Employers in Portugal are required to contribute 23.75% of an employee's gross salary towards social security. These contributions cover a range of benefits, including pensions, unemployment benefits, sick leave, and family benefits such as maternity/paternity leave and child allowances. The payments are due monthly by the 20th of the following month.

Corporate Income Tax (IRC)

The corporate income tax, or IRC, is generally a flat rate of 21%. However, a reduced rate of 17% may apply for small and medium-sized enterprises (SMEs) that meet specific criteria. Autonomous regions, such as Madeira and the Azores, have their own IRC rates. Prepayments are typically due during the fiscal year, with the final settlement due upon filing the annual IRC return.

Other Employer Taxes

In addition to social security contributions and corporate income tax, employers are also responsible for labor accident insurance and the wage guarantee fund. The rates for labor accident insurance vary based on the company's industry and risk level. The wage guarantee fund requires a contribution of 1% of the employee's gross salary.

In Portugal, there are several types of employee tax deductions. These include income tax, social security contributions, solidarity surtax, and other possible deductions.

Income Tax (IRS)

Income tax is a progressive tax levied on an individual's income. Anyone earning income in Portugal is subject to this tax. Tax brackets are adjusted periodically to determine rates. For instance, an employee earning €30,000 annually would fall into the 35% tax bracket with an applicable deductible. The calculation would involve applying the deductible to the taxable income and then multiplying the result by the tax rate.

Social Security Contributions (Segurança Social)

Social security contributions are mandatory and cover pensions, unemployment, sickness, disability, and other social benefits. All employees in Portugal must contribute. The contribution is calculated as 11% of the employee's gross salary. For example, an employee with a monthly gross salary of €2,000 would contribute €220 to Social Security.

Solidarity Surtax (Sobretaxa Solidária)

The solidarity surtax is an additional tax on higher incomes, designed to promote fiscal equality. Individuals with an annual income exceeding €80,000 are eligible for this tax. Rates are 2.5% for incomes between €80,000 and €250,000 and 5% for incomes exceeding €250,000.

Other Possible Deductions

There are also other possible deductions. A portion of union fees may be deductible, up to a certain limit. In limited circumstances, there may be deductions available for specific expenses like health care costs or education expenses.

It's important to note that tax regulations can change, so it's essential to stay updated with the latest information from the Portuguese Tax and Customs Authority (Autoridade Tributária e Aduaneira).

In Portugal, the Value Added Tax (VAT) is applied at different rates depending on the type of goods or services provided. The standard rate is 23%, which applies to most services in mainland Portugal. There is also an intermediate rate of 13% that is applicable to certain services like restaurant meals, hospitality, and some cultural events. A reduced rate of 6% covers essential services like basic foodstuffs, water supplies, and some medical services. It's worth noting that the autonomous regions of Madeira and the Azores have slightly lower VAT rates than mainland Portugal.

VAT Exemptions

There are certain services in Portugal that are exempt from VAT. These include financial services such as insurance and banking, medical and healthcare services, educational services, some cultural and sporting activities, and property rental.

VAT Filing Procedures

Businesses providing taxable services in Portugal are generally required to register for VAT with the Portuguese Tax and Customs Authority. The frequency of VAT returns filing is usually monthly or quarterly, depending on the business's turnover. VAT payments are due electronically along with the submission of the VAT return.

Important Notes

The VAT rules for services can be complex, especially when dealing with cross-border transactions. Therefore, it is always advisable to refer to the Portuguese Tax and Customs Authority (Autoridade Tributária e Aduaneira) for the most up-to-date information and regulations.

Portugal offers a variety of tax incentives to stimulate business growth and innovation. One such incentive is the Incentive to Capitalization of Companies (ICC). This corporate income tax (CIT) deduction allows companies to deduct a portion of the increase in their equity capital from their taxable income. The deduction rate is 4.5% of the net increase in eligible equity, with an additional 0.5% for micro, small, and medium-sized enterprises (SMEs) and small mid-cap companies. No formal application is required for this deduction; it is claimed during the corporate income tax filing process.

Madeira International Business Centre (MIBC)

The Madeira International Business Centre (MIBC) offers a special tax regime for foreign companies involved in specific activities like international financial services, commerce, and industry. Companies licensed to operate in the MIBC benefit from a significantly reduced corporate income tax rate on qualifying foreign-source income. The benefits include a reduced CIT rate of 5% on qualifying income, exemptions from certain local taxes, and simplified administrative procedures. To apply, companies must contact the MIBC Authority for details and application procedures.

Reduced CIT Rate for Small Businesses

Small businesses in Portugal can benefit from a lower corporate income tax rate on their initial profits. This incentive is open to companies with an annual turnover not exceeding €200,000. The benefit is a reduced CIT rate of 17% (11.9% in Madeira, 12.5% in some inland regions) on the first €50,000 of taxable income. No separate application is needed for this incentive; the reduced rate is automatically applied during tax filing.

Research and Development (R&D) Tax Credit

The Research and Development (R&D) Tax Credit is another incentive offered to resident companies undertaking R&D activities in Portugal. Companies can claim a credit against their corporate income tax liability for expenses incurred in R&D activities. The credit rate can vary depending on the type of R&D activity and location, ranging from 20% to 32% of eligible expenses. To apply for this credit, companies must submit an R&D project plan to the competent authority for approval.