Corporate Taxation in Portugal: Corporate Tax, VAT, and Withholding Tax

Incorporating a company in Portugal is not simply a matter of registering it in the commercial register. Once the company begins operations, it must regularly fulfill obligations related to corporate tax, value-added tax, withholding tax, municipal surcharge, social security, annual declarations, and international payments.

Companies established in Portugal, such as Unipessoal LDA, LDA, and Sociedade Anónima, are generally considered taxpayers in Portugal. The fact that the company's partners are Turkish citizens, the capital originates from Türkiye, or the clients are located in other countries does not eliminate the tax liabilities of a company established in Portugal.

The three most important categories in corporate taxation are: IRC (Internal Corporate Tax) levied on company profits , VAT (Inclusive Value Added Tax) applied to the supply of goods and services, and withholding tax applied to dividends, interest, royalties, or payments for certain services .

However, tax is not simply a single rate calculated on the company's turnover. Accounting profit, expenses accepted by tax legislation, depreciation, prior year losses, municipal tax, company size, and investment incentives can all affect the final tax burden.

What does it mean to be a tax-paying company in Portugal?

Companies whose headquarters or actual place of management is in Portugal are considered full tax liable in Portugal. These companies may be subject to Portuguese corporate tax not only on income earned in Portugal, but generally on their worldwide income as well.

For example, if a software company established in Portugal has customers in Turkey, Germany, and the United States, this does not mean the company's earnings are outside of Portugal. All of the company's business income must be recorded in its accounting records, and if there are taxes paid in foreign countries, double taxation avoidance provisions must also be applied.

Foreign businesses operating in Portugal without establishing a company may be taxed according to whether they have established a permanent establishment or economic presence in Portugal. For example, a company established in Türkiye having a permanent office, branch, employee, or representative with contractual authority in Portugal may be considered to have established a permanent establishment in Portugal.

What is the Portuguese Corporate Tax IRC?

In Portugal, the tax levied on corporate profits is called “Imposto sobre o Rendimento das Pessoas Coletivas”, or IRC .

Corporate tax is not calculated directly on company turnover. The result determined in the company's accounting records is subject to additions and deductions under Portuguese tax legislation. Tax-exempt expenses are added to profit, while prior year losses, tax deductions, and certain incentives are taken into account if applicable.

A company having €500,000 in sales during the year does not automatically mean it will pay corporate tax on that €500,000. Taxable income is determined by deducting expenses such as goods, personnel, rent, advertising, software, financing, and other acceptable operating expenses from sales.

Corporate Tax Rate in Portugal in 2026

For tax periods beginning in 2026, the general corporate tax rate in mainland Portugal 19 percent . Although the law provides for a gradual reduction in the general rate in subsequent years, the rate applicable to fiscal periods beginning on January 1, 2026 is 19 percent.

If the company's accounting year coincides with the calendar year, taxable income between January 1, 2026, and December 31, 2026, is generally subject to a 19% IRC (Internal Revenue Ratio).

For a company with taxable income of €100,000 and not benefiting from any SME or startup tax credits, the basic corporate tax alone would be approximately €19,000. Municipal surcharges, retained earnings, tax credits, and other arrangements are not included in this example calculation.

Reduced Corporate Tax for SMEs

For small and medium-sized enterprises (SMEs), 15% tax rate applies to the first €50,000 of taxable income from commercial, industrial, or agricultural activities. Any portion of income exceeding €50,000 is subject to the general rate of 19% for the year 2026. The application of the reduced rate is also subject to the European Union's de minimis aid rules.

For example, if a company meeting SME criteria has a taxable income of €100,000 in 2026, the basic IRC calculation can be done as follows:

Taxable income section	Ratio	Tax
The first 50,000 Euros	%15	7,500 Euros
The remaining 50,000 Euros	%19	9,500 Euros
Total basic IRC		17,000 Euros

The fact that a company is newly established does not automatically mean it will benefit from the SME tax credit. The business must meet the criteria for the SME definition in terms of number of employees, annual turnover, balance sheet size, and related companies.

In structures where a Turkish company controls a company established in Portugal, assessing the size of the company may not be sufficient if you only look at the turnover of the Portuguese company. Data from affiliated and partner companies can also affect the SME classification.

The tax rate for startup companies is 12.5 percent

In Portugal, for certain companies classified as startups and meeting the specified conditions, the tax rate applied to SMEs for the first €50,000 of earnings to 12.5% . This rate is not automatically applied simply because the company is newly established or operates in the technology sector. The company must meet the definition and specific conditions of the Portuguese startup legislation.

The mere fact that a company's trade name includes the word "startup," that it offers internet-based services, or that it serves as grounds for an entrepreneur visa is not sufficient, by itself, to qualify for the 12.5% ​​rate.

Before applying startup status and reduced tax rates, the company's incorporation date, size, nature of activity, innovative structure, investment status, and relevant institutional records must be reviewed.

Municipal Additional Tax: Derrama Municipal

In addition to the basic corporate tax, a municipal surcharge called "derrama municipal" may be applied by the municipality where the company's headquarters are located. This tax is calculated on income that is subject to corporate tax and is not exempt from it.

Municipalities can generally up to 1.5 . However, each municipality may apply lower rates or exemptions for businesses with low turnover, newly established businesses, businesses investing in specific regions, or businesses operating in particular sectors.

The Portuguese Tax Administration publishes the standard rates, reduced rates, and exemption conditions accepted by the municipalities annually. Therefore, whether a company's registered office is in Lisbon, Porto, Braga, or another municipality may affect the total tax burden.

If a company with taxable income of €100,000 is located in a municipality where a 1.5% tax rate applies, the municipal surcharge would be a maximum of approximately €1,500. This amount is added to the basic IRC (Individual Revenue Collection).

Relocating a company's headquarters to an address where no actual business takes place, solely to reduce municipal taxes, is risky. Tax authorities may consider the actual location of management and operations in addition to the company's registered address.

Additional Government Tax on High-Profit Companies

For companies with taxable income exceeding €1,500,000, an additional state tax called "derrama estadual" comes into play.

Additional tax rates are applied progressively:

Taxable income bracket	Additional tax rate
The portion exceeding 1,500,000–7,500,000 Euros	%3
The section between 7,500,000 and 35,000,000 Euros	%5
The portion exceeding 35,000,000 Euros	%9

Rates are applied in tiers. For example, if the earnings are 8 million Euros, the 5% rate is not applied to the entire amount; the portion between 1.5 million and 7.5 million Euros is subject to a 3% rate, and the portion exceeding 7.5 million Euros is subject to a 5% rate.

Most newly established small businesses may not reach the threshold for additional government tax. However, for high-volume foreign trade, technology, energy, real estate, or holding company investments, this tax should be included in financial projections.

Which company expenses are tax deductible?

Recording an expense in accounting does not automatically mean it will be deductible for corporate tax purposes. According to the Portuguese Corporate Tax Act, expenses and losses incurred by a company to generate or protect its taxable income are generally deductible.

Purchases of goods and services, personnel wages, energy, maintenance, advertising, transportation, interest, rent, insurance, consulting, research, depreciation, and certain tax expenses can be deducted under certain conditions. However, the expenses must be related to the company's operations and proven with sufficient documentation. If the supplier is obligated to issue invoices, the expense must be documented with an invoice.

Turkish entrepreneurs should pay particular attention to the following issues:

Personal grocery, vacation, family, or housing expenses of the company founder cannot be recorded as company expenses. If a vehicle purchased in the company's name is for personal use, this is assessed separately for vehicle expenses and special taxation purposes. Payments made to a consultant or affiliated company in Türkiye must be based on a genuine service and be in line with market conditions.

The invoice must include the company's correct name and NIPC number. An invoice issued in a partner's personal name may cause problems during a tax audit, even if the expense was incurred on behalf of the company.

Can tax losses be carried forward to subsequent years?

If a company incurs a loss in a fiscal year, that loss can be deducted from the taxable income of subsequent periods. Under the current system, tax losses can be carried forward to later periods, but the amount of loss deduction that can be made each year cannot exceed 65% of that year's taxable income.

The unclaimed portion will continue to be carried over to subsequent periods, provided the conditions are maintained. Restrictions on the use of losses may arise if more than 50% of the company's capital or voting rights change hands; economic considerations and legal exceptions will be examined separately.

For example, if a company has a tax loss of €100,000 from the previous year and taxable income of €80,000 in the current year, due to the general 65% limit, a maximum loss deduction of €52,000 can be made in the current year. Tax is due on the remaining €28,000; the unused loss can be carried forward to subsequent periods.

VAT in Portugal: What is IVA?

In Portugal, value-added tax is called “Imposto sobre o Valor Acrescentado,” or IVA for short. A company collects IVA from customers on the sale of goods or services subject to VAT. The difference between the tax calculated on sales and the deductible VAT paid by the company on eligible purchases is paid to the tax authorities.

VAT is not a company's profit. The company should not use the tax collected from customers as its own income and should make cash plans for periodic payments.

Assuming the company provides services to the customer for €10,000 plus 23% VAT, the total invoice would be €12,300. €2,300 on the invoice is the tax payable to the tax authorities, provided there is no deductible VAT on the purchase.

VAT Rates in Portugal in 2026

Three basic VAT rates apply in mainland Portugal:

Type of VAT	Ratio
General rate	%23
Intermediate ratio	%13
Discounted rate	%6

Basic food products, certain health-related products and services, books, and transactions included in the law's special list may be subject to a 6% rate. A 13% rate may apply to restaurants, food and beverage establishments, or specific services. For goods and services not included in the law's reduced or intermediate rate scheme, the general rate is 23%.

Lower regional rates may apply in the autonomous regions of the Azores and Madeira. The fact that a company is registered in mainland Portugal does not automatically mean that the mainland rate will apply to every transaction. The place of delivery of the goods, the place of taxation of the service, and the region where the customer is located must be considered separately.

If the wrong VAT rate is applied, the company may have to pay the tax it failed to collect from the customer from its own resources. Therefore, when determining the business activity, the accountant should check which VAT list the products and services fall under.

€15,000 VAT Exemption

Certain taxpayers with their headquarters or tax residence in Portugal and whose annual turnover within the country did not exceed €15,000 in the previous calendar year may benefit from the small taxpayer exemption under Article 53 of the VAT Law.

This exemption does not apply to those engaged in export or certain export-related activities. Taxpayers benefiting from this exemption do not calculate VAT on their invoices; conversely, they do not have the right to deduct or receive a refund of the VAT they paid on goods and services purchased.

The exemption does not automatically apply to every company with sales of less than €15,000 in all cases. The type of activity, the estimated turnover at the time of establishment, and transactions outside the scope of the exemption must be checked.

For companies that will make significant investments in equipment, software, or office space, especially in the first year, the exemption may not always be economically advantageous. Even if the company does not calculate VAT on its sales, it cannot deduct the high VAT it pays on its investments.

Is the VAT return submitted monthly or quarterly?

Taxpayers whose turnover in the previous calendar year was €650,000 or more submit their VAT returns monthly. Those with a turnover below €650,000 are generally subject to a quarterly filing period. Taxpayers who opt for the quarterly filing system can choose the monthly system if they wish. For newly established companies, the filing period is determined based on the estimated annual turnover.

Monthly or quarterly VAT declarations must be submitted electronically by the 20th day of the second month following the relevant period. For declarations relating to June and the second quarter, the deadline of September 20th applies specifically.

According to the 2026 fiscal calendar, VAT payments are generally made a few days after the declaration period, around the 25th of the month. Due to weekends, holidays, and seasonal administrative extensions, the exact dates should be checked against the official tax calendar for each period.

VAT on Sales and Services within the European Union

When a Portuguese company sells goods or services to a company in another European Union country, the normal domestic VAT rules do not always apply.

If the goods are shipped to another member state and the recipient has a valid VAT identification number, intra-member state deliveries meeting these conditions may be exempt from VAT. The company must keep the transport documents and the recipient's valid tax identification number.

When a Portuguese company provides consulting, software, or digital services to a taxpayer in another EU country, a reverse tax mechanism often comes into play. Portuguese VAT may not be calculated on the invoice, and the client declares the tax in their own country.

For e-commerce and digital services targeting consumers, the application of the customer's country's VAT and the use of the OSS system may be required.

VAT on Invoices Issued to Türkiye

If a Portuguese company provides services to a company in Türkiye, Portuguese VAT may not be calculated depending on the type of service and its location. For many business-to-business services, the taxation location is considered to be the customer's country.

However, different rules may apply to real estate, events, transportation, short-term rentals, or services physically performed at a specific location. The Portuguese VAT Law regulates the place of taxation for goods and services separately according to the nature of the transaction.

The approach that "every invoice issued to a foreign customer is VAT-free" is incorrect. Whether the customer is a real company, where the service is used, its connection to real estate or an event, and the recipient's tax identification number should be examined.

What is withholding tax?

Withholding tax is the practice of a company deducting tax from a specific payment it makes and depositing it with the Portuguese tax authorities on behalf of the recipient. While the economic burden of the tax rests with the income recipient, the responsibility for withholding, declaring, and paying the tax lies with the company making the payment.

Portuguese companies may face withholding tax liabilities on dividends, interest, royalties, rent, executive salaries, certain services, and some payments made to individuals abroad.

The Portuguese Corporate Tax Act stipulates withholding tax on income from intellectual and industrial property, interest and other capital gains, rent, management fees, brokerage income, and certain services performed or used in Portugal. The general IRC withholding tax rate is 25%, while the rate for salaries of company board members is 21.5%. Taxes withheld are generally paid to the state by the 20th day of the following month.

Payment of Dividends to Company Partners

After corporate tax is paid on company earnings, the remaining distributable profit can be distributed as dividends by the shareholders' decision. A shareholder's direct withdrawal of money from the company's bank account is not legally considered a dividend distribution.

If the individual is a tax resident in Portugal, dividends may generally be subject to a 28% withholding tax. If the conditions are met, the individual may choose to include the dividend in their annual income. In Portuguese domestic law, the general withholding tax rate for capital gains is 28%.

If the partner is a tax resident in Türkiye, the rate in Portuguese domestic law and the Double Taxation Avoidance Agreement between Türkiye and Portugal should be considered together.

Withholding Tax on Dividends for Individual Shareholders Residing in Türkiye

In the case of dividend payments made by a Portuguese company to a natural person shareholder taxed in Turkey, the tax applicable in Portugal, in accordance with the Turkey-Portugal Double Taxation Avoidance Agreement, cannot exceed 15%.

In order for the reduced rate in the agreement to be applied, the individual must be the actual beneficiary of the dividend, provide documentation proving their tax residency in Türkiye, and have the necessary Portuguese withholding tax documents prepared prior to payment.

For example, if a natural person partner residing in Türkiye receives a gross dividend of €100,000, and the terms of the agreement are fully met, the upper limit for withholding tax in Portugal would be €15,000. How the income should be declared in Türkiye and whether the tax paid in Portugal can be offset in Türkiye are separately assessed under Turkish tax law.

The dividend paid to the Turkish company is 5 percent

If the Portuguese company's partner is a company established in Türkiye, the agreement may stipulate a lower rate.

If a Turkish company has directly owned at least 25% of the Portuguese company's capital for two years, the dividend withholding tax in Portugal cannot exceed 5%. If the Portuguese company paying the dividends has existed for less than two years, maintaining the 25% ownership requirement for the duration of the company's existence may be sufficient.

If these conditions are not met, the dividend withholding tax limit is 15% as per the agreement.

For example, if a Turkish joint-stock company is a 100% shareholder in a Portuguese LDA (Limited Investment Distribution Company) and meets the two-year holding requirement, the Portuguese withholding tax on a €100,000 dividend could be a maximum of €5,000 under the agreement.

The 5% rate should not be applied solely based on the ownership percentage. The actual beneficiary, tax residency, holding period, and the companies' genuine economic activity should also be checked.

Withholding Tax on Interest Payments

If a Portuguese company borrows money from its Turkish partner or an affiliated company in Türkiye and pays interest, it may be subject to withholding tax under Portuguese domestic law.

According to the Turkey-Portugal tax agreement, source country tax on interest payments related to loans with a maturity of more than two years 10; for other interest payments, 15 .

It is not always more advantageous from a tax perspective for a company partner to lend money to a Portuguese company instead of investing capital. Factors such as interest rates being in line with market conditions, the loan agreement being in writing, financing expense limitations, and transfer pricing rules should all be considered.

Withholding Tax on Trademark, Software and License Payments

A payment made by a Portuguese company to an individual or company in Türkiye in exchange for the right to use a trademark, software, patent, copyright, technical information, or specific equipment may be considered a "royalty".

According to the Turkey-Portugal tax agreement, withholding tax in the source country on royalty payments cannot exceed 10%. The definition of royalty in the agreement includes copyrights, film and broadcasting rights, patents, trademarks, designs, secret formulas, industrial or commercial expertise, and the use of specific equipment.

Whether a payment is a service fee, software sales fee, or license fee is determined more by the actual content of the contract than by its title. If a payment made under the name of "consulting" actually involves technical knowledge or licensing rights, the withholding tax application may change.

Withholding Tax on Services Purchased from Türkiye

Payments made by a Portuguese company to a lawyer, software developer, consultant, advertising agency, or other service provider in Türkiye may be subject to a 25% withholding tax under certain conditions within Portuguese domestic law. The fact that the service is performed or used in Portugal is particularly important.

However, according to the Turkey-Portugal tax agreement, if a Turkish company does not have a permanent establishment in Portugal, its commercial income may be taxed only in Türkiye. For individuals engaged in independent professional activities, the fixed place of residence, duration of stay in Portugal, and the nature of the service are assessed separately.

Therefore, it is incorrect for the Portuguese company to automatically deduct 25% or make no deduction at all from every service it receives from Türkiye. The contract, location of the service, legal status of the recipient, and tax agreement should be reviewed before payment is made.

Documents Required to Benefit from the Tax Treaty Rate

In order for the lower withholding tax rates in the Türkiye-Portugal tax agreement to apply, the Turkish individual or company receiving the payment must provide documentation proving their tax residency in Türkiye.

In the Portuguese system, the Modelo 21-RFI form, must be submitted to the paying company. If the Portuguese company does not possess the necessary documents by the due date for payment or withholding tax, it is obliged to withhold the full amount of tax as stipulated in domestic law and pay it to the tax authorities.

The application of the agreed-upon rate may be prevented if the residency certificate is from an earlier year, the beneficiary's name does not match the company records, or the 21-RFI form is incomplete.

If documents are submitted after payment, a separate application may be required for a refund of any overcharged tax. Therefore, document preparation should be completed before dividend, interest, or license payments are made.

Dividends Received by a Portuguese Company from Türkiye

If a Portuguese company becomes a partner in a Turkish company and receives dividends from that company, the Portuguese company may be eligible for the investment income exemption.

For a Portuguese company to be exempt from tax, it is essential that the company directly or indirectly holds at least a 10% stake in the dividend-paying company and has held the stake continuously for at least one year. The dividend-paying company must also be subject to a specific income tax, not be on a list of low-tax countries, and the structure must be based on genuine economic justifications. If these conditions are met, the dividends received may not be included in the Portuguese company's taxable income.

If the conditions are not met, the tax withheld in Türkiye may be subject to an international double taxation credit in Portugal. The credit cannot exceed the tax limit calculated for the same income in Portugal.

The Difference Between a Company Owner Receiving a Salary and Receiving Dividends

Not every payment a company partner or director receives from the company is a dividend.

Regular payments to a manager may be considered salary and are subject to income tax and social security contributions. If the company meets the salary expense requirements, these can be deducted from the corporate tax base.

Dividends are paid from the company's taxed and distributable profits. They are not considered an expense for the company. Annual accounts must be approved and shareholders' decisions must be made for dividend payments.

Repayment of a loan given to the company by a partner, or the return of documented expenses incurred on behalf of the company, is also not considered a dividend. However, all payments must be correctly classified through contracts, decisions, and accounting records.

If a company owner withdraws money from the company account each month without explaining the transaction, these payments may be re-evaluated as wages, profit distributions, or joint current account transactions during a tax audit.

Annual Tax Returns and 2026 Deadlines

Portuguese companies must meet annual tax and accounting obligations even if no profit is generated or no invoices are issued.

For companies using the calendar year, the IRC declaration Modelo 22 is submitted electronically. In the official fiscal calendar of 2026, the deadline for the Modelo 22 declaration for 2025 is shown as June 30, 2026 , due to an administrative extension . For the IES, where annual business and accounting information is reported, the deadline is July 15, 2026

Declaration deadlines may be extended annually due to holidays, legislative changes, or administrative decisions. If the company's fiscal year differs from the calendar year, the deadlines are calculated separately based on the end date of the fiscal period.

The fact that a company is inactive, has an empty bank account, or reports losses does not automatically eliminate the obligation to file a tax return.

Common Mistakes in Corporate Taxation in Portugal

One of the most common misconceptions is that corporate tax in Portugal is 19% of company turnover. The tax is, as a rule, calculated on profits adjusted according to tax legislation.

It should not be assumed that the SME ratio will be automatically applied to every newly established company. Related companies and ownership structure can affect SME status.

Recording invoices not issued in the company's name as expenses, classifying personal expenses as company expenses, and withdrawing money from the company bank account without proper documentation are significant risks.

It is incorrect to assume that every transaction is VAT-exempt simply because an invoice is issued to a foreign customer. The delivery location, the customer's tax status, and the type of service must be examined.

It should not be assumed that the tax treaty applies automatically when dividend, interest, or license payments are made to a partner in Türkiye. Higher withholding taxes under Portuguese domestic law may apply if the 21-RFI and residency certificates are not prepared on time.

If a company uses the VAT it collects from customers for tax purposes as working capital, it can create a serious cash flow problem during the payment period.

Paying shareholders without a profit distribution decision and confusing shareholder salaries with dividends can also lead to tax and social security risks.

Conclusion

In Portugal, the general corporate tax rate on the mainland is 19% for financial periods beginning in 2026. For SMEs and Small Mid Cap companies, a rate of 15% may be applied to the first €50,000 of taxable income, while for eligible startups, the rate may be 12.5% ​​for the same income bracket.

In addition to the basic corporate tax, a municipal surcharge of up to 1.5% may apply depending on the municipality where the company's headquarters are located. For companies with taxable income exceeding €1.5 million, the state surcharge is applied progressively at rates of 3%, 5%, and 9%.

In mainland Portugal, the general VAT rate is 23%, the intermediate rate is 13%, and the reduced rate is 6%. Companies with a turnover of €650,000 or more in the previous year file monthly VAT returns, while those below this limit generally file quarterly returns.

Under the tax agreement, the withholding tax rate on dividends paid by a Portuguese company to a natural person partner who is a tax resident in Türkiye cannot exceed 15%. If the Turkish company directly holds at least a 25% stake in the Portuguese company for two years, the rate may be reduced to 5%. The agreement rate for interest payments is 10% or 15% depending on the loan term, and for royalties it is 10%.

In order for the reduced withholding tax rates in the agreement to be applied, the Modelo 21-RFI and Turkish tax residency certificate must be prepared prior to payment. Without these documents, the Portuguese company may be obliged to withhold the full amount of tax stipulated under domestic law.

From the time of company incorporation, it is necessary to work with a certified accountant to create a schedule for corporate tax, VAT, withholding tax, social security contributions, foreign payments, and annual tax returns. Tax planning should not only focus on finding the lowest possible rate, but also on accurately documenting the company's actual business activity, protecting cash flow, and conducting transactions between Turkey and Portugal in accordance with the legislation of both countries.