Portugal is lowering its corporate tax rate through a scheduled transition over the next several years. For tax periods beginning in 2026, the standard corporate tax rate will be 19%, dropping to 18% for those beginning in 2027, with a final rate of 17% applying to periods starting on or after January 1, 2028, according to the Law Over Borders Comparative Guide.
In addition to the general corporate tax rate, Portugal also has a state surcharge and a local surcharge. The Autonomous Regions of the Azores and Madeira have some reductions of the rates referred to above.
The Portuguese Corporate Income Tax (CIT) Code also establishes a regime of autonomous taxation that applies regardless of taxpayers’ taxable profit or loss, targeting specific expenses. Tax loss surcharge: all rates above should be increased by 10 percentage points when the taxpayer reports tax losses. Under the transitional rules applicable to the 2026 tax year, the increase does not apply where the taxpayer reported taxable profit in at least one of the previous three tax years and complied with the relevant filing obligations for the previous two tax years, or where 2026 is the taxpayer’s first, second or third tax year of activity.
Global Minimum Tax Implementation
Portugal has adopted the EU Pillar Two Directive, implementing a global minimum tax framework. Multinational groups with consolidated revenues of at least €750 million are subject to a 15% minimum effective tax rate. This includes the Income Inclusion Rule (IIR), the Undertaxed Profits Rule (UTPR), and a Portuguese Qualified Domestic Minimum Top-up Tax (ICNQ-PT). The rules apply to fiscal years beginning on or after 1 January 2024, with UTPR generally applying from 1 January 2025.
Resident entities (those with their registered office or place of effective management in Portugal) are subject to CIT on a worldwide basis; Non-resident entities without a permanent establishment in Portugal are taxed only on Portuguese-source income. Capital gains and losses are gains or losses obtained through onerous transfer of tangible fixed assets, intangible assets, non-consumable biological assets, investment properties, and financial instruments. They are calculated as the difference between the net sales value (less inherent charges) and the acquisition value, deducted by fiscal depreciations and amortisations, impairment losses, and other value corrections.
Acquisition costs can be adjusted using monetary devaluation coefficients if at least two years have passed since purchase. Portugal offers a participation exemption for capital gains from equity transfers. Gains or losses on equity held uninterruptedly for at least one year are excluded from taxable profit, provided minimum conditions like a 10% ownership stake and qualifying tax compliance are met. This exemption covers 100% of the gain but does not apply if real estate in Portugal directly or indirectly accounts for more than 50% of the entity’s assets, unless that real estate supports agricultural, industrial, or commercial activities unrelated to property trading.
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Foreign-source income received by Portuguese entities is taxed domestically under general rules. To prevent double taxation, taxpayers may claim a foreign tax credit, deducting taxes paid abroad from their Portuguese liability up to the amount that would apply to that same income locally. This credit mechanism remains the most widely used method for avoiding dual taxation among resident taxpayers.
An exception to the worldwide taxation principle exists for profits tied to foreign permanent establishments. Under specific conditions, Portuguese residents may elect to exclude income generated by overseas permanent establishments from domestic taxable income.
Indirect Taxes and Sector-Specific Surcharges
Besides VAT, which remains the principal indirect tax, Portuguese law provides for additional sectorial surcharges. These surcharges are typically fixed annually within the Portuguese State Budget and apply to specific sectors or activities. Their rates and scope depend on annual legislative adjustments rather than permanent statutory provisions.
The IMT, or Imposto Municipal sobre Transmissões Onerárias de Imóveis, generates frequent disputes. Challenges often relate to the determination of the taxable base and the use of administrative valuations. Exemptions for real estate investment structures, intragroup transfers, and indirect acquisitions through share deals are also commonly contested.
Withholding Tax Rules
For Portuguese corporate residents, withholding taxes apply to real estate income and capital income. These function as advance payments toward the final CIT due. Non-residents without a permanent establishment in Portugal face Portuguese-source income subject to final withholding at flat rates, commonly set at 25%. This rate may be reduced under applicable double tax treaties.
Royalties, capital income, rental income, income from equipment use, and service income sourced in Portugal fall under this regime. Portuguese entities making such payments must apply the correct rate. When treaty relief is claimed, appropriate residency documentation must be collected. Reductions or exemptions may apply under EU directives, including the Parent-Subsidiary Directive and the Interest and Royalties Directive.