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.
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|
Taxation of Income, Subventions and Allowances - exemptions
|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|
|Lunch allowance||-||Up to € 4.77/day|
|Meal vouchers||-||Up to € 7.63/day|
|Child expenses vouchers||-||X|
|Allowance for house rental||X||-|
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.|
Company Tax Rates
- Please see our company tax page.
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.
- 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 (%)|
|Ordinary tool and paintings||25.00|
|Engines and machine tools||12.50|
- 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.
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.
- 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;
- 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.
- 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.
VAT on property
- The transfer of real estate (immovable property) in Portugal is exempt from VAT.