Portugal

The standard rate for corporate tax is being decreased through a transitional schedule. For tax periods beginning in 2026, the standard rate is 19%; for tax periods beginning in 2027, it will be 18%; and the definitive rate of 17% applies to tax periods beginning on or after 1 January 2028.

Notwithstanding, there are specific rates foreseen in Portuguese law, such as:

• 15% on the first EUR 50,000 of taxable profit for small or medium-sized enterprises and small mid-caps;
• 12.5% on the first EUR 50,000 for startups;
• 25% on Portuguese‑source income obtained by non‑residents without a permanent establishment; and
• 35% to capital income received by entities domiciled in a blacklisted jurisdiction.

In addition to the general corporate tax rate, in Portugal there is also a state surcharge and a local surcharge:

• State surcharge (Derrama Estadual). Levied on taxable profit exceeding EUR 1,500,000 considering the following ranges:
  • from EUR 1,500,000 to EUR 7,500,000—3% rate;
  • from EUR 7,500,000 to EUR 35,000,000—5% rate; and
  • above EUR 35,000,000—9% rate.
• Local surcharge (Derrama Municipal). Up to 1.5% of taxable profit and not exempt from corporate income tax; the effective rate is set annually by each municipality and applies cumulatively with the state surcharge.

Please note that for the Autonomous Regions of the Azores and Madeira there are some reductions of the rates referred to above.

In addition, the Portuguese Corporate Income Tax (CIT) Code also establishes a regime of autonomous taxation that applies regardless of taxpayers’ taxable profit or loss, targeting specific expenses. Each qualifying expense has its own applicable rate:

• Undocumented expenses: 50% (70% for exempt or non-commercial taxpayers).
• Passenger vehicles: 8% (cost of acquisition < EUR 37,500), 25% (EUR 37,500 to EUR 45,000), or 32% (≥ EUR 45,000); reduced rates for plug-in hybrids and natural gas vehicles (2.5%, 7.5%, 15%); electric vehicles only taxed at 10% and only above a set threshold.
• Representation expenses: 10%.
• Travel allowances/car mileage (not invoiced to clients): 5%.
• Profits distributed to entities wholly or partially exempt from CIT, arising from shares held for less than one year: 23%.
• Costs or expenses for compensation for termination of managers’ and board members’ functions: 35%.
• Costs or expenses for bonuses and other variable remuneration paid to managers and board members: 35%.
• Payments made to residents in a territory with a clearly more favourable tax regime or to accounts open in financial institutions resident or domiciled there: 35% (55% for exempt or non-commercial taxpayers).

Tax loss surcharge: all rates above should be increased by 10 percentage points when the taxpayer reports tax losses. Under the transitional rules applicable to the 2026 tax year, the increase does not apply where the taxpayer reported taxable profit in at least one of the previous three tax years and complied with the relevant filing obligations for the previous two tax years, or where 2026 is the taxpayer’s first, second or third tax year of activity.

Portugal has adopted the global minimum tax according to the EU Pillar Two Directive, introducing a minimum effective tax rate of 15% for groups with consolidated revenues of at least EUR 750 million. It introduces the Income Inclusion Rule (IIR), the Undertaxed Profits Rule (UTPR), and a Portuguese Qualified Domestic Minimum Top‑Up Tax (ICNQ‑PT). The rules apply to fiscal years beginning on or after 1 January 2024, with UTPR generally applying from 1 January 2025.

Taxation of income

Resident entities (those with their registered office or place of effective management in Portugal) are subject to CIT on a worldwide basis; non-resident entities without a permanent establishment in Portugal are taxed only on Portuguese-source income.

Taxation of capital gains

Capital gains and losses are gains or losses obtained through onerous transfer of tangible fixed assets, intangible assets, non-consumable biological assets, investment properties, and financial instruments. They are calculated as the difference between the net sales value (less inherent charges) and the acquisition value, deducted by fiscal depreciations and amortisations, impairment losses, and other value corrections. The acquisition value may be updated through monetary devaluation coefficients, provided at least two years have elapsed since acquisition.

Portugal has a participation exemption for capital gains derived from the transfer of shares and other equity instruments. Capital gains and losses on the onerous transfer of equity held uninterruptedly for at least one year do not count towards taxable profit, provided the conditions of CIT are met (among others, minimum 10% participation, subject to qualifying tax). This is a full participation exemption regime, which means that, once applied, 100% of the capital gain is exempted from CIT. However, this regime does not apply when the value of real estate located in Portuguese territory represents, directly or indirectly, more than 50% of the entity’s assets, unless the real estate is allocated to an agricultural, industrial, or commercial activity that does not consist of the purchase and sale of real estate.

Taxation of foreign-source income

Portugal taxes resident entities on their worldwide income, so the foreign-source income received by a Portuguese entity is taxed in Portugal, under the general rules.

In order to mitigate the effects of international double taxation, Portuguese tax law provides taxpayers with the ability to claim a foreign tax credit. Under this mechanism, taxpayers may deduct from the Portuguese tax liability the amount of tax effectively paid abroad on the foreign-source income, up to the limit of the Portuguese tax that would be due on that same income. In practice, this foreign tax credit is the most commonly used method to eliminate or reduce international double taxation for Portuguese resident taxpayers.

An important exception to the general worldwide taxation principle applies in the context of corporate income tax with respect to profits attributable to permanent establishments situated outside Portugal. Under certain conditions, taxpayers may opt to exclude from their taxable income in Portugal the profits generated by a foreign permanent establishment of a Portuguese resident company.

Besides Value Added Tax (VAT), which is the principal indirect tax in Portugal, there are other indirect taxes that apply:

• Excise duties (IEC) include the tax on energy products and electricity (ISP), the tax on alcohol, alcoholic beverages and beverages containing added sugar or other sweeteners (IABA), and the tax on manufactured tobacco (IT), as provided for in the Portuguese Excise Duties Code (CIEC). Excise duties on alcohol and alcoholic beverages, energy products and electricity, and manufactured tobacco are harmonised at EU level, whereas the tax on beverages containing added sugar or other sweeteners is a Portuguese domestic tax.
• Stamp duty on listed acts, contracts, documents and transactions, such as loans, guarantees, insurance premiums and certain property transfers.
• Real Estate Transfer Tax (IMT), due on acquisitions of real estate in Portugal.
• Municipal Property Tax (IMI) is an annual municipal levy on real estate ownership (while not an indirect transaction tax, it is frequently encountered in property contexts).
• Vehicle Tax (ISV), due on the first registration in Portugal.
• Single Circulation Tax (IUC), due annually for holding/using the vehicle, both with environmental components (e.g. CO₂, engine capacity and fuel type).

In addition, there are some sectorial surcharges that normally are fixed annually in the Portuguese State Budget.

In Portugal, withholding tax works differently for residents and non‑residents.

For Portuguese corporate residents, withholding taxes are usually levied on real estate income and capital income and work as an advance payment of the final CIT due.

For non‑residents, Portuguese‑source income is generally subject to final withholding at flat rates, commonly 25%, unless a double tax treaty provides a lower rate. Therefore, withholding tax on corporate non-residents applies to Portuguese-source income, including royalties, capital income, rental income, income from the use of equipment and income from services rendered in Portugal, among others. Portuguese entities making the payment should apply the correct rate and, where treaty relief is claimed, collect appropriate residency documentation.

As mentioned, reductions or exemptions may apply under double taxation treaties, EU directives (Parent-Subsidiary Directive and Interest and Royalties Directive), subject to timely provision of proof of eligibility by the non-resident beneficiary.

Portuguese tax law contains a General Anti-Avoidance Rule (GAAR). Under this rule, arrangements carried out with the main purpose (or one of the main purposes) of obtaining a tax advantage that defeats the object or purpose of the applicable tax law, and which involve an abuse of legal forms or lack genuine economic substance, are disregarded for tax purposes. Taxation is instead applied in accordance with the economic reality of the transactions.

In this regard, an arrangement is not considered genuine if it is not put in place for valid economic reasons, and multi-step schemes are assessed.

This rule dictates the invalidity (for tax purposes) of fraudulent or artificious acts and contracts, carried out in abuse of law, whenever they are substantially tax driven.

In other words, the Portuguese tax authorities may disregard for tax purposes any consequences of the acts or contracts at stake and impose taxes in accordance with the underlying economic nature of the transaction.

In the event of the application of the GAAR, any compensatory interest due shall be increased by 15 percentage points, that is, since the regular compensatory rate is 4%, the increased rate will be 19%.

When analysing the GAAR, Portuguese scholars typically identify four separate requirements for its application:

• means element;
• result element;
• intellectual element; and
• normative element..

Based on this theory, the courts decided that by applying the GAAR, Portuguese tax authorities bear the burden of proving—through a specific administrative procedure—that the corresponding application of the GAAR requirements are met. In doing so, they are expected to determine and prove:

• the real economic substance of the transaction concerned;
• the objective reasons that lead to the conclusion that the tax advantage, rather than any other business reasons, was the main driver for entering into the transaction or for choosing a particularly complex or unusual structure, instead of a more straightforward solution;
• describe what the usual transaction for achieving the same economic outcome would be; and
• show the economic equivalence between both results from a non-tax perspective.

In Portugal, tax controversy is mainly driven by CIT and VAT, although cross‑border and procedural issues also generate frequent disputes.

On the corporate tax side, many controversies arise from CIT itself and from intragroup transactions. Transfer pricing disputes have been increasing. The tax authorities have developed significant expertise and regularly challenge the arm’s‑length nature of service fees, royalties and intragroup financing arrangements, as well as business restructurings and profit allocations within multinational groups.

Another recurring source of litigation concerns the deductibility of expenses. The tax authorities often dispute whether certain costs are “indispensable” for generating taxable income and properly documented, as required under the CIT Code. These disputes frequently involve management and advisory fees, intragroup services, financing costs and provisions or impairments.

Corporate reorganisations also generate litigation, particularly mergers, demergers and contributions in kind implemented under tax neutrality regimes. In these cases, the tax authorities may question the existence of valid economic reasons or invoke anti‑abuse rules to deny tax neutrality or exemptions. Disputes also arise in connection with the application of the participation exemption regime and the carry‑forward of tax losses in the context of corporate restructurings.

VAT litigation is largely focused on the right to deduct input VAT and the scope of exemptions. Disputes are particularly common in partially exempt sectors, such as financial services, real estate, healthcare and public sector activities. Litigation often concerns deduction ratios, allocation methods and the treatment of mixed‑use expenses.

In the area of IMT, disputes frequently arise over the determination of the taxable base and the use of administrative valuations, as well as the application of exemptions to real estate investment structures, intragroup transfers and indirect acquisitions of property through share deals.

Cross‑border payments and withholding taxes generate another significant stream of controversy. The application of double tax treaties and EU directives to outbound dividends, interest, royalties and services is often disputed, with the tax authorities focusing on beneficial ownership, substance and alleged abusive structures. Qualification issues, including whether certain amounts should be treated as royalties, services or other income for domestic and treaty purposes, are commonly litigated.

In the area of Personal Income Tax, disputes often arise in relation to the qualification of income and the correct tax regime applicable to certain activities. Litigation frequently involves the distinction between employment income and independent professional income, the taxation of capital gains (particularly from real estate transactions), and the application of specific regimes such as the non‑habitual resident regime. Disputes may also arise regarding deductible expenses, residency status and the allocation of taxing rights in cross‑border situations.

Finally, procedural guarantees, penalties and enforcement measures give rise to a steady flow of cases. Taxpayers frequently invoke violations of procedural rights during inspections and assessments—including issues relating to the statute of limitations on assessments and the time‑barring of tax debts—relying on their general right to challenge any adverse tax act and to obtain a timely and effective judicial determination of their claims. Litigation also extends to penalties and other enforcement measures.

The resolution of tax controversies in Portugal is governed by a combination of specific tax procedure legislation and general administrative and civil procedural law, applied on a hierarchical and subsidiary basis.

At the core of the system is the General Tax Law (Lei Geral Tributária (LGT)), approved by Decree-Law No. 398/98 of 17 December. It establishes the fundamental principles of the tax system and the main guarantees of taxpayers. It recognises the right of any interested party to challenge tax acts that harm their rights or legally protected interests and to obtain a judicial decision within a reasonable time.

The LGT also defines the scope of tax procedure, covering acts such as tax assessments, additional assessments, valuations, administrative appeals, inspections and enforcement measures for tax collection. It further confirms that taxpayer guarantees apply, with the necessary adaptations, to self-assessment and withholding mechanisms. In addition, it sets out the general principles that bind the tax administration, including legality, equality, proportionality, impartiality, justice and celerity, which are themselves enshrined in the Constitution and apply to the activity of the public administration in a broad sense.

The main procedural framework is contained in the Code of Tax Procedure and Process (Código de Procedimento e de Processo Tributário (CPPT)), approved by Decree-Law No. 433/99 of 26 October.

This code governs both the administrative and judicial phases of tax disputes. It applies to tax procedures, judicial tax litigation, enforcement of tax debts and related remedies, as well as appeals in tax matters.

On the administrative side, the CPPT governs remedies such as administrative claims and hierarchical appeals, specifying deadlines, competent authorities and procedural effects. In certain cases, these administrative remedies must be exhausted before initiating a judicial or arbitral challenge. It is also possible to act directly against the administration’s silence, within the applicable time limits, even if no explicit decision has been issued.

On the judicial side, the CPPT defines the different forms of tax litigation before the specialised tax courts. These include challenges to tax assessments and self-assessments, actions concerning valuation acts relating to the taxable value of real estate, actions for the recognition of rights in tax matters, precautionary measures and remedies connected with tax enforcement proceedings. The CPPT also contains rules on jurisdiction, representation, evidence, hearings, judgments and appeals.

In Portugal, tax disputes are heard by a three-tier system of specialised courts. First-instance cases are handled by the tax courts. Appeals from these courts usually go to the Central Administrative Court, which has a Northern and a Southern Section. The final level of appeal is the Supreme Administrative Court, which primarily deals with questions of law. Some extraordinary issues may be referred to the Constitutional Court. A referral to the Court of Justice of the European Union (CJEU) through the preliminary ruling procedure is also possible. In principle, such a referral is discretionary at any level of jurisdiction, depending on the national court’s assessment, except in cases where the referral is mandatory.

A key feature of the Portuguese system is the express recognition of subsidiary sources of law. Where the CPPT does not provide specific rules, other legal frameworks apply on a supplementary basis. These include additional tax procedural provisions, organisational rules governing the tax administration and courts, the Administrative Procedure Code, and particularly the Civil Procedure Code. The Code of Procedure in Administrative Courts also plays an important role.

This procedural layer operates alongside the substantive tax codes, such as the CIT Code and the VAT Code, as well as applicable EU law and double tax treaties. These instruments define the substantive tax obligations and rights that are ultimately assessed and challenged in Portuguese tax disputes.

Finally, the Portuguese Constitution underpins the entire system, setting out the fundamental principles of legality, equality, access to justice and effective judicial protection that must be respected in tax matters.

Portugal has developed a significant alternative mechanism for resolving tax disputes through tax arbitration. Alongside this system, taxpayers also rely on administrative remedies that, although not alternative dispute resolution in the strictest sense, often allow disputes to be resolved or narrowed before reaching the courts.

Tax arbitration operates through the Centro de Arbitragem Administrativa (CAAD) and is governed by a specific legal regime. It is formally recognised as an alternative jurisdictional mechanism for resolving tax disputes. The tax administration’s submission to arbitration is defined through government regulations that specify the types of taxes, acts and value thresholds covered.

Within this framework, arbitral tribunals have jurisdiction to review the legality of tax assessments, self-assessments, withholding taxes and payments on account, as well as certain valuation acts and other tax decisions. Arbitral tribunals apply the same substantive tax law as the tax courts and must decide strictly according to law; decisions based on equity are not permitted.

Requests for arbitration must be filed within strict time limits, generally aligned with those applicable to judicial tax appeals. Once the request for the constitution of an arbitral tribunal is submitted, it normally produces the same procedural effects as the filing of a judicial challenge. These effects include the suspension of enforcement proceedings and the suspension or interruption of the relevant limitation and prescription periods.

The arbitration regime follows the same subsidiary logic as the broader tax procedural framework.

Where specific rules are absent, tax and administrative procedural law, as well as general civil procedural rules, apply to the arbitral process. This ensures consistency between proceedings before arbitral tribunals and those before the tax courts.

Arbitral rulings are binding on the parties. Where no further recourse is available or pursued, the tax administration is prevented from issuing new tax assessments against the same taxpayer for the same tax period, unless based on new facts. Appeals from arbitral awards are very limited, reserved for exceptional situations such as conflicting arbitral decisions and questions of constitutional law. Separately, arbitral awards may be challenged before the competent Central Administrative Court for annulment on the limited grounds expressly provided by law. In exceptional cases involving questions of EU law, arbitral tribunals may refer preliminary questions to the CJEU.

In practice, tax arbitration is frequently used in technically complex or high-value disputes, particularly in CIT and VAT matters. One of its main attractions is procedural efficiency—arbitral tribunals must render their decision within six months, extendable by a further six months in cases of complexity—which compares very favourably with litigation before the ordinary tax courts.

Alongside arbitration, Portuguese law provides several administrative mechanisms that function as pre-litigation review procedures. These mechanisms remain within the tax authorities but often serve to resolve disputes or reduce the scope of subsequent litigation. The most common of these mechanisms is the administrative claim referred to above, through which taxpayers request the tax administration to review and annul or amend a tax assessment or another tax act.

In some situations, these administrative remedies constitute a mandatory preliminary step before a judicial or arbitral challenge can be brought.

In the cross-border context, Portugal has entered an extensive network of double tax treaties which provide for a mutual agreement procedure (MAP) as a mechanism for resolving disputes arising from the application or interpretation of the conventions. This allows the competent authorities of the contracting states to negotiate directly to eliminate situations of double taxation or taxation inconsistent with the treaty.

Portugal does not currently operate a general system of mediation or negotiated settlement specifically designed for tax disputes. Outside tax arbitration, tax controversies are therefore resolved through a sequence of administrative review procedures followed, where necessary, by judicial litigation before the specialised tax courts.