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Paying less IRC by keeping profits in the company: 5 rules on the ICE
Step Inside Accounting · Practical guide
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1. What the ICE is
The ICE (incentivo à capitalização das empresas) lets the company deduct from its taxable profit a kind of interest calculated on the increase in its equity. The idea is simple: whoever funds the company with the partners’ money, instead of bank credit, pays less corporate tax (IRC).
It applies to companies with their seat in Portugal that carry on a commercial, industrial or agricultural activity, of any size. There is nothing to apply for: it is calculated in the annual IRC return (Modelo 22), as long as the company’s position with the Tax Authority and Social Security is in order.
2. What counts as an increase in equity
- Profits kept in the company (in retained earnings or free reserves), decided when the annual accounts are approved.
- Cash contributions by the partners to the share capital, at incorporation or in a capital increase.
- Share premiums.
- Conversion of partners’ loans into capital, for example shareholder loans (suprimentos).
Supplementary contributions (prestações suplementares), capital increases made from existing reserves and contributions of real estate do not count. Outflows are deducted: dividends, capital reductions and distributions of reserves reduce the increase.
3. How much is deducted in 2026
The deduction is the net increase multiplied by the 12-month Euribor (yearly average) plus 2 percentage points. In 2026, the result also gets a 20% uplift.
With an average Euribor of about 2.7%, the rate is 4.7% and, with the uplift, the deduction equals about 5.64% of the increase. The exact 2026 average is only known at the end of the year.
Example
When the 2026 accounts are approved, the partners decide to keep €40,000 of profit in the company. That year’s deduction is €40,000 × 4.7% × 1.2 = €2,256, which saves about €338 of IRC (15%).
4. The same increase counts for seven years
Each increase counts in the year it happens and in the following six years, as long as the money stays in the company. Increases from several years add up: if the company keeps €40,000 of profit every year, by the third year the base is already €120,000.
If the company pays dividends or reduces its capital, those outflows reduce the total. If the result is negative, there is no deduction that year.
5. Limits and things to watch
The yearly deduction cannot exceed the higher of two amounts: €4 million or 30% of tax EBITDA. In a small company this limit almost never applies, and anything above it can be used in the following five years.
There are anti-abuse rules: cash contributions financed by loans within the same group do not count, nor do contributions from partners in countries outside the EU and the European Economic Area that have no agreement with Portugal to avoid double taxation or exchange tax information.
Team tip
Talk to us before the accounts are approved. Deciding how much profit stays in the company and how much goes out as dividends changes the ICE for the next seven years.
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This article is for information only and does not replace professional advice. Figures and rules are those in force at the date of publication and may change.
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