Home > A Simple Guide to Small Business Corporation Tax in Portugal
Published at 23 October 2023
This guide will break down what corporation tax is, how and when you need to pay it, and provide practical tips on calculating and reducing your tax liability.
Corporation tax, known as Imposto sobre o Rendimento das Pessoas Coletivas (IRC) in Portuguese, is a tax on the profits of your business.
In Portugal, corporations must report their profits and pay IRC on an annual basis. The reporting period typically corresponds to the calendar year, running from January 1st to December 31st, with your corporation tax payment being due the following year.
To fulfill your tax obligations, you need to file an annual tax return and pay any owed taxes by the deadline. The deadline is usually May 31st of the following year. However, this date may change, so it's essential to stay updated with the latest tax regulations.
Calculating corporation tax can be complex, but here's a simplified example:
Step 1: Calculate Your Taxable Income
Start with your business's total revenue and deduct allowable expenses such as salaries, rent, utilities, and depreciation. The resulting figure is your taxable income.
Step 2: Apply the Applicable Tax Rate
Step 3: Account for Deductions and Credits
Portugal offers various tax deductions and credits that can reduce your tax liability. For example, small and medium-sized businesses may qualify for a reduced tax rate of 17% on the first €25,000 of taxable income. Investigate these opportunities to lower your tax bill.
1. Take Advantage of Tax Deductions: Be meticulous about recording your business expenses. Common deductible expenses include employee salaries, rent, interest on loans, and depreciation.
2. Opt for the Appropriate Legal Structure: Choosing the right business entity and activity can impact your tax liability. Consult with a tax professional to determine whether a sole proprietorship, LDA, or another structure is most tax-efficient for your business.
3. Explore Investment Incentives: Portugal offers various investment incentives and tax breaks for certain industries and regions. Research if your business qualifies for these benefits.
4. Consider International Tax Treaties: If you operate internationally, Portugal has tax treaties with numerous countries to prevent double taxation. Ensure you're taking full advantage of these treaties.
5. Engage a Tax Professional: Tax laws can be complex and subject to change. Hiring a tax professional with expertise in Portuguese tax regulations can help you navigate the system and minimize your tax liability.