Direct taxation of businessesi Tax on profitsDetermination of taxable profit
Taxable profit is calculated on the basis of accounting income adjusted according to specific rules contained in Portuguese tax legislation.
Business expenses are generally tax-deductible provided that they are incurred in generating taxable profits or deemed essential for maintaining the structure of the company. Nonetheless, some expenses are not deductible for the purpose of computing taxable profits, even where accounted for as costs or losses in the relevant accounting period. That is the case, for example, in relation to the following items:
- CIT paid;
- compensation paid in respect of insurable events;
- daily expense allowances and payments relating to an employee's travel using his or her own car, under certain circumstances;
- excessive depreciation and accounting provisions; and
- interest and other forms of remuneration from shareholder loans exceeding certain limits.
Intangible assets without a fixed life cycle acquired on or after 1 January 2014 may be depreciated over a 20-year period (5 per cent per year) counted from the initial recording of the asset in the company's books. This regime applies to the following intangible assets: industrial property such as trademarks, licences, production processes, models and other similar rights acquired for consideration and without a fixed life cycle; and goodwill arising from business restructuring transactions (but excluding goodwill arising from share transactions).Capital and income
The CIT Code adopts a wide definition of taxable income, and capital gains are treated as ordinary business profits and taxed accordingly.
Capital gains and capital losses on the sale of a company's assets, other than those exempt under the participation exemption regime (see below), are computed as the difference between the proceeds of disposal, net of related expenditure, and the acquisition cost, reduced by any depreciation claimed.
Only 50 per cent of the difference between capital gains and losses is taken into account where, in the year prior to the disposal or before the end of the second following year, the disposal proceeds are reinvested in the acquisition, manufacture or construction of tangible fixed assets, non-consumable biological assets or investment properties, but with the exception of second-hand assets acquired from related parties.Losses
Tax losses may be carried forward for five years, although any deduction is limited to 70 per cent of the taxable profit assessed in the relevant fiscal year.
Losses carried forward may be lost if, between the tax year in which the losses were suffered and the year in which they are used, there is a change in the object or the activity effectively performed by the company, or 50 per cent (or more) of its share capital is transferred to different shareholders.Rates
The regular CIT rate in Portugal is 21 per cent. The tax rate applicable to the first €15,000 of the taxable income of taxpayers qualifying as small and medium-sized enterprises, as provided by EU Commission Recommendation 2003/361/EC, is 17 per cent. Companies located in the interior regions of Portugal, with economic, agricultural, commercial, industrial or service-providing activities, benefit from a rate of 12.5 per cent for the first €15,000 of the taxable amount, reducing the tax rate from 17 per cent to 12.5 per cent. A municipal surcharge is levied in addition to CIT in most municipalities at a rate of up to 1.5 per cent of taxable income.
Corporate taxpayers with taxable income of more than €1.5 million are also subject to a state surcharge of 3 per cent. The surcharge increases to 5 per cent for taxable income exceeding €7.5 million, and to 9 per cent for taxable profits in excess of €35 million.AdministrationFiling tax returns
CIT assessment returns must be filed by Portuguese-resident entities and permanent establishments of non-resident companies and submitted by 31 May following the end of the calendar year, or five months after the authorised year-end if the company's tax year does not follow the calendar year. An annual return containing simplified corporate information must also be filed by 15 July or by the 15th day of the seventh month following the end of the tax year.
Following OECD recommendations under the BEPS Action Plan, ultimate parent entities or other reporting entities of multinational groups of companies that register turnover higher than €750 million are required to complete and file a country-by-country report. Entities with tax residency in Portugal integrating a multinational group of companies, subject to the country-by-country report obligation must also communicate to the Portuguese tax authorities by electronic means which entity constitutes the reporting entity of the group, the respective tax jurisdiction, its tax identification number and address.
Taxable persons liable to CIT and their representatives must also file statements in respect of registrations, changes or cancellations on the register of taxable persons, and are required to keep a tax documentation file in respect of each accounting period for a 10-year period containing all accounting and tax information.Tax authorities
Taxes in Portugal are administered by the Portuguese Tax and Customs Authority, which is organised as a vertical structure integrated into the Ministry of Finance and divided into two main services: the Directorate General for Taxation and the Directorate General for Customs and Excise Taxes.
The Tax Authority has competence to carry out tax audit procedures, make additional and late interest tax assessments, and impose penalties and fines on non-compliant taxpayers.Advance rulings
To reduce ambiguities, taxpayers may request advance rulings regarding their tax affairs, including their eligibility for tax benefits. When advance rulings are issued, the tax authorities may not derogate from such rulings in relation to the taxpayers that requested it, except pursuant to court decisions.
By request of the applicant, and subject to the payment of a fee, an advance ruling may be provided urgently (within 75 days), provided that such request is accompanied by a tax framework proposal. The proposed tax framework and the facts to which the urgent request for an advance ruling relate are considered tacitly sanctioned by the tax authorities if the request is not answered within 75 days.
Non-urgent rulings are delivered within 150 days.
Apart from the advance ruling regime, a taxpayer and the Portuguese Tax Authority may negotiate advance pricing agreements on transfer pricing issues.Means of appeal
Following a tax audit, the taxpayer is allowed to challenge an additional tax assessment made by the tax authorities, either by means of an administrative claim submitted to the tax authorities, or through a judicial or arbitration appeal to the tax courts or to the tax arbitration court.
Decisions of the tax courts may be appealed to the Central Administrative Court of Appeal or to the Administrative Supreme Court.Tax grouping
Portuguese-resident companies that are members of an economic group may opt to be taxed under the special group taxation regime.
The parent must hold, directly or indirectly, for a minimum one-year period, at least 75 per cent of the subsidiaries' share capital and 50 per cent of their voting rights. All companies in the group must be tax-resident in Portugal (albeit indirectly held, through an EU or EEA resident company), and must be subject to Portuguese CIT on their worldwide income at the standard CIT rate to benefit from this regime. This regime is also applicable if the parent company has a permanent establishment in Portugal that holds the capital of the subsidiaries, and some other cumulative conditions are met.
Entities with tax losses in the preceding three years are not eligible for this regime, except where their share capital has been held by the parent for more than two years.ii Other relevant taxesValue added tax (VAT)
Portuguese VAT legislation basically follows the EU common system of VAT. It applies to the supply of goods, services, and intra-Community acquisitions and imports into the Portuguese territory.
Any person or corporate entity that independently carries out an economic activity, or that carries out a single taxable transaction either in connection with the performance of the above-mentioned activities or that is subject to personal tax or CIT, is liable to charge VAT on every supply it makes in the scope of its activities, and afterwards to deliver the due amount to the tax authorities.
There are three VAT rates: 23 per cent (standard), 13 per cent (intermediate) and 6 per cent (reduced).
In the autonomous regions of Azores and Madeira, the VAT rates are currently reduced to 18 and 22 per cent (standard), 9 and 12 per cent (intermediate), and 4 and 5 per cent (reduced), respectively.Property transfer tax (IMT)
IMT is levied on the onerous transfer of immovable property.
The tax is payable by the purchaser, whether an individual or a company, resident or non-resident. The taxable amount corresponds to the higher of the contractual price or the patrimonial tax value.
The tax due is assessed as described above at the following tax rates:
- rural property: 5 per cent;
- urban property and other acquisitions: 6.5 per cent;
- urban property for residential purposes: progressive tax rates ranging from zero to 8 per cent; and
- rural or urban property where the purchaser is domiciled in a blacklisted jurisdiction: 10 per cent.
IMI is levied annually on immovable property located within each municipality. The tax is payable on the taxable value by the owner of the property as of 31 December of each year, to be paid in up to three instalments in the following year.
The taxable value of urban property corresponds to the patrimonial tax value recorded on the tax registry.
The IMI rates are as follows:
- rural property: up to 0.8 per cent;
- urban property: 0.3 to 0.45 per cent; and
- rural or urban property where the owner is domiciled in a blacklisted jurisdiction: up to 7.5 per cent.
AIMI is annually due by individuals, companies and undivided inheritances that own residential real estate located in Portugal and the taxable basis corresponds to the summation of the tax registration value (TRV) of all the urban properties owed or held by each taxpayer (reported as at 1 January of each year).
From the sum of the TRV of all the urban properties and applicable taxable basis is deducted the amount of €600,000 for individuals and undivided inheritances and, €1.2 million for married or living in non-marital partnership taxpayers, who opt to submit a joint tax return.
The applicable rates, after deductions provided, are as follows:
- individuals and undivided inheritances: 0.7 per cent; (1 per cent on the part of the TRV exceeding €1 million regarding property held by individuals);
- companies: 0.4 per cent; and
- urban properties owned by entities in blacklisted countries: 7.5 per cent.
Stamp tax is generally charged on certain formal acts and documents, such as transfers of title and contracts, which are signed or take place on Portuguese territory and which are not subject to VAT, as outlined in the General Table of Stamp Tax.
Loans granted to resident entities, regardless of the nature or place of domicile of the lender, are generally subject to stamp duty ranging from 0.04 to 0.6 per cent, depending on the term of the credit or loan given. A tax exemption may be granted to the following operations provided certain requirements are met: long-term loans qualifying as suprimentos for Portuguese commercial law purposes, made by a shareholder to a company, provided that the participation exemption requirements are met concerning the level of participation and detention period; and short-term (less than one year) cash management loans made by parent companies to their subsidiaries.