Portugal has emerged as one of the most attractive destinations for expatriates and international companies, not only for its quality of life but also for its competitive tax environment and special investment incentive schemes. Among these, the International Competitiveness Tax Incentive Regime (IFICI) stands out, offering significant tax benefits for companies and highly qualified professionals developing high-value-added activities within Portuguese territory.
If you are considering tax optimisation in Portugal, understanding these regimes and agreements is essential to maximising your financial efficiency while fully complying with the law.
1. International Competitiveness Tax Incentive Regime (IFICI)
The IFICI was designed to attract international talent and foreign investment, positioning Portugal as a hub for innovation and competitiveness. This regime allows a reduced personal income tax (IRS) rate on income from employment or self-employment, provided the activities are classified as high-value-added and meet the requirements set by Portuguese legislation.
Key advantages
- Reduced IRS rate for qualified professionals in strategic sectors.
- Exemption or reduction of tax on certain foreign income, as long as it is taxed in the source country or exempt under a double tax treaty (DTT).
- International recognition of the regime facilitates the mobility of professionals and companies.
2. Double Tax Treaties (DTTs)
Portugal has signed an extensive network of Double Tax Treaties to prevent double taxation and combat tax evasion. These agreements set clear rules on where and how specific income (dividends, interest, royalties, salaries, etc.) should be taxed, allowing foreign tax paid to be credited against Portuguese tax on the same income.
Example: If a Portuguese tax resident receives dividends from a foreign company, the applicable DTT may limit the withholding tax at source to 10% or 15% and allow a foreign tax credit in Portugal, avoiding double taxation on the same income.
Important: In a DTT and domestic law conflict, the treaty prevails under the Portuguese legal hierarchy.
3. Intra-Group Dividend Withholding Tax Exemption
Article 14(3) of the Portuguese Corporate Income Tax Code, transposing the EU Parent-Subsidiary Directive, provides an exemption from withholding tax on dividends and reserves distributed by Portuguese companies to parent companies.
The exemption mentioned above is provided to companies resident in another EU/EEA member state (with administrative cooperation) or a country with a DTT and exchange of information, provided that:
- The beneficiary company holds at least 10% of the Portuguese company’s share capital or voting rights.
- The participation is held continuously for at least one year before distribution.
- The beneficiary is subject to and not exempt from a tax equivalent to Portuguese corporate income tax (IRC).
- Tax certification and supporting documentation requirements are met.
Therefore, the mechanism mentioned above eliminates economic double taxation on profits distributed within multinational groups, representing a key tax optimisation strategy for corporate groups in Portugal.
4. Opportunities in the Madeira International Business Centre (IBC/MAR)
The Madeira International Business Centre (IBC) offers one of the most competitive corporate tax regimes in the European Union, particularly in maritime transport, services, and holding activities.
Main benefits:
- Reduced corporate income tax (IRC) rate of 5% until 2028 for qualifying income.
- For comparison, the IRC rate in mainland Portugal is 20% and in Madeira’s general taxation regime, it is 14%.
- Exemption from withholding tax on dividends, interest, royalties, and capital gains paid to shareholders, except when resident in blacklisted jurisdictions.
- Up to 80% exemption from local taxes (IMI, IMT, Stamp Duty).
- Personal income tax exemption for crew members of ships registered in the International Shipping Register of Madeira (MAR ).
- Access to Portugal’s DTT network.
Eligibility conditions:
Creation of at least one job within the first 6 months.Minimum investment of €75,000 within the first two years (waived if six or more jobs are created). Tax benefit caps linked to turnover, added value, or payroll costs.
5. Corporate Tax Optimisation: Eliminating Double Taxation
Portuguese resident companies can credit foreign tax paid on income that may be taxed in the source country under DTTs, up to the amount of Portuguese tax due on the same income. This ordinary foreign tax credit method is the most common and is provided for in both DTTs and the Corporate Income Tax Code.
Note: The tax credit is limited to Portuguese tax calculated on the net income (after deduction of directly related expenses) and may be lower than the actual foreign tax paid.
6. Practical Considerations and Anti-Avoidance Rules
International structures for tax optimisation in Portugal must be carefully designed in compliance with domestic and EU anti-abuse rules. These rules prevent artificial tax advantages from being obtained without real economic substance. Proving the substance and genuine nature of transactions is essential to securing tax benefits.
Conclusion
Portugal offers an attractive and sophisticated tax framework for expatriates and businesses, with multiple tax optimisation opportunities. By correctly applying special regimes, leveraging DTTs, and strategically planning corporate structures, it is possible to maximise tax efficiency while fully compliant with legislation and international best practices.
Notwithstanding the above, specialised legal and tax advisory services are crucial to ensure compliance, mitigate risks, and achieve the best possible results for individuals and companies seeking tax optimisation in Portugal.
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
