Background
There are three types of corporate income tax rate that may be applicable for a company incorporated in Portugal. It is important to understand the differences, as the relevant corporate income tax rates, substance criteria and activity requirements vary widely, and may have a significant impact on profitability.
The Three Types of Portuguese Corporate Income Tax Rate
The three types of tax rate are largely dependent on the physical location; Portugal mainland, the island of Madeira, or the International Business Centre of Madeira (also based on the island of Madeira, referred to as 'MIBC').
What Corporate Income Tax Rates are Applicable?
The corporate income tax rates vary significantly and are detailed below:
| Portuguese Mainland Company | Madeira Company | International Business Centre of Madeira Company (for international activity) | |
| First ?50,000 of taxable income (small-medium enterprises) | 17% | 11.9% | 5% |
| Taxable income above ?50,000 | 21% | 14.7% | 5% |
Which Corporate Income Tax will Apply to my Company?
The tax rate that applies to a company will depend on a number of factors, including; the company's location, its business activities, and its size.
- Companies with an international activity, namely, outside of Portugal, may register under the MIBC and benefit from the 5% tax rate. Financial service activities, are however, excluded. Please refer to What Types of Business are Best Placed to take Advantage of a Madeira International Business Company? for more details of the types of activity that may be used in the MIBC.
- Companies with local Portuguese business activities, in Portugal mainland or the island of Madeira, may liable to tax rates up to 21% and 14.7% respectively. Please see below a Dixcart Article that summaries the advantages that are available: The Advantages of Portuguese Companies - Holding Companies
What Substance Criteria are Applicable for Companies Registered in Mainland Portugal and in Madeira?
Portugal and Madeira do not have specific substance requirements that need to be met (the exception to this are companies incorporated in the MIBC). However, to ensure compliance with tax regulations, including the ability to take advantage of Portugal's double taxation treaty network, as a member of the OECD, substance does need to be maintained.
Examples of maintaining substance include:
- Maintaining an open and active bank account in Portugal/Madeira respectively;
- Having registered office address and/or premises for the use of the company in Portugal/Madeira respectively;
- Having a qualified director and/or permanent employee, resident in Portugal/Madeira respectively;
- Making important business decisions in Portugal/Madeira respectively and evidencing these through minutes of board meetings;
- Maintaining board minutes, accounting and other records in Portugal/Madeira respectively;
- Ensuring sufficient commercial activity occurs in Portugal/Madeira respectively.
Note that specific substance is required for companies incorporated in the MIBC - please refer to: An Attractive Way To Establish A Company In The EU for more details.
A Summary of the Key Characteristics and Advantages Available to Companies Registered in Portugal
Below is a table summarise pertinent details of the three different corporate tax rates available with other differentiating information:
View our Portugal Corporate Comparison Guide here
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.