Portugal Tax & Business Guide - Deloitte

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Basic facts
Population 10.6m Inflation 3.1% (2006)
Main languages Portuguese GDP per head US$18,440
Currency Euro (ƒ) GDP growth 1.3% (2006)
Economic communities European Economic Area, EU, OECD, WTO
GDP sources 8.0% agriculture, 25.4% industry, 66.2% services
Political environment

Portugal is a parliamentary republic. The prime minister is Jos» S€crates and the president is AnÃbal Cavaco Silva. The next legislative elections are due by November 2009.
Foreign trade and investment
Exports US$43.6bn (2006) Imports US$64.5bn (2006)

Leading exports: Transport goods, machinery, clothing and shoes.

Major export markets: EU countries, particularly France, Spain, Germany and the UK.

Foreign investment is encouraged and there are no distinctions between domestic and foreign investment and no sectors are barred from foreign investment. However, foreign investments in security or public health must receive prior approval.
Business and financing
Business forms Private limited liability companies, corporations

The main corporate business vehicles for foreign investors are sociedade por quotas de responsabilidade limitada (private limited liability or ÏquotaÓ company) and sociedade an€nima (SA, or corporation). A foreign company may also set up a branch in Portugal.

Lisbon, the capital, remains the main banking centre.
Labour environment
Unemployment rate 7.7% (2006) Minimum wage ƒ403 (monthly)

Union membership in firms with more than 100 employees is around 35%.

A statutory minimum wage is set each year by the government.

Social security contributions have rates of 23.75% (plus at least 0.8% for occupational-injury coverage) for the employer and 11% for the employee.

Non-EU expatriates need work and residence permits.
Taxation
Corporate tax
Main rate 25% (22.5% in Madeira, 17.5% in Azores), plus municipal surcharge

Resident companies are taxed on their worldwide income; non-resident companies are taxed only on Portuguese-source income. A company is considered to be resident in Portugal if its legal seat or place of effective management is in Portugal. The standard corporate income tax rate is 25%. In addition, a municipal surcharge is levied up to 1.5% of taxable profits, giving rise to a maximum effective rate of 26.5%. A reduced rate of 20% may apply to certain small companies under the simplified scheme, and other reduced rates may apply to companies set up in less-developed areas. A Ïspecial prepaymentÓ exists based on a percentage of turnover functions as a minimum corporate tax. Branches are taxed in the same manner as domestic companies.

There is a participation exemption for dividends paid between resident and EU companies under certain conditions.
Individual tax
Progressive rates up to 42%

Resident individuals are taxed on their worldwide income; non-residents are taxed only on their Portuguese-source income. Income tax is charged at progressive rates ranging from 10.5% to 42%. An individual is resident if present in Portugal for 183 days or more in a calendar year or, if less, on December 31st of a calendar year has residential accommodation that will become a permanent residence. Resident individuals include only 50% of their dividend income in their taxable income. Interest received is generally subject to a final withholding tax rate of 20%.
Capital gains
Company gains taxed as income

Gains of companies are taxed as ordinary income at the corporate income tax rate. A general exemption is provided for gains from the disposal of business assets owned for at least one year provided the total proceeds arising from the disposal are reinvested within a prescribed period. Pure holding companies with the status of a sociedade gestora de participa¡?es sociais (SGPS) benefit from a different tax regime, which provides for an exemption from capital gains on the disposal of shares if the shares have been held for at least one year (or three years in certain circumstances).

Only 50% of gains of individuals from the disposal of immovable property are subject to tax. Capital gains arising from the disposal of an individualÌs main residence are exempt where the proceeds are used to purchase another permanent residence in the Portuguese territory within 12 months before or 24 months after the sale. Capital gains derived by individuals from the sale of shares of a corporation held for more than 12 months are excluded from taxation (unless the companyÌs assets primarily comprise immovable assets located in Portugal).
Indirect tax
VAT standard rate 21% Reduced rates 12%, 5%

Value-added tax (VAT) applies to most transactions at the standard rate of 21%. A reduced rate of 12% rate applies to restaurant services and a 5% rate applies to some necessities. Exports are zero-rated. Exemptions include financial and insurance transactions, transactions relating to shares and other securities, and immovable property. The VAT rates in Madeira and the Azores are 15%, 8% and 4% respectively.

Registration is compulsory for businesses.
Tax administration and compliance
Tax year Corporations: accounting year; Individuals: calendar year

Corporate taxpayers must file their corporate tax returns by the last business day of May of the following year and a supporting accounting and tax report (including statutory accounts and information related to payments to non-residents, employees and independent professionals) by the last business day of June of the following year. If the financial and tax year do not correspond to the calendar year, a company must file its final return by the end of the fifth (tax return) and sixth month (supporting accounting and tax report) following the end of the tax period.

Employment income of individuals is taxed by withholding. Filing deadlines are between February 1st and March 15th following the year-end for individuals with employment or pension income only, and between March 16th and April 30th for individuals with other categories of income. Final payment of tax is due by May 31st following the year-end where the only income was employment or pension income, and June 30th where other income was received.
Additional tax information
Withholding taxes Dividends and Interest 20%, Royalties 15%, Service fees 15%. Rates may be reduced or eliminated under an applicable tax treaty or application of an EC directive.
Tax treaties Portugal has concluded more than 40 tax treaties.
Dividends Dividends received are subject to tax but a full or 50% exemption is available for dividends received from Portuguese or other EU companies.
Revenue protection There is transfer-pricing, thin-capitalisation and anti-haven legislation.
Groups There are provisions for group taxation.
Incentives Industrial investment; R&D; tax-free zones; less-developed areas; tourism; property transfer tax and stamp duty exemptions.
Other taxes Capital duty, Import duties, Municipal property annual tax, Municipal property transfer tax, Oil-related levies, Special land appreciation levies, Stamp tax, Vehicle duty.