PortugalTax Obligations Detailed

In Portugal, employers face several key tax obligations for the 2025 tax year, impacting both businesses and their employees.

Social Security Contributions

• Employer Contributions: 23.75% of gross wages, encompassing pensions, healthcare, and other benefits.
• Employee Contributions: 11% of gross wages.

Corporate Income Tax (IRC)

• General Rate: Reduced to 20% from 21% in 2024.
• SME and Small Mid-Cap Rate (First €50,000 of Taxable Income): Reduced to 16% from 17% in 2024.
• Autonomous Taxation Rates for Vehicles: Adjusted based on acquisition cost:
  • 8% for vehicles below €37,500.
  • 25% for vehicles between €37,500 and €45,000.
  • 32% for vehicles above €45,000.
• Health/Medical Insurance Expenses: Considered at 120% of their value for tax purposes when provided as social utility benefits.
• Salary Increase Incentive: Additional deduction increased to 100% of expenses related to salary increases. Further details on limitations may apply.

Personal Income Tax (PIT/IRS)

• Tax Brackets: Adjusted for inflation, benefiting middle-income earners.
• Youth PIT (IRS Jovem): Extended to individuals up to 35 years old, regardless of education, for up to 10 years. Exemption limit increased to €28,737.50. Phased exemption applies:
  • 100% in the first year.
  • 75% from the 2nd to 4th year.
  • 50% from the 5th to 7th year.
  • 25% from the 8th to 10th year.
• Meal Allowance: Exempt up to €6.00, increasing to €10.20 via meal cards.
• Overtime Work: Withholding tax rate of 50%.
• Productivity Bonuses: Exempt up to 6% of the employee's annual base salary, given certain conditions are met.
• Tax Filing Deadline: March 31 of the following year.

Other Tax Deadlines

• Form 44 Declaration (Category F Income Without Electronic Rent Receipts): January 31.
• Form 10 Declaration (Category B - Professional and Business Income): February 10.
• Notification of Long-Term Lease Contracts or Terminations: February 17.
• Household Composition Updates: Deadline is by the end of the year.
• Tax Payment Deadline: Generally August 31 (if assessment is made by July 31) or December 31 (if assessment is made by November 30). Installment options are available.

Minimum Wage

• Increased to €870 per month.

Non-Habitual Resident (NHR) Regime Updates / Incentivo Fiscal à Fixação de Investimento Internacionalmente Qualificado (IFICI)

• Replaced by the IFICI/NHR 2.0 program.
• 20% tax rate on Portuguese-sourced employment and professional income, plus potential exemptions for foreign-sourced income (except pensions and income from blacklisted jurisdictions).
• 10-year benefit period.
• Application deadline: January 15 of the following year (March 15, 2025, for those who became residents in 2024).

This information is current as of February 5, 2025, and may be subject to change. It's essential to stay informed about potential updates to tax regulations. Consulting with a tax professional is recommended for specific guidance on your business's tax obligations.

In Portugal, employee tax deductions for 2025 encompass various areas, including income tax, social security, and other contributions.

Income Tax (IRS)

• General Rates: The income tax rates remain unchanged, ranging from 13% to 48%. However, the income brackets have been adjusted upwards by 4.6% to account for inflation. This means that if your salary increase is within this percentage, you won't be pushed into a higher tax bracket.

• Youth IRS (IRS Jovem): This program has been significantly expanded. It now covers both employed and self-employed individuals under 35 for up to 10 years, regardless of their education level. The income cap subject to the exemption is €28,009.30. The exemption is structured as follows:

  • 100% in the first year
  • 75% from the 2nd to the 4th year
  • 50% from the 5th to the 7th year
  • 25% from the 8th to the 10th year

• Specific Deduction: The specific deduction for employment and pension income (Categories A and H) has increased to 8.54 times the Social Support Index (IAS), which is €522.5 for 2025, resulting in a deduction of €4,462.35.

Social Security

• Social security contributions are typically deducted directly from an employee's salary. The rates and thresholds are subject to change annually.

Other Deductions and Benefits

• Meal Allowance: The tax-exempt amount for meal allowances provided through meal vouchers is now €10.20 per day. Any amount exceeding the previous limit (€6) will be 70% taxable.
• Overtime Work: Resident employees' overtime pay is subject to a 50% withholding tax rate from the first hour. Non-resident employees are exempt from withholding tax on overtime up to 100 hours.
• Health Insurance: Expenses related to health or illness insurance for employees, retirees, or their family members, categorized as social utility benefits, are considered at 120% of their value for corporate tax purposes. This impacts the company's tax liability, not direct deductions from employee salaries.

Tax Deadlines and Procedures

• February 10, 2025: Submission of Form 10 Declaration for companies and self-employed individuals under Category B, covering the 2024 income of domestic employees not declared monthly. This may impact employers acting as the déclarant.
• Changes in household composition impacting tax status should be updated by December 31 each year, influencing the subsequent tax year. It is important to update this information promptly to ensure accurate tax calculations and benefit eligibility.

It's essential to stay informed about the latest tax regulations and consult official sources or tax professionals for personalized guidance. Tax laws are complex and can be subject to interpretation. This information is current as of February 5, 2025, and may change with future legislation.

In Portugal, Value Added Tax (VAT), known as Imposto sobre o valor acrescentado (IVA), is levied on most goods and services.

VAT Rates

• Standard Rate: 23% (Mainland Portugal), 22% (Madeira), 16% (Azores)
• Reduced Rate 1: 13% (Mainland Portugal), 12% (Madeira), 9% (Azores). Applies to certain foodstuffs, restaurant and cafe food, wine, mineral water, and some agricultural supplies.
• Reduced Rate 2: 6% (Mainland Portugal), 5% (Madeira), 4% (Azores). Applies to certain foodstuffs, pharmaceutical products, books, medical equipment, and hotel accommodations.
• Zero Rate: 0%. Applies to intra-community supplies and international passenger transport.

As of January 1, 2025, certain specific items also qualify for the reduced VAT rate of 6% (mainland) and 4% (autonomous regions) including food for infants and young children, food for special medical purposes, total diet replacements for weight control, rescue and relief equipment used by regional civil protection services, and bullfighting event tickets. Additionally, the VAT exemption with the right to deduct input VAT (zero rate) has been extended to 31 December 2025 for certain agricultural supplies such as compost, fertilizers, soil improvers, and animal feed.

VAT Registration

• Resident Businesses: The VAT registration threshold is €15,000 as of 2025.
• Distance Selling: Businesses exceeding €10,000 in annual turnover from distance sales to Portugal must register for Portuguese VAT, regardless of their location.
• Non-Resident Businesses: No threshold. Businesses must register as soon as they start operating in Portugal. Those providing supply and installation services of goods or machinery may be able to transfer VAT reporting to their customer. Non-EU businesses typically require a fiscal representative.

VAT Filing and Payment

• Returns: Businesses with annual turnover exceeding €650,000 file monthly, by the 10th of the second month following the reporting period. Payment is due by the 15th of the same month. Businesses below the €650,000 threshold file quarterly, by the 15th of the second month following the reporting period. Payment is due by the 20th of the same month. An annual VAT return is also due by July 15th of the following year.
• Payments: VAT must be stated and paid in Euros (€), using the European Central Bank daily rate at the tax point date for conversions.
• Corrections: Made through corrective returns.
• Credits: VAT credits must be rolled over to subsequent returns. Refunds can be applied for if the credit exceeds €3,000 but may require a bank guarantee if above €30,000.

Invoicing

• Simplified Invoices: Allowed for supplies not exceeding €100 (€1,000 for retail and B2C transactions), excluding customer details.
• Electronic Invoices: Permitted with mutual agreement, requiring supplier acknowledgement of receipt.
• Retention: Invoices must be retained for ten years, either physically in Portugal or digitally within the EU under specific regulations.

Other Reporting

• European Sales Listing (ESL): Required for all businesses for goods and services supplied, by the 20th of the month following the VAT return period.
• Intrastat: Monthly filing by the 15th of the following month for goods exceeding the threshold (€600,000 for both dispatches and arrivals).

Exempt Goods and Services

Certain goods and services are exempt from VAT. Examples include some health, education, and financial services, along with specific goods traded in authorized VAT-free warehouses. Further examples are the provision of services by health professionals, kindergartens, certain care facilities, and non-profits providing artistic, sporting, or entertainment activities. More details about exempted goods and services can be found within the Value Added Tax (VAT) Code.

Portugal offers several tax incentives designed to attract investment, talent, and innovation. These range from exemptions for young professionals to incentives for research and development.

IFICI+ (Incentivo Fiscal à Investigação e Desenvolvimento Empresarial)

This incentive is aimed at attracting highly qualified professionals and entrepreneurs to Portugal.

• Eligibility:
  • Non-resident in Portugal for tax purposes during the last five years.
  • Employment or self-employment income from eligible activities (higher education, scientific research, investment or technology centers, R&D, export-focused companies, startups, etc.)
• Benefits:
  • 20% flat tax rate on eligible employment and self-employment income.
  • Exemptions on specific foreign income (dividends, rental income, capital gains).
• Duration: 10 years, contingent on maintaining tax residency in Portugal.
• Application: By January 15th of the year following residency establishment (or March 15th, 2025, for those who became residents in 2024). Applications are submitted to the regulatory body relevant to the applicant's profession.

Tax Exemption for Young Professionals

Designed to attract and retain young talent.

• Eligibility: Individuals up to 35 years old.
• Benefits: Partial income tax exemption on earnings up to €28,000 per year for the first 10 years of taxable income.
  • Year 1: 100% exemption
  • Years 2-4: 75% exemption
  • Years 5-7: 50% exemption
  • Years 8-10: 25% exemption
• Exclusions: Those who have benefited from NHR, IFICI, the Return Program, or have tax debts are ineligible.

Corporate Income Tax (IRC) Reductions

These reductions are aimed at making Portugal a more attractive location for businesses.

• General Rate: Reduced from 21% to 20%.
• SMEs and Small Mid-Caps: Reduced from 17% to 16% on the first €50,000 of taxable income.

Autonomous Taxation Adjustments for Vehicles

Adjustments have been made to the autonomous taxation rates for company vehicles:

• 8%: Vehicles with an acquisition cost below €37,500.
• 25%: Vehicles with an acquisition cost between €37,500 and €45,000.
• 32%: Vehicles with an acquisition cost above €45,000.

Tax Incentive for Salary Increases

This measure encourages companies to increase employee salaries.

• Benefit: Additional deduction of 100% of expenses related to salary increases (increased from 50%). The company's average annual base salary must increase by at least 4.7% compared to the previous year. There are limitations on the maximum deduction, varying by company size.

These incentives demonstrate Portugal's commitment to attracting investment, supporting businesses, and fostering a favorable tax environment. This information is current as of February 5, 2025, and might change. Consulting with a tax advisor is recommended for personalized guidance.