Who pays IRC and on what
IRC is paid by entities resident in Portugal carrying out commercial, industrial or agricultural activity (the LDA and the Unipessoal are the usual forms) and by non-residents with a permanent establishment. The base is the lucro tributável: the accounting result adjusted in accordance with the Código do IRC, bearing in mind that Portuguese accounting and the financial year-end follow the calendar year, with the financial year closing on 31 December.
The annual return is the Modelo 22, and during the year three advance payments are made: approximately 25% of the previous year's IRC in July, another 25% in September and the remaining 50% in December. If the IRC finally due is lower, the difference is refunded or offset.
IRC rates in 2026
SME status requires meeting the criteria of Decreto-Lei 372/2007: fewer than 250 employees and turnover of up to 50 million euros or a balance sheet of up to 43 million.
Key points
- - Standard rate: 19% on the mainland; 13.3% in Madeira and the Azores (a 30% reduction on the national rate).
- - SMEs and small mid caps: 15% on the first 50,000 euros of taxable amount on the mainland; the excess is taxed at 19%. In Madeira, 10.5%; in the Azores, 8.75% for micro, small and medium-sized enterprises whose main activity is in the archipelago.
- - Interior territories: 12.5% on the first 50,000 euros if the registered office and main activity are in the concelhos listed in Portaria 208/2017 (Bragança, Guarda, Covilhã, Mértola and similar).
- - Qualifying start-ups: 15% on the first 50,000 euros, as for SMEs.
- - Madeira Free Zone (CINM): 5% for companies licensed up to 31 December 2026, with the benefit in force until 2033.
Municipal surcharge and state surcharge
Two surcharges are added to IRC. The derrama municipal is set by each câmara municipal on the lucro tributável, with a maximum of 1.5%: Lisbon, Porto, Sintra, Cascais, Braga, Coimbra and most capitals apply the maximum rate, while several interior concelhos set it between 0% and 1% to attract companies.
The derrama estadual taxes high profits on a sliding scale: 3% between 1.5 and 7.5 million euros, 5% between 7.5 and 35 million, and 9% from 35 million upwards. The entities affected also make additional advance payments in July and September, with a refund if the excess exceeds the surcharge finally assessed.
Autonomous taxes: the tax on expenses
OE 2026 update: the 10-percentage-point increase that applied to these autonomous taxes in the event of losses is suspended if the company had taxable profit in at least one of the three previous periods and filed Modelo 22 on time. New plug-in hybrids approved under the Euro 6e-bis standard with emissions below 80 gCO2/km qualify for the reduced rates.
Key points
- - Undocumented expenses: 50% (60% if the company has tax losses).
- - Light passenger vehicles: 10% if the acquisition value does not exceed €27,500, 27.5% between €27,500 and €35,000, and 35% above that.
- - Unbilled cost and mileage allowances: 5%; representation expenses: 10%.
- - Profit distribution without verified exemption: 23%.
Tax benefits that do suit an SME
The RFAI allows a percentage of investment in fixed assets to be deducted from the tax base: 25% in the North, Centre, Alentejo, Azores and Madeira regions (for investment up to €15 million) and 10% in the Algarve, Greater Lisbon and the Setúbal Peninsula. The DLRR deducts 10% of retained and reinvested profits for SMEs, and SIFIDE maintains deductions of 32.5% to 82.5% for R&D expenses (indirect SIFIDE disappeared on 1 January 2026).
There is also a 50% increase in costs for net job creation with permanent contracts for young people and the long-term unemployed, and from 2026 teleworking allowances (electricity, internet, equipment) are increased to 110% for the calculation of the result.
The SAF-T accounting file, which was planned for 2027, has been postponed: the obligation will start with periods beginning on or after 2027, with submission in 2028.
A calendar you cannot miss
Modelo 22 and the corresponding IRC payment are filed by 31 May of the year following the year-end. The IES (simplified business information) is due by 15 July. The three payments on account are made in July, September and December based on the previous year's IRC.
For a Spanish subsidiary, the Spain-Portugal double taxation treaty prevents profit taxed in Portugal (IRC plus surcharges) from being taxed again in Spain: the tax credit is recognised in the Spanish return. Planning the timing of dividend distribution, and its taxation at 28% at the shareholder's level or its inclusion in personal income tax (IRS), is the next step that should be decided with the numbers on the table.
