Tax Regulations You Should Know Before Starting a Company in Portugal

Portugal offers a welcoming environment for entrepreneurs, especially with programs like the Non-Habitual Resident (NHR) regime and various incentives for startups. But before launching your business, it's crucial to understand the key tax regulations that apply to your company. Getting this wrong can lead to unexpected costs, delays, or penalties.

In this article, we break down the most important tax obligations you need to know — so you can set up your business in Portugal with clarity and confidence.

1. Corporate Income Tax (IRC)

Companies in Portugal are generally subject to Corporate Income Tax (Imposto sobre o Rendimento das Pessoas Coletivas or IRC) at the following rates:

• Standard Rate: 21% (national)
• Municipal Surtax (Derrama): Up to 1.5% depending on your company’s location
• State Surtax (for profits above €1.5M): 3%–9%

If you’re just getting started, you may qualify for reduced rates in your first few years — depending on your company type and size.

2. Value-Added Tax (VAT or IVA)

VAT in Portugal is charged at:

• Standard rate: 23% (mainland
• Reduced rates: 13% or 6% (for certain goods and services)

Most companies must register for VAT if they expect to generate revenue above €12,500 annually. You’ll be required to:

• Charge VAT on your invoices
• Submit periodic VAT returns (monthly or quarterly)
• Keep detailed invoice records

Tip: Learn how this ties into your company setup here: What is NIF and Why It Is Important to Start a Business in Portugal

3. Social Security Contributions

Once you have registered your company and start operating, you’ll need to register yourself (and any employees) with Portuguese Social Security.

• For company directors: The standard rate is 34.75% (23.75% by the company, 11% by the individual)
• For employees: The same contribution breakdown applies

Failing to register or submit contributions on time can lead to legal and financial penalties.

4. IRS Withholding for Freelancers and Contractors

If you hire self-employed professionals in Portugal, you are usually required to withhold IRS (income tax) at a rate of 11.5% (unless they are exempt). This must be reported and paid to the tax authority by the 20th of the following month.

5. Annual Reporting & Invoicing Obligations

Every registered company in Portugal must:

• Submit an annual income tax declaration (Modelo 22)
• Deliver the IES (Simplified Business Information) report
• Use certified invoicing software approved by the tax authority (AT)
• File SAF-T accounting files

These reports ensure full tax transparency and must be handled by a certified accountant (Contabilista Certificado), which is mandatory for most businesses.

At FreeAcing, our accounting team ensures you meet all your deadlines — from monthly VAT filings to annual declarations.

6. Municipal Taxes and Fees

Depending on your company’s location, you may also face local taxes such as:

• IMI (Municipal Property Tax) – if you own business property
• Municipal business licenses for specific industries (like restaurants or tourism)

If you haven’t chosen a registered address yet, this can impact your tax burden. Be sure to read: How to Choose the Right Business Address When Registering a Company in Portugal

7. Start-Up Tax Benefits and Incentives

Portugal offers tax incentives for:

• Startups and innovation-driven companies
• Foreign investors
• Green energy and tech businesses

Programs like Startup Portugal, Compete 2030, and the RFAI (investment tax credit) can reduce your tax liability if you qualify.

Final Thoughts

Tax compliance is not just a box to tick — it's a core part of operating legally and sustainably in Portugal. Understanding these key tax rules will help you launch your business with clarity, avoid pitfalls, and make smarter financial decisions from day one.

Need help with tax registration, accounting, or compliance? Contact FreeAcing — our certified accountants are here to guide you from setup to success.