Filing a business tax return in Portugal is a legal obligation for all companies. Whether you run a local company (LDA or SA) or a foreign entity with income sourced in Portugal, proper compliance with corporate tax rules is essential to avoid penalties, audits, and financial losses. Understanding the Corporate Income Tax (IRC) framework is key to ensuring that your annual filings are accurate and timely.
This article highlights the most common mistakes businesses make when filing a business tax return in Portugal and provides tips on avoiding them.
1. Missing the Filing Deadline
One of the most frequent errors is failing to submit the business tax return within the legal deadline.
- Companies must submit the periodic income declaration (Modelo 22) by May 31 each year (for those following the calendar year as their tax period).
- The annual accounting and tax information declaration (IES) must be submitted by July 15.
- Businesses with a different fiscal year must file by the last day of the fifth month after their tax period ends.
Avoidance Tip: Maintain a tax calendar with reminders at least 30 days before each deadline and consider appointing a certified accountant to handle submissions.
2. Misreporting Income Sources
Under Portuguese IRC rules, all taxable profit must be accurately reported, including income earned in Portugal by non-resident companies with or without a permanent establishment. Incorrect classification of income, for example, reporting dividends as “other income” or failing to include income derived from Portuguese sources, can trigger audits.
Avoidance Tip: Review income classification rules under the Corporate Income Tax Code, particularly Articles 3, 15, and 17, and seek professional advice when in doubt.
3. Overlooking Tax Deductions and Credits
Many businesses fail to fully leverage the available tax deductions, such as R&D incentives or sector-specific benefits. Others incorrectly claim deductions that are ot allowed under Portuguese law, which can lead to fines.
Avoidance Tip: Keep detailed records of deductible expenses and consult with a tax advisor to identify valid credits and exemptions.
4. Incorrectly Applying Corporate Tax Rates
The standard corporate tax rate (IRC) is 20% in mainland Portugal and 14% in Madeira. Small and medium-sized enterprises (SMEs) benefit from a 17% rate on the first EUR 25,000 taxable profit. Non-resident companies are generally taxed at 25%, but specific categories of income (e.g., lottery winnings) are taxed at 35%.
Avoidance Tip: Confirm the correct rate for our business and consider if regional tax incentives (such as Madeira’s reduced IRC rates) apply.
5. Errors in VAT and IRC Reconciliation
The VAT returns and the business tax return must be consistent. Mismatches between reported turnover for VAT and IRC purposes are a red flag for the Tax and Customs Authority (AT).
Avoidance Tip: Conduct periodic reconciliations between your VAT submissions and accounting records.
6. Incomplete Record-Keeping
If the tax settlement period exceeds this, all transaction records must be kept for 10 years (or longer). Failure to archive invoices, accounting data, and digital records — or storing them outside the EU without prior authorisation- is a standard compliance issue.
Avoidance Tip: Store records on paper in Portugal or an EU member state, and update your declaration of commencement of activity to reflect archive locations.
7. Not Paying Tax in Instalments
Companies with commercial, industrial, or agricultural activity must pay corporate tax in four instalments (July, September, December 15, and May 31). Businesses often overlook these advance payments, leading to interest charges when filing the final business tax return.
Avoidance Tip: Set aside funds for advance payments and confirm the exact amounts with your accountant to avoid cash flow issues.
8. Misunderstanding Tax Representation Rules
Foreign companies without an address in Portugal (or outside the EU) must appoint a tax representative in Portugal to handle their filings and communication with the AT. Neglecting this obligation can result in severe administrative penalties.
Avoidance Tip: Ensure tour company has a tax representative before commencing activities.
9. Failing to Update Company Information
Changes to your company’s name, registered office, or management must be reported within 15 to 30 days (depending on VAT status). Failure to submit a declaration of changes in activity may result in incorrect tax records and delayed filings.
Avoidance Tip: Keep the AT informed of all corporate changes through the online portal or local tax offices.
10. Relying on Outdated Tax Advice
Tax regulations in Portugal evolve frequently. Using outdated templates or rules can lead to serious compliance failures.
Avoidance Tip: Partner with a local tax advisory firm to ensure you continuously comply with the latest Corporate Income Tax Code amendments.
Key Takeaway
Filing a business tax return in Portugal requires a clear understanding of IRC rules, deadlines, and reporting obligations. Mistakes such as missed deadlines, incorrect income classification, and poor record-keeping can be avoided with professional assistance.
At Madeira Corporate Services (MCS), we specialise in helping companies navigate the complexities of Portuguese tax law, from tax registration to business tax return filing and ongoing compliance.
The founding of Madeira Corporate Services dates back to 1996. MCS started as a corporate service provider in the Madeira International Business Center and rapidly became a leading management company… Read more
