If you’re setting up a Lda or running one already, IRC — Imposto sobre o Rendimento das Pessoas Coletivas, Portugal’s corporate income tax — is the number that determines how much of your profit you actually keep. The rate has been falling every year since 2024, and 2026 brings the lowest headline figure in over a decade. Here’s what it actually means for a real company, not just the theory.
The 2026 IRC rate at a glance
The Portuguese State Budget Law for 2026 confirmed the reduction of the standard CIT rate to 19% and of the reduced rate to 15%. That’s down from 20% in 2025, and it’s not the end of the road: the legislator set a gradual reduction path through 2028 — 21% in 2024, 20% in 2025, 19% in 2026, 18% in 2027 and 17% in 2028.
For most small companies, though, the headline rate isn’t what you actually pay. Small and Medium Enterprises and Small Mid Cap companies benefit from a reduced rate of 15% on the first €50,000 of taxable income, with the excess taxed at the general 19% rate. To count as an SME for this purpose, a company must have fewer than 250 employees and annual turnover not exceeding €50 million, or a balance sheet total not exceeding €43 million.
Run the numbers and the gap is real but modest year to year: a company with €80,000 of taxable income sees its IRC fall from €14,000 in 2025 to €13,200 in 2026 — a saving of €800.
Madeira, Azores and the Free Trade Zone
If your company’s tax residence or effective management sits in the Autonomous Regions, the maths changes considerably.
| Regime | General rate | SME rate (first €50,000) |
|---|---|---|
| Mainland Portugal | 19% | 15% |
| Interior territories (mainland) | 19% | 12.5% |
| Madeira / Azores | 13.3% | 10.5% (Madeira) / 8.75% (Azores) |
| Madeira Free Trade Zone (CINM, licensed entities) | 5% | 5% |
Madeira’s general rate is 13.3%, with reduced rates of 10.5% for SMEs and 8.75% for micro enterprises. Separately, the Madeira International Business Centre offers one of the most attractive tax regimes in the EU, with a 5% IRC rate for licensed companies until 31 December 2033 — though entities need to be licensed to operate within the Madeira Free Trade Zone by 31 December 2026 to lock it in. This is a genuinely different structuring decision, not a rounding difference, and it needs proper local advice before you commit — see our /company-setup/ guide for how incorporation choices interact with these regimes.
Surtaxes: the part people forget
The 19% (or 15%/19% blend) is rarely the whole story. Two additional layers can apply on top:
- Derrama municipal (municipal surtax): a municipal surcharge of up to 1.5% may be levied by local authorities on taxable profits. It varies by câmara — some municipalities charge the full 1.5%, others less or nothing, to attract investment.
- Derrama estadual (state surtax): only kicks in on larger profits. A state surcharge applies to taxable profits exceeding €1.5 million: 3% on profits between €1.5 million and €7.5 million, 5% between €7.5 million and €35 million, and 9% above €35 million.
For a typical small Lda with modest profits, the state surtax simply won’t apply. The municipal one might, depending on where your registered office sits — worth checking with your accountant when choosing a business address.
Autonomous taxation — a separate trap
Portugal also taxes certain expenses on their own, regardless of whether the company made a profit. Autonomous taxation applies at different rates on certain expenses: representation and entertainment expenses at 10%, mileage allowance at 5%, per diem allowance at 5%, and non-documented expenses at 50% (70% for exempt taxpayers). This catches out new founders more than the headline rate does — an undocumented cash expense or an executive car can generate tax even in a loss-making year.
Filing and payment deadlines
The annual return is the Modelo 22, filed via Portal das Finanças. In 2026 the filing and payment deadline was also extended to 30 June, though the standard rule is generally end-May — always check the current Finanças calendar rather than assuming.
During the year, companies make advance payments on account:
- Three payments on account are due within the tax period itself, falling due in July, September and 15 December (or the 7th, 9th and 15th of the 12th month, for non-calendar tax years).
- These are calculated from the previous year’s IRC bill, so a growing company often ends up topping up a balance at year-end rather than overpaying.
Reducing your IRC bill legally
Several incentives exist specifically to lower the effective rate, and they require an upfront application or careful documentation — none apply automatically:
- SIFIDE II — R&D tax credit. Resident companies and Portuguese permanent establishments may benefit from a tax credit comprising a base rate credit of 32.5% of R&D expenses, plus an incremental credit of 50% of the increase over the average of the previous two years, capped at €1.5 million.
- RFAI (investment support regime) and DLRR (deduction for retained and reinvested profits) — both reduce the tax due where the company reinvests in productive assets rather than distributing profits.
- Interior territories rate — 12.5% instead of 15% on the first €50,000, for companies genuinely based (not just registered) inland.
None of these are automatic tick-boxes; they need supporting documentation and, in most cases, prior notification or a formal application. A certified accountant (contabilista certificado) isn’t optional in Portugal — it’s a legal requirement for any Lda, and a good one will flag which of these actually apply to your business.
Non-resident companies and withholding tax
If you’re paying a foreign parent company or receiving Portuguese-source income without a local permanent establishment, different rules apply. Companies with no registered office or permanent establishment in Portugal are subject to a rate of 25%, except for certain income taxed at 35%, such as lottery prizes or income paid to entities in low-tax jurisdictions. Dividend withholding follows a similar logic: the standard withholding rate on dividends paid to non-resident entities remains 25%, subject to reduction under double-tax treaties or the EU Parent-Subsidiary Directive, which can reduce it to 0% for qualifying EU parents holding at least 10% for 12 months.
FAQ
What is Portugal’s corporate tax rate in 2026?
The general IRC rate is 19% on mainland Portugal, down from 20% in 2025. SMEs and Small Mid Caps pay 15% on the first €50,000 of taxable income and 19% on the rest. Madeira and the Azores apply a lower general rate of 13.3%.
Do all companies pay the same IRC rate?
No. The rate depends on company size (SME status), location (mainland vs. Madeira/Azores vs. interior territories), and profit level (the state surtax only applies above €1.5 million in taxable profit). Always confirm your municipality’s derrama rate too, since it’s added on top.
When is the IRC return due?
The annual Modelo 22 return is filed via Portal das Finanças. In 2026 the deadline was extended to 30 June, though the ordinary rule is generally end-May — check the current year’s calendar with Finanças or your accountant, as extensions aren’t guaranteed every year.
Can a freelancer avoid IRC by staying self-employed?
Freelancers (recibos verdes) pay personal income tax under the simplified regime, not IRC — a different system with its own rates and deductions. Whether incorporating as an Lda makes sense depends on turnover, expenses and long-term plans; it’s worth modelling both routes with an accountant before deciding. See our /tax-and-nif/ guide for how the freelancer regime compares.
Does opening a company in Madeira actually save money?
It can, but only if your company genuinely has effective management there and, for the 5% Free Trade Zone rate, holds the right licence — it’s not simply a registered-address trick. The tax authorities scrutinise substance closely, so get advice before assuming the lower rate will apply.
IRC sits alongside VAT, social security and payroll as one of the recurring costs of running a Portuguese company, and the rules shift most Budgets — this year’s rate cut is a good example. For the setup side (choosing between Lda and Unipessoal, opening your NIF, registering with Finanças), our /company-setup/ pillar walks through the whole process, and /banking/ covers what you’ll need for a business account. If you’d rather have this handled properly from day one, our /services/ team works with accountants who track these rates every Budget cycle.
Setting up or restructuring a Portuguese company? Talk to GrowIN’s team before you file — getting the regime right at incorporation is far easier than fixing it after the fact. Outcomes on any tax incentive depend on the Autoridade Tributária’s review of your specific case, so treat this guide as a starting point, not a substitute for professional advice.