For new immigrants, understanding a country's personal tax system helps in better navigating immigrant life and working in the host country. For a long-established European power like Portugal, the tax system is relatively simple, tax rates are relatively low, and there are many tax reduction policies. In this article, Worldway immigration consultants will provide you with a detailed introduction, hoping to provide a reference for your immigration journey:
The current taxes in Portugal are divided into national taxes and local taxes based on the collecting entity. National taxes mainly include income taxes and consumption taxes. Among them, income taxes mainly include Corporate Income Tax (IRC) and Personal Income Tax (IRS); consumption taxes mainly include Value Added Tax (VAT), Special Consumption Tax on Alcohol and Alcoholic Beverages (IABA), Fuel and Energy Tax (ISP), Tobacco Tax (IT), and Vehicle Tax (ISV). Among these, Corporate Income Tax and Value Added Tax account for the major portion. Local taxes provide revenue for local governments and mainly include Municipal Property Tax (IMI), Municipal Property Transfer Tax (IMT), and municipal surcharges. The following are the specific tax details:
Corporate Income Tax (IRC):
Enterprises engaged in commercial, industrial, or agricultural business activities in Portugal and registered in Portugal shall pay corporate income tax to the Portuguese tax authorities. The corporate income tax base = profit - deductible costs. The minimum tax base for corporate income tax is 12,500 Euros. If the annual profit of an enterprise is lower than this base, it can be taxed at a halved rate of 12.5%. If the annual profit of an enterprise exceeds 12,500 Euros, it shall be taxed at the general rate of 25%.
Municipal Surcharge and State Surcharge:
Local governments have the right to impose a municipal surcharge of up to 1.5% on top of the corporate income tax. At the same time, local governments may reduce the tax rate at their discretion for small and medium-sized enterprises with an annual turnover not exceeding 150,000 Euros. For enterprises with profits exceeding 2 million Euros, the state may impose a 2.5% state surcharge on the excess profit.
Personal Income Tax (IRS):
The tax base for personal income tax for Portuguese residents includes all personal income from both domestic and foreign sources, while non-Portuguese residents only use income obtained in Portugal as the tax base. Personal income includes: wages, income from business operations or service provision, capital gains, real estate income, investment income, pensions, etc. Portuguese personal income tax must be actively declared in the form of paper documents or via the internet and audited by the Tax and Customs Authority of the Ministry of Finance. Personal income tax is paid at a certain percentage based on the sum of total annual income, following the principle of accumulation.
Value Added Tax (IVA):
Value Added Tax is an important tax in Portugal. The current VAT law was passed in December 1984 and came into effect after joining the European Community in 1986, and has since undergone multiple tax rate adjustments. Currently, Portugal uses three VAT rates: the general rate is 23%, the intermediate rate is 13%, and the reduced rate is 6%. However, different VAT rates apply in the Autonomous Regions of the Azores and Madeira. The general rate, intermediate rate, and reduced rate are 16%, 9%, and 4% respectively.
Municipal Property Transfer Tax (IMT):
All real estate and land within Portugal must be subject to property transfer tax when bought or sold. The tax base is the higher of the real estate transaction price or the real estate registration price. For rural real estate, the transfer tax is 5% of the transaction price. For real estate located in urban areas, the transfer tax rate varies according to the transaction price: real estate sales contracts with an amount below 92,407 Euros are exempt from property transfer tax; a sliding tax rate of 2% to 8% applies between 92,407 and 574,323 Euros; for amounts exceeding 574,323 Euros, the property transfer tax rate is fixed at 6%. The property transfer tax is paid by the buyer, generally at the same time as the payment of the property price or on the first working day after the payment. For real estate transactions conducted abroad, taxes must be paid within the month following the transaction.
Municipal Property Tax (IMI):
Real estate owners must pay property tax annually, which falls under the category of local taxes. The tax rate for rural real estate is 0.8%, and the tax rate for urban real estate is between 0.4% and 0.7%. The tax base is calculated based on the real estate registration price and is periodically reviewed by the local government. The tax assessment base is usually 80-90% of the real estate market price.
Stamp Duty (IS):
Stamp duty is a tax levied on various contracts, property transfer documents, business books, ledgers, etc., signed in economic activities. There are two ways to collect stamp duty in Portugal: one is a fixed rate, such as for checks, commercial books, wills, real estate registration, etc., with fees ranging from 5 cents to 25 Euros; the other is to collect stamp duty as a percentage of the total contract amount, with rates ranging from 0.04% to 25%. Such contracts include real estate sales, donations, guarantees, mortgages, insurance policies, etc.
Special Taxes on Consumption (IEC):
Since 1993, the EU has allowed the free movement of special consumer goods such as fuel, alcohol and alcoholic beverages, and tobacco within the EU, but at the same time, it imposes special consumption taxes on them. This mainly includes the Tax on Alcohol and Alcoholic Beverages (IABA), Fuel Consumption Tax (ISP), Tobacco Tax (IT), etc. The Tax on Alcohol and Alcoholic Beverages (IABA) is mainly levied on ethyl alcohol or beer, wine, spirits, and other fermented beverages; the Fuel Consumption Tax (ISP) is mainly levied on fuel or other energy products stipulated by law; the Tobacco Tax (IT) is mainly levied on tobacco products such as cigars, cigarettes, and pipe tobacco. If the above special consumer goods are supplied to diplomatic missions, international organizations, NATO armed forces, etc. in Portugal, they can enjoy tax exemption policies.
Vehicle Tax (ISV):
The current vehicle tax has been in effect since July 1, 2007, and is a consolidation of the original urban traffic tax, vehicle circulation tax, and road traction tax into a single vehicle tax. Through this adjustment, the taxpayer's tax burden has been linked to the environment and the use of highway infrastructure, reflecting the principle of fairness. Therefore, the new vehicle tax uses the vehicle's cylinder capacity and carbon emissions as the main basis for taxation, with a relatively complex calculation formula. The larger the cylinder capacity and carbon emissions, the higher the tax rate, which fully reflects the protection of the environment. Since 2011, the Portuguese government has introduced a fixed environmental degradation coefficient standard of 1.05 for vehicle emissions, imposing higher vehicle taxes on cars that cause more environmental pollution.
