Portugal Corporate Tax Guide 2026 — IRC 21% & SME Rates
Portugal's IRC (Imposto sobre o Rendimento das Pessoas Colectivas) is the corporate income tax. The general rate is 21%, with a reduced 17% rate for SMEs on the first €50,000 of taxable income. Municipal and state surcharges can push the effective rate above 30% for large companies.
IRC applies to companies resident in Portugal (taxed on worldwide income) and non-resident companies with a Portuguese permanent establishment (taxed on Portuguese-source income). The tax year aligns with the calendar year unless the company elects a different fiscal year. Corporate tax returns are filed electronically by 31 May of the following year, with three advance payments during the tax year based on the prior year's tax liability.
Example: A small manufacturing company in Porto earns €80,000 profit. The first €50,000 is taxed at 17% (€8,500), and the remaining €30,000 at 21% (€6,300). Municipal surcharge at 1.5% applies to both (€1,200). No state surcharge applies below €1.5M profit. Total IRC: ~€16,000, effective rate ~20%.
IRC Tax Rates for 2026
General Rate: 21% on taxable profit.
SME Reduced Rate: 17% on the first €50,000 of taxable income for micro, small, and medium-sized enterprises (SMEs) qualifying under EU definition. Income above €50,000 is taxed at the general 21% rate. To qualify as an SME, the company must have fewer than 250 employees, annual turnover ≤€50M, or balance sheet ≤€43M.
Municipal Surcharge (Derrama): Municipalities may levy a surcharge of up to 1.5% on taxable profit. This is set annually by each municipality and varies across the country. Lisbon and Porto typically apply the maximum 1.5% rate. Some smaller municipalities apply lower rates or exemptions for new businesses.
State Surcharge (Derrama Estadual): An additional progressive surcharge on larger profits: 3% on taxable profit between €1.5M and €7.5M, 5% between €7.5M and €35M, and 9% above €35M. The state surcharge is calculated on taxable profit before deductions for tax losses carried forward. For the first €1.5M of profit, the state surcharge is zero.
Taxable Income and Deductions
Taxable income is calculated as accounting profit adjusted for tax provisions. Key adjustments include:
- Non-deductible expenses: Fines, penalties, bribes, and certain entertainment expenses (limited to 70% of documented meal costs). 50% of vehicle costs for passenger cars above certain value thresholds.
- Tax depreciation: Buildings (2% per year), vehicles (12.5–25%), equipment (12.5–20%), intangible assets (20% for software, amortisation period for goodwill).
- Tax losses: Can be carried forward indefinitely (since 2014 reform). However, utilisation is limited to 70% of annual taxable profit. There is no carryback.
- Participation exemption: Dividends received from EU/EEA subsidiaries and capital gains on qualifying shareholdings (≥10% holding, ≥12-month holding) are exempt from IRC, subject to minimum substance and tax rate conditions.
- R&D incentives: An enhanced deduction of 110% (or up to 150% for incremental spending) on qualifying R&D expenditure, subject to limits in the SIFIDE II regime.
Tax Compliance and Payment
Companies must make three advance payments (pagamentos por conta) in July, September, and December of the tax year, generally based on 80% of the prior year's IRC liability. A final payment (or refund) is due when filing the annual return by 31 May. Additional payments (pagamentos adicionais por conta) apply to companies with turnover exceeding €500,000.
Withholding tax applies to certain payments: dividends (28% or reduced under DTA), interest (28% or reduced under DTA), royalties (25% or reduced under DTA), and payments to non-residents for technical services (25%). Reduced rates apply under Portugal's DTA network of over 70 countries, subject to beneficial ownership conditions.
Special Tax Regimes
Participações Sociais (SGPS): Holding companies governed by the SGPS regime benefit from exemptions on dividends and capital gains from qualifying shareholdings, and are not subject to withholding tax on distributions to EU parent companies.
Free Trade Zones (Zonas Francas): Madeira International Business Centre (MIBC) offers a reduced IRC rate of 5% on qualifying income for companies licensed by 31 December 2027 (subject to substance requirements and EU state aid limits). The Azores Free Trade Zone also offers reduced rates.
Tax Transparency Regime: Certain professional companies (sociedades civis) and companies owned by a small number of partners engaged in specified professions can opt for tax transparency, where profits are attributed directly to partners and taxed under personal IRS rather than corporate IRC at the entity level.
FAQs
What qualifies as an SME for the reduced IRC rate?
An SME must have fewer than 250 employees, annual turnover ≤€50M, and/or balance sheet total ≤€43M, under EU Recommendation 2003/361. The reduced 17% rate applies to the first €50,000 of taxable profit.
How is the municipal surcharge calculated?
The derrama is a percentage (up to 1.5%) applied to taxable profit, set annually by each municipality. It is deducted as an expense in the following tax year. Some municipalities offer exemption periods for newly established companies.
Can foreign companies claim the participation exemption?
Yes, provided the foreign subsidiary is subject to and not exempt from CIT in its jurisdiction, at least 10% of capital or voting rights is held, the holding period is at least 12 months, and the subsidiary has adequate substance. The exemption covers both dividends and capital gains on disposal.
Are capital gains on the sale of a business taxable?
Yes. Capital gains on the sale of business assets or shares are included in taxable profit and subject to the standard IRC rate. However, gains on qualifying shareholdings may benefit from the participation exemption. Gains on business assets may be reinvested under the reinvestment regime (reinvestimento de mais-valias) to defer taxation, subject to conditions.
Disclaimer
This guide is for informational purposes only and does not constitute tax advice. Corporate tax is complex and depends on specific facts and circumstances. You should consult a qualified Portuguese accountant (contabilista certificado) or tax lawyer for advice tailored to your business.