Taxation in Portugal
Information on tax relates to the fiscal situation as at July 1, 2010. Further changes over the coming months are expected, which will be addressed in due course. Chances for the year 2012 will be introduced during January!
Corporation Tax
The standard rate of Corporation Tax in Portugal currently stands at 25%. Corporate profits of up to 12,500 Euros are taxed at 12.5%. In certain regions (namely in the interior) this rate can fall from 15% to 10%. In Madeira, corporate profits of up to 12,500 Euros are taxed at 10%, and 20% for anything above (this does not apply to companies operating out of the Madeira Free Trade Zone, which are subject to special tax exemption rules). Corporation Tax in the Azores is 30% lower than the going rate on mainland Portugal.
Companies whose taxable income exceed ? 2,000,000 are subject to a surcharge of 2.5% on the excess amount.
The capitals of the municipalities may levy a tax on profits of 1.5%.
Transfer pricing
In Portugal, there are rigorous requirements for the documentation of transfer pricing applicable within the same group of companies. We can assist in drawing up a tax dossier.
Income Tax
Income tax on mainland Portugal varies between 11.8% and 45.88%, with income tax rates being less onerous in Madeira and the Azores.
Non resident workers incur a tax rate of 21.5%.
Alternately, taxpayers from another EU state may opt to have their income tax rates determined and for this purpose all other incomes received are taken into account. Taxes are withheld directly at source by the company from the employee and in some cases from independent workers as well (general rate applicable ? 21.5%) and delivered to the state. Other rates may apply for other types of income and charged at source. Persons exercising certain types of professions who emigrate to Portugal may be charged a lower rate of 20% (“estatuto de residente não habitual”).
Withholding Tax at Source
Certain transactions pertaining to both corporation tax and income tax are subject to withholding tax at source. For example, withholding tax of 21.5% is normally charged on interest.
Rents, provided they are paid by taxpayers with proper accounting records, are generally taxed at source at 16.5%. By the same token, interest and royalties up to the 30 June 2013, are subject to a deduction of 5% provided these are paid to a company located in another EU country. A prerequisite for this is that the conditions of EU Directive 49/2003 of 3 June 2003, are met.
Withholding tax rates can be applied in order to avoid double taxation where agreements apply (e.g. with Germany, in case of interest and dividends - 15%).
Withholding tax paid in Germany, can be recognized in Portugal, pursuant to the Agreement for avoiding double taxation.
Autonomous Taxation
Commercial and industrial activities may be subject to Autonomous Taxation (taxes on costs). Accordingly, undocumented expenses are taxed at 50%, whilst costs pertaining to use of vehicles (amortizations, insurance, consumption, repairs, etc) are taxed at 10%. Representation expenses such as travel expenses are also taxed at 10% provided that such costs are not incurred solely by the company’s own staff (clients, suppliers).
VAT
The standard rate of income tax increased to 23% on 01 January 2011, whilst reduced rates rose to 13% and 6%. In Madeira and the Azores rates are 16%, 9% e 4% respectively. There are limits to VAT deduction.
Stamp Duty
We come up against stamp duty on an almost a daily basis. In bank fees, in the granting and renewal of credit, contracts, acquisition of property, etc.
Municipal Tax on Real Estate Transfer
The rate applicable when purchasing a property intended for comercial or industrial use in Portugal is 6.5%, though there may be exemptions. This rate falls to 5% when purchasing property intended for agricultural use, whilst the rate for acquiring property for residential purposes is up to 6%.
Local Property Tax
Following the November 2003 reforms in the way assets are valued??, Taxable Asset Value has risen considerably for fixed assets that have been acquired since that date. Against this, however, taxable rates have fallen and these now vary between 0.2% and 0.4% for houses, apartments and building land (as against 0.4% to 0.7% if the asset has not yet been submitted for valuation). For rural properties the rate is 0.8%. These rates are set by the capital of the competent council.
Tax exemption
Certain circumstances may allow for tax exemption.
Tax Representation
Under certain circumstances we can provide our clients with tax representation.