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Business Taxation for Expats in Portugal

Submitted: February 2014

The authority responsible for Portuguese tax is the Direcção Geral dos Impostos, part of the Ministério das Finanças e do Planeamento.

Registration

For expats, a common form of business structure in Portugal is the quota company or sociedade por quotas (SPQ), which is essentially the same as a private limited liability company. They offer the following advantages:

Quota companies are also useful because they can either be taxed as a single entity, or they can be viewed under the tax transparency regime, whereby the income earned by the company is seen as flowing through to the individual shareholders, each of whom is liable for individual income tax according to the size of their holding in the company.

Another version of the quota company is the sociedade unipessoal por quotas (SUPQ) which is an SPQ with only one shareholder. An SUPQ is identical to an SPQ in all other respects.

For one-person companies, there is the limited liability individual establishment (EIRL). This effectively enables individuals to operate as self-employed, with their liability limited to the capital in the company. The minimum share capital for an EIRL is €5,000, of which two-thirds must be deposited in a special business bank account.

There is also the sole proprietorship, which is unincorporated and hence not separated from its owner. The owner is fully responsible for all business liabilities and is subject to individual income tax on the income from business activities. Given the advantages of the SPQ and EIRL, a sole proprietorship is not a particularly tempting option.

Portugal has a remarkably rapid registration process called Empresa na Hora (On-the-Spot Firm), by which it is possible to register a company in less than one day, and possibly in under an hour, with just a single visit to one office. The English version of their website is here.

 

Corporate Income Tax

The Portuguese tax year for companies runs from 1 January to 31 December. Portugal-resident companies are liable for corporate income tax on their worldwide income. The corporate income tax rate is 23%; companies based in the Azores pay a lower tax rate of 17.5%. SMEs are taxed at a reduced rate of 17% on the first €15,000 of income. In addition to corporate tax, companies must pay municipal tax of 1.5%. A state surtax applies to companies earning in excess of €1.5m.

Companies must also pay payroll tax (social security) on wages and salaries, generally at a rate of 23%. Capital gains and interest are generally treated as ordinary income and taxed as such. Capital losses cannot be carried back or forward. While income losses can be carried forward for twelve years, they cannot be carried back.

A business with an income of less than €200,000 does not need to calculate taxable income on the basis of a profit and loss account; instead they can calculate it on the basis of turnover only. The tax department use different percentages for different kinds of business. Low-margin businesses such as a hotels, bars, restaurants or shops, can opt to be taxed on 4% of turnover. Higher margin businesses such as property rental companies can opt to be taxed on 95% of turnover.  

Companies must file their Portuguese corporate income tax returns electronically within five months of the end of the tax year. Companies must make advance payments of tax three times a year. The amount payable is equal to 23.33% of the previous year’s tax (the rate is 30% for companies with a turnover of more than €498,797.90). The final instalment of the actual balance of tax payable must be made before the end of the fifth month after year end. The final figure will take into account any provisional payments that have been made. There are also special payments which must be made twice a year; these are calculated as a percentage of turnover. The special payments do not apply to companies with income of less than €200,000 who have adopted the simplified turnover reporting method outline above.

 

 

 




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