The standard corporate tax rate in Portugal is 21%.

However, other rates apply as follows:

A reduced 17% tax rate applies to the portion of taxable income of up to EUR 50,000 (increased from EUR 25,000, effective 1 January 2023) earned by micro, small and medium-sized enterprises (SMEs). Effective 1 January 2023, the reduced corporate tax rate of 17% also applies to small mid-cap companies. Taxable income in excess of EUR 50,000 is subject to tax at the standard corporate tax rate for both SMEs and small mid-cap companies;
12.5% for SMEs located in Portuguese inland regions (reduced from 17%, effective 1 April 2020);
8.75% for SMEs located in the Autonomous Regions of Madeira and Azores (see below); and
Effective 1 January 2024, 12.5% for the portion of taxable income of up to EUR 50,000 earned by innovative start-ups.

Where eligible SMEs are involved in a restructuring operation between 1 January 2023 and 31 December 2026 and the operation results in the creation of a (beneficiary) company which is not an SME, the reduced corporate tax rate continues to apply for a period of 2 years from the restructuring of operations provided all the companies involved in the restructuring are SMEs qualifying for the reduced rate.

The category of SMEs is defined under the law as companies that:

Employ less than 250 persons; and
Have an annual turnover not exceeding EUR 50 million or a total annual balance sheet not exceeding EUR 43 million.

A municipal surcharge ("derrama municipal") of up to 1.5% applies on taxable profits before offsetting any loss carry-forwards.

Also, a state surcharge ("derrama estadual") applies on taxable profits (before the offset of any loss carry-forward) as follows:

Taxable profit over EUR 1.5 million and up to 7.5 million: 3%;
Taxable profit over EUR 7.5 million and up to 35 million: 5%; and
Taxable profit over EUR 35 million: 9%.

Special taxation rules apply to entities engaged in certain business activities, including gaming oil exploration, exploitation, and production.

Certain enterprises are eligible for incentives and subject to specific tax regimes (see Sec. 10.).

Pillar 2 Global Minimum Tax

Effective 23 December 2022, the EU Global Minimum Tax (GMT) Directive was published in the EU official journal as Council Directive (EU) 2022/2523 of 14 December 2022. EU Member States are required to enact laws, regulations, and administrative provisions necessary to comply with the EU GMT Directive by 31 December 2023.

Essentially, the EU GMT Directive provides for the implementation of an Income Inclusion Rule (IIR) and an Undertaxed Profits Rule (UTPR) with respect to in-scope MNEs, being those with annual consolidated revenues of EUR 750 million or more in at least two of the four fiscal years immediately preceding the tested fiscal year. The IIR and the UTPR are, in combination, referred to as the GloBE Rules. The Directive also allows Member States to opt for the adoption of a Qualified Domestic Minimum Top-Up Tax (QDMTT) for domestic low-taxed entities.

The following entities are out of the scope of the EU GMT Directive:

Government entities, international organizations, non-profit organizations, and pension funds;
Investment funds and real estate investment vehicles but only when they are the ultimate parent entity (UPE) of an MNE Group; and
Entities directly or indirectly owned by the above-mentioned entities.

Portugal has not yet implemented the Pillar 2 regulations in its domestic law. However, the IIR is expected to apply in Portugal for financial years beginning from 1 January 2024, and the UTPR is expected to apply for financial years beginning from 1 January 2025.

The EU GMT Directive provides a temporary deferral for EU Member States with fewer than 12 in-scope UPEs located in their jurisdiction. The EU Member States can elect not to apply the directive for six consecutive fiscal years (i.e., up to 31 December 2029) provided they notify the European Commission of their intention to exercise this opt-out right before 31 December 2023.

Filing of Top-Up Tax Information Return

The EU GMT Directive requires that a constituent entity located in an EU Member State files a Top-up Tax Information Return with the tax authorities of that Member State within 15 months (18 months for the first year of application) from the last day of the relevant fiscal year. However, the obligation to file is waived if a constituent entity within the MNE group has filed the Top-up Tax Information Return in another jurisdiction, provided there exists a competent authority agreement between the EU Member State and that jurisdiction for the automatic exchange of annual Top-up Tax Information Returns. In such cases, the constituent entity located in the EU Member State must notify the tax authorities of the identity of the entity that has filed the Top-up Tax Information Return.

Failure to file the Top-up Tax Information Return may attract penalties prescribed by the relevant EU Member State.

Key Differences from the OECD Model Rules

Domestic Groups

In contrast to the OECD Model Rules, the EU GMT Directive extends the application of the GloBE Rules to purely domestic groups. Under the OECD Model Rules, only low-taxed foreign entities (or permanent establishments) are considered for applying the IIR. However, under Articles 5, 6, and 7 of the EU GMT Directive, the EU Member State of a constituent entity applying the IIR is required to apply it to not just foreign low-taxed subsidiaries but also to low-taxed constituent entities resident and permanent establishments located, in that Member State.

The OECD Model Rules provide that where a UPE is a low-taxed entity, top-up tax is applied through the UTPR rather than the IIR. However, in the EU, this would only happen when the UPE is located outside the EU. If the low-taxed UPE is located within the EU, it is required to apply the IIR to itself and its domestic subsidiaries.

Claw Back Provisions

The EU GMT Directive further provides that where the current tax is not expected to be paid within three years following the end of the relevant fiscal year, the tax is clawed back and included in the top-up tax calculation for that fiscal year. This is an extension of Art. 4.1.3(e) of the OECD Model Rules that recaptures current tax not paid in a similar timeframe.

Deferred Tax

A special transitional rule in Art. 9.1.2 of the OECD Model Rules applies effective 30 November 2021 to deferred tax assets arising from permanent differences that are included in calculating taxable income but are not GloBE income. The transitional rule is retained in the EU GMT Directive but applies effective 15 December 2021.

Autonomous Regions of Madeira and Azores

The standard corporate tax rate is 14.70% in the autonomous regions of Madeira and Azores (reduced from 20% and 16.8%, respectively, effective 1 January 2021).

A reduced tax rate of 8.75% (reduced from 11.9%, effective 28 July 2022 in the autonomous region of Madeira and effective 1 January 2023 in the autonomous region of Azores) applies to taxable income of up to EUR 50,000 (increased from EUR 25,000, effective 1 January 2023) earned by small and medium enterprises.

A regional surtax (“Derrama Regional”) also applies in the autonomous regions of Madeira and Azores, as follows:

Taxable profit over EUR 1.5 million and up to 7.5 million: 2.1% in Madeira and 2.4% in Azores;
Taxable profit over EUR 7.5 million and up to 35 million: 3.5% in Madeira and 4% in Azores; and
Taxable profit over EUR 35 million: 6.3% in Madeira and 7.2% in Azores.

Special Taxation Regime for Small Businesses (Simplified Tax Regime)

Resident companies having annual turnover not exceeding EUR 200,000 and total assets not exceeding EUR 500,000 may opt to be taxed under a simplified regime of taxation, subject to certain other conditions (see Sec. 10.4.). Effective 1 January 2023, income from crypto assets is considered for computing the taxable income under the simplified tax regime, by applying a coefficient of 0.15 to the sales of crypto assets (excluding capital gains).

Under the regime, the taxable income is determined as a percentage of turnover (ranging between 4% and 100%), depending on the nature of the income.

Temporary Solidarity Contribution on Energy and Food Distribution Sectors (Windfall Tax)

On 22 December 2022, Portugal introduced a temporary solidarity contribution on surplus profits (windfall tax) in the energy sector based on EU Council Regulation 2022/1854.

The temporary solidarity contribution (known as CST Energy (CST Energia)) applies for the tax periods 2022 and 2023 at the rate of 33% on taxable profits exceeding 120% of the average taxable profits in the preceding four tax periods beginning on or after 1 January 2018. It applies to resident companies and non-residents having a permanent establishment in Portugal, generating at least 37.5% of their turnover during a tax period from the extraction, mining, refining of petroleum, or manufacture of coke oven products.

A similar contribution (known as CST Food Distribution (CST Distribuição Alimentar)) applies to surplus profits in the food distribution sector. The contribution applies for the tax periods 2022 and 2023 at the rate of 33% on taxable profits exceeding 120% of the average taxable profits in the preceding four tax periods beginning on or after 1 January 2018. It applies to resident companies and non-residents having a permanent establishment in Portugal, generating at least 25% of their turnover during a tax period from the production of food products of animal or vegetable origin (whether fresh, frozen, processed, raw, in bulk, or prepackaged). The contribution does not apply to micro or small companies unless they are part of a tax group with group turnover exceeding EUR 100 million.

The CST Energy and CST Food Distribution must be declared by the 20th day of the 9th month following the end of the tax period and is due by the last day of the 9th month. Contributions paid are not deductible for corporate tax purposes.

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