Taxation in Portugal

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Taxation in Portugal

by | Tuesday, 25 January 2022 | Corporate Income Tax, Investment

Taxation in Portugal

Taxation in Portugal is levied by both the national government and by the regional governments of the Autonomous Regions of Azores and Madeira. Understanding how corporate taxation is levied at the national and regional level is important, especially when your business and company are not limited in their activity by the physical location of their headquarters while operating in Portugal, such is the case of international services providers.

Given the above, the corporate tax rate applicable to companies in Portugal will vary, depending on which part of the Portuguese territory said companies are incorporated and domiciled. From the get-go, the Autonomous Region of Madeira is the Portuguese territory with the highest tax efficiency for companies and investors.

Everything you need to know about Taxation in Portugal

Corporate Taxation in Portugal

 Type of entity incorporatedMIBC*Autonomous Region of MadeiraPortuguese mainland
Resident entities and permanent establishments of non-resident entities

 

5%14,7%21%
Resident entities characterized as a small or medium enterprises, on the first € 25 000 of taxable profit11.9%17%

 

Incorporation of entities within the MIBC – Madeira International Business Center allows for a 5% tax rate that is only applicable on taxable profit deriving from non-resident entities (otherwise, the standard rates apply) along with additional tax benefits for shareholders. A special license is required

VAT

Portugal (and its Autonomous Regions) as an EU-Member state is subject to all value-add tax European law. Again, understanding how VAT is levied at the national and regional levels is important, when deciding to incorporate your business.

Type of ratesAutonomous Region of MadeiraPortuguese mainland
Normal rate (most goods and services)22%23%
Intermediate Rate (F&B services)12%13%
Reduced Rate (food and essential goods)5%6%

 

Madeira as a Portuguese tax-efficient location

Since the 1980s Madeira has always positioned itself as a tax-efficient jurisdiction within Portugal, and therefore within the European Union, making it an ideal location for international services companies with operations in the European single market and worldwide.

Apart from the reduced taxation mentioned above taxation, adequate infrastructures, competitive operational costs, safety and quality of life, position Madeira with a unique package of benefits, that promote efficiency and performance of various forms of investment.

Located in the Atlantic Ocean, 900 km southwest of Lisbon, the Autonomous Region of Madeira is an archipelago, with a total population of 267,785 inhabitants, and the city of Funchal as its most important centre and capital.

Madeira’s appeal to international investors have been the result of the island’s consistently low inflation rate, low taxation, and its extremely competitive operational costs, in comparison with other European locations.

Infrastructures that support low taxation

Available to investors are several conference rooms and office centres providing office space for rental, as well as laboratories and a local university, with several courses ranging from Biology and Chemistry to Electronics and several Engineering courses. The Madeira University has, in addition, a cooperation agreement with Carnegie Mellon University in Pittsburgh, USA, for a Master Degree in Human-Computer Interaction.

Additionally, Madeira benefits from a Submarine Cable Station, hosted in the “Madeira Datacenter”, operating several international optical submarine cables, allowing interconnectivity with national and international SDH networks and providing, as such, significant advantages in terms of quality, cost, bandwidth and scalability.

Another available infrastructure is the Internet Gateway provided by Marconi Internet Direct (MID). This MID offers international Internet access without any contention and uses diversity in the access to international backbones. The IP platform has its international connectivity distributed by: 3 PoPs (London, Amsterdam and Paris), peering connections with hundreds of major international ISPs and IP transits to Europe and the USA.

The above infrastructures make Madeira a European Region with enviable internet speed.

This article is provided for general information purposes only and is not intended to be, nor should it be construed as, legal or professional advice of any kind.

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Tax advisors or a tale as old as time

Tax advisors or a tale as old as time

As tax advisors since 1995, we have heard our fair share of tales as old as the time of expats relocating to Portuguese territory for immigration and tax purposes, ending up not complying with Portuguese tax law and therefore facing unpleasant surprises (penalties,...

Real Estate Bubble in Portugal. When will it burst?

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