of following month |
| Quarterly IRC advance payments | July, September, December |
| Annual IRC return (Modelo 22) | May 31 |
| IES/DA annual filing | July 15 |
| Annual SAF-T accounting file | With IES filing |
| Withholding tax returns | By 20th of following month |
For information on company formation and its tax implications, see How to Register a Company in Portugal. For the cost impact of taxation, see Cost of Starting a Business in Portugal.
Related Corpy Resources
- Portugal business guide for a full overview of doing business in Portugal
- Corporate tax in Portugal for related articles on this topic
- Company formation in Portugal to explore adjacent considerations
- Business laws in Portugal to explore adjacent considerations
- Free zones in Portugal to explore adjacent considerations
References
- Autoridade Tributária e Aduaneira (Portuguese Tax Authority). https://www.portaldasfinancas.gov.pt/
- Portugal Corporate Income Tax Code (CIRC). https://info.portaldasfinancas.gov.pt/
- OECD Inclusive Framework on BEPS. https://www.oecd.org/tax/beps/
- World Bank Doing Business Archive. https://archive.doingbusiness.org/
Frequently Asked Questions
What is the corporate tax rate in Portugal?
The standard corporate tax rate in Portugal (IRC) is 21% on taxable profit. Small and medium enterprises (SMEs) qualifying under the PME statute benefit from a reduced rate of 17% on the first EUR 50,000 of taxable profit, with the standard 21% applying to profits above that threshold. Additional surcharges include the Derrama Municipal (up to 1.5%) and Derrama Estadual (3% to 9% on profits above EUR 1.5 million).
When is the Portuguese corporate tax return due?
The annual IRC return (Modelo 22) must be filed electronically by May 31 of the year following the tax year for companies with a calendar-year fiscal period (January to December). The tax payment is due at the same time. Companies with a non-calendar fiscal year must file within five months of the end of their fiscal year. Advance payments (pagamentos por conta) are due in July, September, and December during the tax year.
What qualifies a company as an SME for the reduced tax rate in Portugal?
To qualify for the 17% reduced IRC rate on the first EUR 50,000 of taxable profit, a company must meet the Portuguese PME (Pequena e Media Empresa) criteria: fewer than 250 employees, annual turnover not exceeding EUR 50 million or total assets not exceeding EUR 43 million, and the company must not be 25% or more owned by entities that do not qualify as SMEs. The company must also obtain PME certification through IAPMEI.