Business and self-employed income is classed as category B income under Portugal’s income tax system and can be taxed according to accounts or under a ‘simplified regime’. Portugal has a progressive rate of income tax and a VAT tax rate of 23% on goods other than food, drink and basic necessities.

Annual financial statements must be presented for each calendar year. However companies may opt to use a different accounting year. Financial statements must include a balance sheet, income statements, a cash flow statement and related notes.

Financial statements must be approved up to March 31 of the following year and must be submitted via internet to the Finance Ministry until the end of June.

The Portuguese tax year runs from 1 January to 31 December and all residents self-employed in Portugal need to submit tax returns annually. See these guides to Taxes in Portugal for more information. The financial statements of a company as well as all corporate tax returns, including VAT returns, must be submitted via internet by a registered accountant.

The following is a step-by-step guide to specific corporate tax requirements in Portugal:

• Residence – A company is a resident if its legal seat or place of effective management is in Portugal.
• Basis – Resident companies are subject to tax on worldwide profits; nonresident companies are taxed only on Portuguese-source profits. Foreign-source profits derived by residents are subject to corporate tax in the same way as Portuguese-source profits. By election, profits arising from a foreign permanent establishment may be tax exempt. Branches of nonresident companies are taxed only on Portuguese-source profits.
• Taxable income – Corporate tax is charged on a company’s profits, which consist of business/trading income, passive income and capital gains. Expenses are deductible to the extent they are necessary for the purpose of generating taxable income and are properly documented.
• Small businesses are eligible for a simplified tax regime, under which taxable income is determined as a percentage (depending on activity) of turnover.
• Taxation of dividends – See “Participation exemption,” below.
• Capital gains – Realized capital gains are included in taxable profits for corporate tax purposes, but gains on the disposal of shares may be exempt from tax under the participation exemption regime (see “Participation exemption,” below). The acquisition cost of capital assets disposed of after a minimum ownership period of two years may be adjusted for inflation, using official indices.
• Fifty percent of gains derived from the disposal of tangible fixed assets and intangible assets held for at least one year may be excluded from taxation if the total disposal proceeds are reinvested within a prescribed period.

As from 1 January 2018, capital gains derived from the indirect disposal of certain immovable property located in Portugal are subject to corporate income tax. This includes the disposal by a nonresident company of the shares (or similar rights) held in another nonresident company, if, during the 365 days preceding the disposal, more than 50% of the value of those shares (or rights) is related, directly or indirectly, to immovable property in Portugal (subject to certain conditions)

For companies where there is a supervisory body, the statutory audit process is achieved by involving statutory auditors in that body or by the exercise of the functions of a sole supervisor or of a statutory audit body.

Where there is no internal supervisory body, the statutory audit process is performed in accordance with legislation, in which case the provisions relating to companies or other entities having such a body shall apply to the statutory audit process and to the statutory auditors. The execution of the statutory audit implies that the statutory auditors are subject to the range of powers and duties attributed to the other members of the internal supervisory body of companies or other entities or to the body itself, without prejudice to its own status.

In the case of those companies subject to the statutory audit requirement, the issue of a statutory audit certification is mandatory. The certificate should be issued solely by the statutory auditors who carry out the aforementioned activities.

Sources

• Deloitte International Tax Portugal Highlights 2018
• PFK Accounts and Business Advisors
• Expatica Expt Guide Tax in Portugal