Portugal

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Tax Policy

TAX POLICY

Income Tax Rate 46.5 %

Corporate Tax Rate - 12.5% - 29%

VAT Rate – 23%

Income Tax for an Individual

Portugal's tax rates for individuals is progressive. The 2011 tax rate is 11.5%-46.5%.

Exemptions are granted to taxpayers with specific types of income.

Portugal Individual Income Tax Rates 2011

Tax %

Tax Base (Euro)

11.5%

up to 4,898

14%

4,899-7,410

24.5%

7,411-18,375

35.5%

18,376-42,259

38%

42,260-61,244

41.5%

61,245-66,045

43.5%

66,046-153,000

46.5%

153,001 and over

Note: Following Law no.49/2011 there is an additional 3.5% surtax for most types of personal income exceeding EUR 6,790 per year.

An individual in Portugal is liable for tax on his income as an employee and on income as a self-employed person. In the case of an individual who answers the test of a "permanent resident" of Portugal, tax will be calculated on his income earned in Portugal and overseas.

A foreign resident who is employed in Portugal pays tax only on his income in Portugal.

An employer is obligated to deduct, immediately, each month, the amount of tax and national insurance due from a salaried worker.

Corporate Tax

The 2011 rate of tax for a corporation in Portugal is:

·         12.5% for income of up to EUR 12,500 and

·         25% for income exceeding EUR 12,500,

·         with the addition of 2.5% surtax for income exceeding EUR 2 million and a local tax of up to 1.5%, maximum of 29% in total.

Companies in the free trade zone of Azores and Madeira are eligible for a reduced tax rate depending on the type of company and the year in which the company was set up in the free trade zone.

Reporting Dates and Payment

The tax year in Portugal is the year ending on December 31.

Advance payments of tax are made as specified below.

3 advance payments based on the tax paid in the previous year. The advances are paid in July, September and December.

A fourth advance payment of 1% of turnover must be paid by the date of filing the report. There are minimum and maximum amounts for the advance payment.

Individuals and companies are obligated to file financial statements by May 31 for companies, and by April 30 for individuals.

Other deductions

Tax must be deducted at source from the following payments to non-residents on the basis of the following:

Dividend - standard deduction of 21.5%.

Interest - the standard rate of tax deducted at source - 21.5%.

Royalties - the standard rate of tax deducted at source - 15%.

Services - the tax deducted at source is 15%.

Salary -20%.

Comment: Tax deducted at source in respect of foreign residents is subject to the Double Taxation Prevention Treaty.

Value Added Tax

In most cases, VAT in Portugal is 23%.

There is a reduced rate of 13% that applies, in the main, to restaurant services etc. There is a further reduced rate of 6% that relates mainly to basic food products.

The VAT rates for the Azores and Madeira are lower (16%, 9% and 4%).

VAT is payable on assets and services in Portugal as well as on imports into Portugal.

Exports from Portugal are exempt from VAT.

Income from medications and medical services as well as income from insurance and banking services are exempt from VAT.

Reports to the VAT authorities are made monthly but if the annual income is below Euro 650,000 the report is made every three months.

When the annual turnover is less than Euro 9,976, income is exempt from VAT; on the other hand, Vat may not be offset against expenses.