What kind of taxes are levied in Portugal?
17 de November, 2022
Paying taxes is an ever-present reality in our daily lives. The purchases we make, the salary we earn, the banking operations we carry out… these and many other actions are subject to taxation.
That’s why it’s essential to know the types of taxes levied in our country, as they have a significant impact on the management of our personal finances.
Do you know all the taxes in Portugal? Do you know the difference between direct and indirect taxes? Come and find out with us!
Difference between direct and indirect taxes
In Portugal, taxes can be direct or indirect:
- Direct taxes: these are levied directly on people’s income, whether natural or legal (e.g. personal income tax and corporate income tax).
- Indirect taxes: these make up the majority of taxes in Portugal and are levied indirectly on the price of products or services (e.g. VAT or ISP).
1 – Property taxes
IMI
The Municipal Property Tax is levied on the owners of real estate and land, taxing the value of these properties. The amount payable is levied directly on the value of the property and is defined by each municipality on the basis of a table issued by the state (which aims to regulate the values charged).
There is also the so-called Additional to IMI (AIMI), which acts as a surcharge on IMI and aims to tax taxpayers with valuable real estate assets.
IMT
The Municipal Property Transfer Tax is levied on transfers of ownership of real estate. In practice, it is levied when a property is bought or sold in Portugal.
The amount to be paid varies depending on the value of the property, ranging from 1% to 8%.
Imposto de Selo
Imposto do Selo is the oldest tax in the Portuguese tax system and is not only levied on property, but also on consumption. It is a tax levied on contracts, documents, titles, books, papers or other acts that are not subject to VAT.
One of the most common situations in which this tax is levied is when buying a house using a mortgage. But it can also be levied on other consumer credit contracts, other operations carried out by financial entities, other document issues or other transactions.
2 – Income taxes
IRS
Personal Income Tax is a tax levied directly on the income earned by workers. The rate to be applied is calculated on these earnings, which can be consulted in the IRS Tables in force, and is based on criteria such as the value of the gross monthly salary, marital status or the number of dependents, for example.
IRC
Corporate Income Tax is levied on companies operating in Portugal. It is a direct tax levied on income earned during the tax period, in this case the previous year.
Derrama
Derrama is a municipal tax paid together with the Corporate Income Tax (IRC) and is also levied on the taxable profit of legal persons. The rate applied varies depending on the municipality in which the company is based.
TSU
Despite being called a tax, Taxa Social Única (TSU) functions as a kind of tax that both individuals and companies have to pay. In total, the TSU corresponds to 34.75% of each employee’s gross monthly salary, of which 23.75% is paid by the company and the remaining 11% is deducted from the employee’s salary.
The purpose of this tax is to guarantee the financing and sustainability of Social Security.
3 – Consumption taxes
IVA
Value Added Tax is probably the best known tax in Portugal. It applies to transfers of goods and services, imports or intra-Community acquisitions of goods and services. In other words, when any consumer buys a good or service, they have to pay not only the cost of it, but also the respective VAT rate.
This rate varies between 0 and 23%. Services exempt from VAT are 0%, as is the case with medical services, services provided by nurseries, non-profit associations, among others. The reduced rate (6%) is applied to some food products, pharmaceuticals, books, passenger transport, hotel accommodation, among others. The intermediate rate (13%) applies to other food products, restaurant services, shows, exhibitions, cinemas, zoos, among others.
4 – Excise duties
IABA
The Tax on Alcohol, Alcoholic Beverages and Sugar-Added Bever ages is applied directly to the price of products such as beer, wine, fermented beverages, spirits, ethyl alcohol, beverages with added sugar or other sweeteners or concentrates intended for the preparation of beverages. The rate varies according to the type of product.
ISP
The Tax on Petroleum and Energy Products also has a significant impact on people’s wallets, especially those who commute by car (or companies that own fleets), as it is levied on the price of fuel.
But in addition to petrol and diesel, it also applies to other oil and energy products, hydrocarbons used as fuel (with the exception of peat) and electricity.
IT
The Tobacco Tax is a third excise duty and is levied, as its name suggests, on the price of cigars and cigarillos, cigarettes, heated tobacco and other types of tobacco.
5 – Car taxation
ISV
Vehicle Excise Dut y is levied when you buy a car or motor vehicle, and is paid only once, on the first registration. Currently, this tax is already included in the sale price. In the case of imported vehicles, the tax is paid by the importer.
The tables that determine the value of the ISV are published annually and are based on the vehicle’s cylinder capacity and the environmental component.
IUC
The Single Circulation Tax (Imposto Único de Circulação), which replaced the old “car stamp”, is paid once a year, in the month of the vehicle’s registration. This tax is levied on the ownership of a vehicle and not on its circulation.
For diesel vehicles, there is also the so-called Additional IUC, an extra tax levied on owners of more polluting vehicles.
Did you know about all these taxes? Whether direct or indirect, on consumption, monthly or more punctual, they play a considerable role in our lives. So plan your family budget well to anticipate and accommodate the payment of all these charges.