Rates and allowances

These notes are intended as a guideline to income tax in Portugal and should not be used as a substitute for proper professional advice. Please contact us and we will be happy to assist you.

1.

Income Tax Rates for the year ended 31st December 2020

PIT rates - Portugal mainland:

Taxable income (€) Rate (%) Deductible Amount
Up to 7,112 14.5 -
+7,112 up to 10,732 23 604.54
+10,732 up to 20,322 28.5 1,194.80
+20,322 up to 25,075 35 2,515.63
+25,075 up to 36,967 37 3,017.27
+36,967 up to 80,882 45 5,974.54
+80,882 48 8,401.21

Taxation of Income, Subventions and Allowances - exemptions

Description Taxation Exemption
Salaries, holidays and Christmas allowances, commissions X -
Members of statutory board X -
Cash shortage allowance - Up to 5% of the monthly salary
Daily allowance in Portugal Directors - Up to € 69.19/day
Daily allowance in Portugal Others - Up to € 50.20/day
Daily allowance for travels abroad Directors - Up to € 100.24/day
Daily allowance for travels abroad Others - Up to € 89.35/day
Mileage allowance (own car) - Up to € 0.36/Km
Company car – acquisition/private use X -
Loans granted by the employer – acquisition of permanent private house X (≤ €180,426.40) and (rate≥ 70% x ECB rate)
Loans granted by other entity in which the employer bears an interest (totally or partly) X -
Loans granted by the employer – other purpose X -
Extraordinary profit distribution/profit distribution X -
Indemnity for the termination of the employment contract - Up to (average of the regular salary of the last 12 months) * years of work
Early retirement X -
Lunch allowance - Up to € 4.77/day
Meal vouchers - Up to € 7.63/day
Child expenses vouchers - X
Education voucher X -
Allowance for house rental X -
2.

Capital Gains Tax Rates

Residents 28% In 50% of the capital gain on shares sales. Marginal rates varying between 14.50% and 48% In 50% of the capital gain from the sale of real estate.
Non-residents 28% In 100% of the capital gain.
3.

Company Tax Rates

4.

Wealth Tax (Imposto sobre o Património)

  • Portugal's version of wealth tax affects those whose ownership of Portuguese property is worth over €600,000, regardless of where they are resident. Rates are 0.4% for properties held by companies, 0.7% for individuals and 1% for those whose share in Portuguese property goes over €1 million.
5.

Allowable Depreciation

  • The qualifying cost of an asset for tax purposes is the acquisition or production cost. Depreciation must be computed by using the straight-line method or the declining-balance method. The latter cannot be applied to buildings, passenger vehicles, furniture, social welfare equipment, or second-hand assets. Straight-line rates of depreciation are normally consistent with rates privately used by business and industry and are increased, for the purposes of applying the declining-balance method, by coefficients of:
    • 1.5 if assets have a useful life of less than five years.
    • 2 if useful life is five or six years.
    • 2.5 for useful lives in excess of six years.
  • Different depreciation methods may be applied without previous approval from the PTA (annual depreciation cannot, however, exceed the depreciation resulting from using either the straight-line or declining-balance methods).

Type of asset Depreciation rate (%)
Office building 2.00
Industrial building 5.00
Electronic equipment 20.00
Computers 33.33
Ordinary tool and paintings 25.00
Engines and machine tools 12.50
Office equipment 20.00
Furniture 12.50
Software 33.33
Passenger vehicles 25.00
  • Depreciation must be recorded in accounts to be deductible. And within above limits, except: Accelerated allowance may be granted for new assets located in Portugal, where it can be demonstrated that actual depreciation took place.
6.

VAT (IVA - Imposto sobre o valor acrescentado)


Mainland Madeira Island Azores Islands
Normal rate (Taxa normal) 23% 22% 18%
Intermediate rate (Taxa intermédia) 13% 12% 9%
Reduced rate (Taxa miníma) 6% 5% 4%
  • Periodical VAT returns – monthly filing, up to the 10th of the second month following the one to which the return refers to, or, if the annual turnover is lower than € 650,000, quarterly filing, up to the 15th of the second following month;
  • A monthly regime applies for businesses with turnover above 6 million Euros.

Exemptions

  • Intra-Community supply of goods;
  • exports, operations comparable to exports and international transport services;
  • supply of goods which are intended to be placed under tax and customs bonded warehouses, while the goods are under a suspensive regime;
  • Insurance Transactions
  • Medical and health service
  • Transfer and leasing of immovable property;
  • Certain services rendered by non-profit making organizations;
  • Subscription fees of non-profit organizations;
  • Education
  • Certain financial operations;
  • Food and beverages supplied by employers to its staff;
  • Services related with the interpretation of Portuguese sign language.
  • Certain cultural activities

Deductibility of VAT

  • VAT incurred can only be deducted if it is mentioned in an invoice / simplified invoice issued in accordance to the applicable rules, or in an import document issued by the Portuguese Tax and Customs Authorities.

Non-deductible VAT

  • VAT is not deductible in respect to the following expenses:
  • Non-commercial vehicles (that use gas or diesel), leisure boats, helicopters, airplanes, motorcycles;
  • Fuel used by motor vehicles, except diesel, LPG, natural gas and biofuels, which VAT is deductible in the proportion of 50%, except in case of certain goods in respect of which the VAT on the consumption of diesel, gasoline, LPG, natural gas and biofuels is fully deductible;
  • Transport, food, beverage and accommodation;
  • Tobacco, entertainment and luxury expenses.
  • The VAT incurred in expenses relating to transport, food and accommodation related to the organization of congresses, fairs, exhibits, seminars, conferences and similar events, is deducted by 50%. The deduction is capped at 25% in case these expenses are related to the participation in the referred events.
  • VAT incurred in expenses with electricity used in electric or hybrid plug-in vehicles is deductible.
7.

VAT on property

  • The transfer of real estate (immovable property) in Portugal is exempt from VAT.

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