In summary: Corporate tax is the tax levied on companies’ profits. In 2026, the standard rate is 19%, and SMEs pay 15% on the first €50,000 taxable income. In addition to corporation tax (IRC), there is a municipal surcharge, a state surcharge on profits exceeding 1.5 million euros, and separate taxation on certain expenses, such as vehicles. The tax is calculated on Form 22, which must be submitted by 31 May, and is paid in advance the following year in three instalments: July, September and December.
Who pays corporation tax?
Commercial companies (limited liability companies, public limited companies and single-member companies), cooperatives, public enterprises and other entities with their registered office or place of effective management in Portugal are liable for corporation tax (IRC) on their worldwide profits. Non-residents pay tax on income earned in Portugal. Sole traders and self-employed individuals do not pay corporation tax: profits from their business activities are taxed under personal income tax (IRS), in category B. If you are deciding between one option and another, please refer to the guide Limited company or sole trader.
From accounting profit to taxable income
The starting point is the net profit as shown in the accounts. Form 22 makes adjustments to this figure to arrive at the taxable profit:
- in addition expenses that the law does not recognise as tax-deductible costs: corporation tax itself and separate taxes, fines and penalties, expenses without invoices, the portion of vehicle depreciation exceeding the legal limits, amongst others;
- are deducted income that the law excludes or taxes in some other way, such as dividends that benefit from the double taxation relief scheme.
The following are deducted from taxable profit: tax losses from previous years. Since 2023, there has been no time limit on using them, but each year you can only deduct up to 65% of taxable profit (Article 52 of the Corporation Tax Code). What remains, after tax reliefs, is the taxable amount, to which the tax rates are applied.
Corporate tax rates in 2026
Tax rates are falling, in accordance with Law No. 64/2025 (Article 87 of the Corporation Tax Code):
| Year | General rate | SMEs and small mid-caps, first €50,000 |
|---|---|---|
| 2026 | 19% | 15% |
| 2027 | 18% | 15% |
| From 2028 onwards | 17% | 15% |
The reduced rate of 15% applies to companies whose main activity is commercial, industrial or agricultural and which are SMEs or small mid-caps, in accordance with European criteria (fewer than 250 employees and a turnover of up to 50 million euros, or a balance sheet total of up to 43 million, in the case of SMEs). Any amount in excess of €50,000 is subject to the standard rate. Certified start-ups pay 12.5% on the first €50,000.
Municipal and state surcharges (derramas)
A municipal surcharge is decided by each chamber and may amount to 1.5% of taxable profit. Many local authorities offer reduced rates or exemptions for businesses with a low turnover.
A state election It only applies to companies with a taxable profit in excess of 1.5 million euros (Article 87-A):
- 3% in the range between 1.5 and 7.5 million euros;
- 5% in the range between 7.5 and 35 million;
- 9% in the range above 35 million.
Autonomous taxation
Certain expenses are subject to their own tax, even when the company makes a loss. This is known as separate taxation (Article 88). The most common examples are:
| Expenditure | Rate in 2026 |
|---|---|
| Light-duty combustion-engine vehicles with a purchase price of less than €37,500 | 8% |
| … between €37,500 and €45,000 | 25% |
| … from €45,000 | 32% |
| Plug-in hybrids and natural gas vehicles (the same three categories) | 2,5% / 7,5% / 15% |
| Electric cars costing more than €62,500 | 10% |
| Entertainment expenses | 10% |
| Subsistence allowances and mileage for use of a private car not invoiced to clients | 5% |
| Undocumented expenses | 50% |
Rates are rising 10 percentage points in the year in which the company makes a tax loss. They do not increase in the year the business commences operations or in the following year. In 2026, they will not increase either for those who made a profit in one of the previous three years and submitted Form 22 and the IES for the two preceding years. To calculate the figures for vehicles, use the vehicle separate taxation simulator.
Sample calculation for 2026
An SME based in Porto with a taxable profit of 80 000 €, without prejudice to previous years, in a local authority with a council tax rate of 1.5%, and a diesel car that cost €35,000, with €8,000 in running costs for the year:
| Instalment | Calculus | Amount |
|---|---|---|
| IRC, first €50,000 | €50,000 × 15% | 7 500 € |
| IRC, the remaining €30,000 | €30,000 × 19% | 5 700 € |
| Local tax levy | €80,000 × 1.5% | 1 200 € |
| Separate taxation of the vehicle | €8,000 × 8% | 640 € |
| Total | 15 040 € |
Payments on account made during the year and any tax deducted at source by the company are deducted from this amount. The difference is the amount to be paid, or received, under Form 22.
More examples
A company with losses carried forward from previous years
Taxable profit of 60 000 € in 2026 and €100,000 in accumulated tax losses. Only 65% may be deducted from the profit:
- loss used: €60,000 × 65% = €39,000;
- taxable amount: €60,000 − €39,000 = €21,000;
- IRC: €21,000 × 15% = 3 150 €;
- municipal tax, levied on taxable profit before losses: €60,000 × 1.5% = €900;
- This leaves a loss of €61,000 to be carried forward to subsequent years, with no time limit.
Even with accumulated losses, a profitable company always pays some corporation tax. This is due to the 65% threshold.
The same vehicle, with and without a tax loss
A petrol car with a purchase price of €40,000 and annual running costs of €9,000 (depreciation, fuel, insurance, maintenance):
- profit for the year: €9,000 × 25% = 2 250 €;
- year with a loss, excluding exceptions: €9,000 × 35% = 3 150 €.
Internal combustion, plug-in or electric
Three vehicles with the same purchase price, €42,000, and the same annual running costs of €8,000, in a profitable company:
| Vehicle | Rate | Autonomous taxation |
|---|---|---|
| Diesel or petrol | 25% | 2 000 € |
| A plug-in hybrid that meets the requirements for range and emissions | 7,5% | 600 € |
| 100% electric (under €62,500) | 0% | 0 € |
After four years, the difference between a petrol car and an electric car amounts to €8,000 in vehicle tax alone.
When payment is made
- Form 22: until the last day of May of the following year, for companies whose tax year corresponds to the calendar year (Article 120). The outstanding tax is payable within the same time limit.
- Payments on behalf of: three instalments, in July, September and up to 15 December (Article 104). These amount to 80% of the previous year’s corporation tax, or 95% if turnover exceeded €500,000. There are no payments on account where the previous year’s tax was less than €200, nor in the first year of business.
- Additional payment on account: only for those who paid the state surcharge in the previous year, on the same dates.
- IES (Simplified Business Information, including the annual accounts): up to 15 July.
The former special advance payment was repealed in 2022. Many texts still refer to it, but it no longer exists.
Example of payments on behalf of others. A company with a turnover of €300,000 paid €12,000 in corporation tax for 2025, without any deductions at source. In 2026, it must pay an advance of 80% of that amount, i.e. €9,600: €3,200 in July, €3,200 in September and €3,200 by 15 December. If the 2026 income tax bill turns out to be €7,000, the company will receive a refund of €2,600 after submitting Form 22 in 2027.
If the company expects its profit to be significantly lower than in the previous year, it may choose not to make the third advance tax payment, provided it is certain that, if there is any tax outstanding, interest will be charged.
What about the simplified corporation tax scheme?
Small companies, with turnover of up to €200,000 and a balance sheet total of up to €500,000, may choose to pay corporation tax on a fixed percentage of sales and services, rather than on actual profit. We explain the conditions and the rates in the article on the simplified corporation tax regime.
Frequently asked questions
Does a company making a loss pay corporation tax?
It does not pay corporation tax on profits, as there are no profits, but it does pay the separate tax, increased by 10 percentage points, except in the cases indicated above. The loss may be set off against profits in subsequent years.
Is the IRC tax-deductible?
No. Corporation Tax and separate taxes are not tax-deductible: they are added to profit on Form 22.
Do partners have to pay tax again when they receive their profits?
Yes. Dividends paid to individuals are subject to a withholding tax of 28% (Article 71 of the Personal Income Tax Code), which may constitute the final tax liability. That is why any comparison between a company and a sole trader must take both levels of tax into account.
The role of Serro & Andrade
We finalise the accounts, work out the corporation tax, submit Form 22 and the IES, and calculate the payments on account, including when it is worth reducing the third instalment. Throughout the year, we’ll keep you informed about expenses subject to separate taxation and decisions that affect your tax liability, such as the purchase of a car. Find out more about our tax services and accountancy for businesses, or get in touch with us.
Figures for 2026, in accordance with the Corporate Income Tax Code as amended by Laws No. 64/2025 and No. 73-A/2025.
Legislation and sources
- Income Tax Code: Articles 52 (tax losses), 87 (taxes), 87-A (state surcharge), 88 (autonomous taxation) and 105 (payments on account)
- Financial Regulations for Local Authorities (Law No. 73/2013), Article 18 (municipal surcharge)
The figures and rules referred to are those that were in force on the date the text was revised.
By António Serro da Fonseca, Certified Accountant
