I Company Taxation
1. Corporate Income Tax (IRC)
Resident companies and non-resident companies with permanent establishments (note 1).
Type of company/activity Rate (%) (i) Normal rate 36 (ii) Companies who do not exercise as their principal activity a commercial industrial or agricultural trade 20 (iii) Property investment companies (SGII) 25 (iv) Private schools 20 (v) Investment funds - (vi) Pension funds Exempt (vii) Personal retirement savings fund companies (note 4) Exempt (vii) Venture capital and regional development companies Exempt in the first five years (note 2) (ix) Certain companies in Madeira and Santa Maria, Azores Exempt (note 5)
Notes
(1) A permanent establishment is considered to exist when any employee or agent of the company carries out business activities in Portugal for a period in excess of 120 days in any 12 months, or when the company possesses any fixed installation or permanent representation through which a commercial industrial or agricultural activity is carried on.
(2) If constituted before 31.12.92.
(3) Withholding tax on different types of income received.
(4) When the Portfolio is consitituted (at least 50%) by public bonds issued with a term higher than one year.
(5) Under a special tax regime applicable in certain cases.
2. Municipal Tax (Derrama)
Local municipal tax of up to 10% of the corporate income tax is levied in most municipalities.
II Personal Taxation
1. Individual Income Tax (IRS)
(i) Residents
Residents are taxable on worldwide income. Any individual is considered resident if they are present in Portugal for more than 183 days in the same year or have at their disposal on 31 December of any year a residence with the intention of maintaining it as permanent residence (there are special rules for crew of ships and aircraft).
(ii) Non-residents
Non-residents are taxable on income arising in Portuguese territory.
2. IRS - Tables of the basic rate
Applicable to 1995 incomes (PTE'000)
Annual Taxable Income Tax on Slice PTE'000 % PTE'000 Up to 970 15 146 From 970 to 2,260 25 323 From 2,260 to 5,790 35 1,235 Over 5,790 40 -
3. Allowances and deductions (PTE'000) 1995
3.1 To income: PTE'000
Category A - Employee, 65% up to limit of 440 (notes 1 & 2) Category F - Rentals - Maintenance expenses - Category H - Pensions, up to limit of 1,272
Expenses
A - Unmarried tax payer
B - Married tax payer
Health expenses No limit House acquisition interest and rentals paid 287 Other (education, life insurance premiums, etc) A B In general limited to 154 308 Exceeding those values in the case of University fees 176.5 353 Exceeding those values in the case of the acquisition of innovative equipment for utilisation of renewable energy 253.5 408
3.2 To the calculated IRS:
Married taxpayer - each taxpayer 24 (note 2) Unmarried taxpayers 32 (note 2) Dependents 17.5 (note 2)
Notes
(1) Or the social security contributions paid if higher.
(2) If the taxpayer is handicapped (60% or more of incapacity) these amounts are increased by 50%.
(3) This includes a maximum of PTE25,000 (for single) and PTE50,000 (for married tax payer) for life insurance premiums paid by the tax payer.
III Withholding at Source on Different Types of Income (%)
IRS IRC Residents Non- Residents Non- residents residents Income Category A Employees Various 25 (1) - - Members of Statutory bodies of collective persons and other entities Various 25 (1) 20 25 (1) Income category B: Self employment 15 (7) 25 (1) Royalties and copyrights when obtained by its original owner 15 15 (1) - - Income category C: Commissions 15 15 (1) - - Income category E: Royalties when obtained by its original owner 15 25 (1) 15 15 (1) Copyrights 15 25 (1) 15 15 (1) Bank deposit interests 20 (2) 20 (1) 20 20 (1) Income from State bonds and non-public bonds 20 (2) 20 (1) 20 20 (1) Gains arising on "swaps" on these bonds 20 (2) 20 (1) 20 20 (1) Income from shares in SAs 25 (2) 25 (1) 25 25 Income from shares in SAs to EU countries(6) 25 (2) 25 (1) 25 15 (1) (5) Gains arising on "swaps" and operations in credits and other financial instruments 20 (2) 20 (1) 20 20 (1) Income from private company qoutas 15 25 (1) 15 25 (1) Income from the use, or concession of use, of equipment 15 15 (1) 15 (3) 15 (1) Others, when the taxpayer has organised accounts 15 20 (1) 15 20 (1)Income category F:
Rentals when the taxpayer has organised accounts 15 15 15 15
Income category H:
Pensions Various 25 (1) (4)- -
Income from category I:
Gains from games, lotteriesbetting, raffles and contents 35 (1) 35 (1) 35 (1) 35 (1)
Notes
(1) Definitive withholding. Income not to be declared.
(2) Income may be declared at the option of the taxpayer.
(3) There is no withholding at source when income received by taxpayers who are subject to IRC (even if they have obtained exemption).
(4) Pensions net of standard deductions granted by art. 51 of the IRS Code.
(5) Direct holding of share capital ( 25% during two consecutive years.
(6) Stock company (SA) plus 5% inheritance and gift tax.
(7) Exempt up to PTE1,500,000 per annum.
IV VAT (IVA)
Continent Madeira and Azores Goods and services in list I Basic foodstuffs, water, pharmaceutical, books and papers, agricultural products, petrol and other fuel, gas, electricity, public works contracts, hotels, agricultural equipment, etc 5% 4% Goods in list II Other goods and services - general rate 17% 13%
V Property Transfer Tax (SISA)
Urban Residential property:
Transfer value Rates (Esc. 000) % Up to 10,000 0 From 10,000 to 13,800 5 From 13,800 to 18,500 11 From 18,500 to 23,100 18 From 23,100 to 27,800 26 Over 27,800 10 Other urban property and land for construction 10 Other case 8
VI Social Security
Employee Employer % % Normal scheme 11 23.75 Domestic service 8 21 Non-profit making entities 11 21
VII Municipal Property Tax
On the property value of rural properties 0.8% of urban building, including land for construction 0.8% to 1.0%
For further information please contact Mark Gibbins, tax partner, KPMG Peat Marwick, telephone: +351 1 311 04 06.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about specific circumstances before taking business decisions.
