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Tax Transparency in Portugal: When Company Profits Are Taxed Directly in the Partners’ IRS

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  • Tax, Live in Portugal

Tax Transparency in Portugal: When Company Profits Are Taxed Directly in the Partners’ IRS

Set up a company in Portugal to provide professional services or to hold property? Under the tax transparency regime (transparência fiscal), some companies don’t pay corporate tax (IRC) on their profits. Instead, the profit is attributed to the partners and taxed in their IRS — whether or not it’s distributed. Here’s which companies are covered (Article 6 of the IRC Code) and how partners are taxed (Article 20 of the IRS Code).
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🏢 Which Entities Are Covered?

Companies with their seat or effective management in Portugal that fall into one of these groups:

1. Civil companies not set up in commercial form (sociedades civis não constituídas sob forma comercial)

2. Professional companies (sociedades de profissionais), where either:

  • All partners are individuals practising the same profession listed in the IRS Code’s table of professional activities (for example, lawyers, architects, consultants, doctors, IT professionals), and the company’s object is that activity; or
  • More than 75% of revenue comes from listed professional activities, there are no more than five partners for more than 183 days, and at least 75% of the capital is held by professionals who work through the company

 

3. Simple asset-holding companies (sociedades de simples administração de bens), that:

  • Manage assets (such as property) held as reserves or for the partners’ enjoyment, or buy homes for the partners — or earn more than 50% of their income from asset management (on a three-year average), and
  • Are majority-owned by a family group, or have no more than five partners

 

Also: complementary groupings of companies (ACE) and European economic interest groupings (AEIG).

What matters is substance, not the company’s stated object.

⚙️ How It Works

  1. The company calculates its taxable profit under the IRC rules
  2. The company is not taxed in IRC on that profit (but still pays autonomous taxation on certain expenses, such as cars and representation costs)
  3. The profit is attributed to the partners according to the articles of association (or equally, if not specified)
  4. Each partner is taxed on their share — individuals in IRS, companies in IRC

The attribution happens every year, even if the profit stays in the company.

🧮 How Partners Are Taxed in IRS

  • The attributed profit is treated as net business and professional income (category B)
  • It’s added to the partner’s other income and taxed at progressive rates
  • When the profit is later distributed, it isn’t taxed again

⚖️ Why It Matters

  • No IRC + dividend tax combination — but the profit is taxed at the partner’s marginal IRS rate (up to 48%, plus surcharge), which can be higher than IRC plus dividend tax
  • No deferral: you pay tax even if you don’t take the money out
  • Special regimes: IFICI or other benefits may interact with the attributed income in specific ways
  • Audits: the tax authority has been checking companies that should apply the regime but don’t

⚠️ Common Situations

  • A single-partner consulting company where the partner provides the services — often a professional company
  • A family company holding a rental property — often a simple asset-holding company
  • A company with diversified activity or non-professional partners — may fall outside the regime

💡 Practical Tips

  • Check the regime before incorporating — the choice of partners and activities matters.
  • Review existing companies every year — changes in income or partners can bring a company in or out of the regime.
  • Compare the total tax burden: transparency vs IRC + dividends vs self-employment.

🚀 Final Considerations

Tax transparency treats some companies as “see-through” for tax purposes: the profit is taxed in the partners’ IRS, every year, whether distributed or not. For professionals and property-holding families, knowing whether the regime applies is essential before choosing a company structure.

📢 Expert Advice: Before setting up a company to provide your professional services or hold property, check whether it will be tax-transparent. It can change the tax result completely.

Setting up a company in Portugal? Step Inside Portugal’s tax team can analyse the best structure for you — find out more about our tax services here. ✨

This article is for general information only and doesn’t constitute tax or legal advice. Each company should be analysed individually.

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