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Payroll & Tax in Portugal

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Portugal payroll & taxation

Foreign companies operating in Portugal may find it challenging to deal with the complexities of the country’s tax system. The primary concerns for a foreign company that needs to comply with tax laws in Portugal are: Individual income tax for employees in Portugal, social security costs, VAT, withholding tax and corporate taxes.

Your Payroll Options in Portugal

Remote Payroll

A remote payroll in Portugal is where a foreign company, i.e. a non-resident company, payrolls a resident employee in Portugal. This applies to both local and foreign employees. One option for a non-resident company to payroll its employees (local and foreign) in Portugal is to use a fully outsourced service like a GEO or PEO which will employ and payroll the staff on their behalf.

Local Payroll Administration

In some cases, a company will register their business in Portugal under one of the forms available but prefer to have another company administer its payroll. This can be accomplished through a payroll provider. It is important to note that the company, as the Employer of Record, is still fully responsible for compliance with employment, immigration, tax and payroll regulations. But the payroll calculations, payments and filings can all be outsourced to the payroll provider.

Internal Payroll

Larger companies with a commitment to Portugal may wish to run their own local payroll for all employees, foreign and local. In order to accomplish this, they will have to complete the incorporation, register the business and then hire the necessary staff. There will be a need for in country human resources personnel who have the background needed to manage a Portuguese payroll and can fulfil all tax, withholding tax and payroll requirements.

This approach carries significant cost and requires some knowledge of local employment and payroll regulations. The company will need a local accounting firm and potentially legal counsel to ensure full compliance with Portuguese employment laws.

Fully Outsourced Payroll & Employment

Companies can outsource the employment and payroll of their staff in Portugal to a GEO, like Shield GEO. This is possible for both foreign workers and Portuguese nationals. This is the easiest, fastest and safest way to payroll staff in Portugal.

Shield GEO manages all aspects of payroll for workers in Portugal, including taxes, withholding, social security payments and other statutory requirements. Shield GEO becomes the Employer of Record and employs the staff on behalf of the client.

Staff are paid monthly with tax and social security deducted at source and paid to local authorities. Shield GEO will invoice the client monthly in advance of the payroll date. The invoice consists of the Total Cost of Employment (Base salary + Employers Statutory Contributions + Additional statutory contributions) and a Management Fee. Shield GEO provides the employees with payslips.

Read more about outsourced payroll and employment through Shield GEO.

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Setting up payroll in Portugal

Information Explanation
Currency ?

Euro, €

Corporate Income Tax Rate

Companies doing business in Portugal are subject to a number of corporate income taxes (IRC), including:

  • Portuguese corporate tax: 21% (Expected reduction to 17-19% in 2016)
  • A state surcharge (surtax) ranging from 3% to 7% of taxable profits depending on levels of profit
  • Municipal surcharge: Up to 1.5% depending on municipality
  • Combined tax rate: Maximum of 31.5%
  • Small and medium-sized entities: 17% for first €15,000 of taxable profit

It must be noted that the tax rates applicable to foreign companies are levied at the same rates on the Portuguese-source income. Investment income derived by non-resident entities and are subject to a privileged tax regime in their home country has a tax of 35%.

Long term capital gains in Portugal are taxed at the standard Corporate Tax rate. Stamp duty is also levied for most transactions, ranging from 5 to 10% depending on asset type and location.

Payroll Tax

None

Sales Tax

The Value Added Tax (VAT) in Portugal is known as the Imposto Sobre o Valor Acrescentado (IVA). The standard rate is 23%.

A reduced tax rate applies, varying from 6% for foodstuffs, water, publications, electricity, transport and hotels, and up to 13% for catering, petrol and certain foodstuffs. No VAT applies to financial services/insurance, medicines, education and training.

A vehicle or road tax called IUC also applies in Portugal.

Withholding Tax

Portugal has entered into double taxation treaties with 52 countries. The withholding tax applicable are as follows:

  • Dividends: 25% (35% for residents of a listed tax haven. 0% for residents of a tax treaty jurisdiction who have met domestic participation exemption regime conditions)
  • Interest: 25% (35% for residents of a listed tax haven. Reduced rate under a tax treaty.)
  • Royalties: 25% (35% for residents of a listed tax haven. Reduced rate under a tax treaty.)
  • Technical service fees: 25% (35% for residents of a listed tax haven. Reduced rate under a tax treaty.)
Other Tax

Stamp Duty: Variable duty rates apply for type of transactions regarding real estate acquisition, leases and transactions. For residential property valued at over €1 million, a 1% stamp duty applies.

Real Property Tax: A municipal level tax is levied on property sales and transfers.

Inheritance/Estate Tax: Stamp duty for gifts and inheritances apply at a 10% rate, and is exempted if the heir is spouse, descendant or ancestor.

Environmental Tax: A series of new environmental taxes will be introduced in 2015 as part of the Environmental Tax Reform.

Tax Figures

Information Explanation
Corporate Income Tax ?

Companies doing business in Portugal are subject to a number of corporate income taxes (IRC), including:

  • Portuguese corporate tax: 21% (Expected reduction to 17-19% in 2016)
  • A state surcharge (surtax) ranging from 3% to 7% of taxable profits depending on levels of profit
  • Municipal surcharge: Up to 1.5% depending on municipality
  • Combined tax rate: Maximum of 31.5%
  • Small and medium-sized entities: 17% for first €15,000 of taxable profit

It must be noted that the tax rates applicable to foreign companies are levied at the same rates on the Portuguese-source income. Investment income derived by non-resident entities and are subject to a privileged tax regime in their home country has a tax of 35%.

Long term capital gains in Portugal are taxed at the standard Corporate Tax rate. Stamp duty is also levied for most transactions, ranging from 5 to 10% depending on asset type and location.

Income Tax Rate ?
Grossed income Tax Rate (%)
0 - €7,000 14.50
€7,001 - €20,000 28.50
€20,001 - €40,000 37.00
€40,001 - €80,000 45.00
€80,001+ 48.00

From 2014, a solidarity tax of 2.5% applies for income from €80,001 – €250,000, and an additional 5% solidarity tax applies for income exceeding €250,000.

An extraordinary surcharge also applies for any income exceeding the minimum wage of €6,790.

Payroll Tax ?

None

Sales Tax ?

The Value Added Tax (VAT) in Portugal is known as the Imposto Sobre o Valor Acrescentado (IVA). The standard rate is 23%.

A reduced tax rate applies, varying from 6% for foodstuffs, water, publications, electricity, transport and hotels, and up to 13% for catering, petrol and certain foodstuffs. No VAT applies to financial services/insurance, medicines, education and training.

A vehicle or road tax called IUC also applies in Portugal.

Withholding Tax ?

Portugal has entered into double taxation treaties with 52 countries. The withholding tax applicable are as follows:

  • Dividends: 25% (35% for residents of a listed tax haven. 0% for residents of a tax treaty jurisdiction who have met domestic participation exemption regime conditions)
  • Interest: 25% (35% for residents of a listed tax haven. Reduced rate under a tax treaty.)
  • Royalties: 25% (35% for residents of a listed tax haven. Reduced rate under a tax treaty.)
  • Technical service fees: 25% (35% for residents of a listed tax haven. Reduced rate under a tax treaty.)

Portugal

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