Portugal employs two methods to avoid double taxation of foreign-source income, i.e. the exemption and ordinary tax credit methods.
When a resident company derives business profits through a permanent establishment abroad a Portuguese company may opt for exemption method under certain circumstances and only to permanent establishment in a country with a tax comparable to the Portuguese CIT at a rate not below 60% of the Portuguese CIT rate.
Portuguese CIT rate
| Income |
Rate |
| Dividends |
0% / 25% (1) |
| Interest |
0% (2) / 25% (1) |
| Royalties |
0% (2) / 25% (1) |
| Services and Commissions |
0% / 25% (3) |
| Rental income |
25% |
(1) Subject to reduced rates or exemptions under tax treaties.
(2) The payment or interest and royalties may benefit from an exemption of withholding tax under the
Interest & Royalties Directive provided certain conditions are met.
(3) Most tax treaties exempt these payments from taxation in Portugal.
Domestic-source income derived by non-residents without a permanent establishment in Portugal is generally subject to a final withholding tax levied on the gross amount.
Dividends paid by a Portuguese company to its resident or non-resident shareholders are subject to a 25% flat withholding tax rate, unless an exemption for dividends paid by Portuguese resident entities is also applicable.
To qualify for the withholding tax exemption for dividend payments, the main criteria are the following: (i) 10% minimum shareholding on the Portuguese company distributing the dividends; (ii) one-year holding period (may be satisfied after the income is paid); (iii) resident of shareholder is geographically limited to shareholders resident in a EU Member State, EEA (excluding those that do not exchange tax information with Portugal) or jurisdictions with which Portugal has signed a Double Taxation Agreement with exchange of information mechanism; and (iv) the company receiving the dividends should be subject and not exempt to a tax comparable to the Portuguese CIT at a rate not below 60% of the Portuguese CIT rate.
In case profits are distributed to a corporate entity resident in a blacklisted jurisdiction, a 35% flat withholding tax rate will apply.
No withholding tax on interest paid to Portuguese banks or local branches of foreign banks subject to CIT in Portugal.
Interest income and capital gains derived by qualifying non-residents from public or private debt securities and issued by Portuguese entities securitization notes are exempt from CIT. An exemption is also available for dividend income derived by Portuguese or EU/EEA pension funds, provided some requirements are met.
Capital gains earned in Portuguese territory by non-resident corporate entities are subject to a 25% flat withholding tax rate.
Capital gains derived from the disposal of shares or other corporate rights and securities may benefit from a domestic tax exemption provided such gains are derived by a non-resident without a permanent establishment in Portugal, if the following requirements are met:
(i) The seller is not owned, directly or indirectly in more than 25% by a Portuguese resident company/individual or the seller is not a resident in a blacklisted jurisdiction; and
(ii) The gains derived do note relate to shares or corporate rights in resident companies whose assets consist in more than 50% of Portuguese-situs immovable property or holding companies, whenever such companies are in a control relationship with resident companies whose assets consist in more than 50% of Portuguese-situs immovable property.
Capital gains are also subject to taxation in case of disposal of capital or similar rights of a company when, in any given moment of the 365 days prior to the disposal, the value of that capital or rights resulted, directly or indirectly, in more than 50% from immovable property located in Portuguese territory, with the exception of immovable property used for an agricultural, industrial or commercial activity which does not consist in the acquisition and sale of immovable property.
Resident companies may elect to be taxed within a tax group of companies. The Portuguese tax group does not work as a pure consolidation or fiscal unity system, but each entity must individually assess their taxable profits / losses.
In order for a group of companies to be qualified as a tax group for Portuguese taxation purposes, the following requirements should be met:
(i) the head of the tax group must be the direct or indirect holder of at least 75% of the subsidiaries’ share capital, provided such shareholding represents more than 50% of the voting rights,
(ii) the share capital of head of the group cannot be held in 75% or more by another Portuguese entity,
(iii) all companies within the tax group must have their head office or place of effective management in Portugal and be taxed at the higher CIT rate and
(iv) the participation in the subsidiaries must be held for a minimum period of one year from the moment the tax group is created. Under certain circumstances the Portuguese group taxation regime also allows integration where lower tier Portuguese entities are held by a foreign entity held by a Portuguese entity. Foreign permanent establishments do not qualify to head a tax group.
Under certain conditions, tax losses assessed by the individual companies prior to integration may be offset against the taxable profits of the tax group. The limitations referred above regarding the carry forward of tax losses are applicable to groups of companies.
As of 1 January 2015, it is possible to apply the group taxation regime if the dominant company has its registered head office or place of effective management in an EU or EEA country (in the latter case, provided there is administrative cooperation on tax matters similar to the one in place with the European Union). In addition, among others, the following requirements must be met:
■ The dominant company owns the dominated companies for more than one year with reference to the date at which the regime starts to apply.
■ The dominant company is not directly or indirectly 75% held by a Portuguese dominant company.
■ The dominant company is subject and not exempt from a tax as per Article 2 of Council Directive 2011/96.
The Portuguese transfer pricing regime has come into force in the Portuguese tax legislation in 2002 and follows closely the OECD guidelines. Under this regime, transactions entered into between related entities should reflect the arm’s length principle, i.e. for tax purposes, the controlled transactions’ prices should be established as if the parties were not related, by reference to the conditions which would have been obtained between independent enterprises, in comparable transactions and comparable circumstances. For these purposes, the threshold for the determination of a special relationship is currently in 20% of shareholding. In addition, an entity can be qualified as related party when it has the power to exercise, directly or indirectly, a significant influence on the management decisions of the other.
The scope of the transfer pricing regime covers all taxpayers conducting cross-border as well as domestic controlled transactions, including transactions between permanent establishments and transactions entered into with unrelated entities resident in listed blacklisted jurisdictions.
Taxpayers that in the previous fiscal year obtained over € 3,000,000 of net sales and other operating profits are required to organize, compile and keep contemporaneous transfer pricing documentation for a 10 year period.
Proceeds received by shareholders derived from the liquidation of a Portuguese resident company are qualified as capital gains. The capital gains exemption for both resident and non-resident entities is applicable to liquidation proceeds.
The transfer of the head office with corporate continuation or of the place of effective management (qualified as a cease of activity) of a company, without such company being liquidated, gives rise to a taxable gain or loss equal to the difference between the market value of the assets and their book value (at the general CIT rate).
The exit tax rules applicable to transfers of residence of Portuguese companies to other EU/EEA countries provides the following options for the payment of CIT: (i) immediate payment of CIT upon exit, (ii) option for payment in five instalments and (iii) option for deferral until the year of effective disposal of the asset or transfer of residence to another jurisdiction.
Companies licensed to operate in IBCM from 1 January 2007 to 31 December 2021, are subject to a reduced 5% tax rate, subject to ceilings of taxable income, variable according to the number of jobs created.
Taxable income ceilings
| Number of jobs created |
Tax base ceiling (€M) |
| 1-2 |
2,73 |
| 3-5 |
3,55 |
| 6-30 |
21,87 |
| 31-50 |
35,54 |
| 51-100 |
54,68 |
| >100 |
205,5 |
Entities licensed to operate in the IBCM from 1 january 2015 to 31 december 2021 are subject to one of the following benefit limits:
- a) 20,1% del valor añadido bruto anual; ou
- b) 30,1% de los costes anuales con mano de obra; o
- c) 15,1% del volumen de negocios.
Portugal has a general anti-abuse clause, special rules on tax-driven restructurings and rules on payments made to blacklisted jurisdictions. Portugal has implemented also a mandatory disclosure regime for abusive tax planning following the so-called DAC 6 directive. Corporate profits of a foreign company resident in a low-tax jurisdiction may be attributed to the participators having a substantial interest therein and taxed in their hands in proportion to their holdings.
Last updated: 29/04/2025
