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Tax transparency: 5 rules to understand when your company pays no IRC and the profit goes straight into your IRS
Step Inside Accounting · Practical guide
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1. What tax transparency is
In a normal company, the company pays IRC on its profit and the partners only pay IRS when they receive dividends. In a company under tax transparency, it works differently:
- the company does not pay IRC on its profit;
- the taxable profit is divided among the partners, according to the articles of association (or in equal shares, if they say nothing);
- each partner reports their share in that year’s IRS return, even if the money has not left the company.
It is not optional: if the company meets the conditions, the regime applies automatically.
2. Who is covered: professional companies
The most common case is professional companies (sociedades de profissionais). A company is a professional company when:
- it was set up to carry out a professional activity from the IRS activity table and all the partners who are individuals carry out that activity – for example, a law firm or an architecture firm; or
- more than 75% of its income comes from professional activities in the table and, for more than half of the year, it has no more than five partners, none of them is a public entity and at least 75% of the capital belongs to professionals who carry out the activity through the company.
Transparency also applies to civil partnerships without a commercial form and to certain companies that simply manage assets, controlled by a family or with few partners. A partner who only contributes capital, without practising the profession through the company, can make the first test fail.
3. Partners pay IRS on the profit, even without receiving it
Each partner’s share of a professional company’s profit goes into their IRS as self-employment income and is added to their other income, at the normal rates. This happens in the year the company makes the profit, not when it distributes it. When the profit is later paid to the partners, it is not taxed again.
That is why the company should distribute at least the money the partners need to pay the IRS on their share.
4. The company still has obligations – and some tax
Not paying IRC on its profit does not mean having no obligations. The company:
- keeps organised accounting, with a certified accountant;
- files the annual income tax return and the annual accounting information return;
- pays autonomous taxation on certain expenses, such as cars and entertainment expenses;
- charges VAT, where applicable, like any other company.
And if, besides being a partner, you invoice your own transparent company as a self-employed worker, under the simplified regime that income is taxed at 100%, not 75%.
5. Is it worth it?
Transparency avoids double taxation – IRC in the company and IRS on dividends – but it also removes the possibility of leaving profits in the company at a lower rate. In general terms:
- it works better when the partners have moderate IRS rates and distribute almost all of the profit;
- it weighs more when the partners are in the higher brackets and want to reinvest in the company.
Before setting up a company with fellow professionals, compare the three scenarios: staying on recibos verdes, a company under transparency and a company subject to IRC (with a different structure or activity).
Example
Ana and Beatriz are architects and own an architecture firm, 50% each. In 2026 the company has a taxable profit of €90,000 and decides to keep the money to buy equipment.
- The company pays no IRC on the €90,000 (it only pays the autonomous taxation on its expenses).
- Ana and Beatriz each report €45,000 in their 2026 IRS return, added to their other income.
- If the company pays them that profit in 2027, there is no further tax on it.
Even without having received a single euro, they both pay IRS on €45,000 in 2027. They need to have money set aside for it.
Team tip
If you are thinking of setting up a company with other professionals, talk to us before you sign the articles of association. The make-up of the partners and the company’s purpose decide whether it falls under tax transparency, and that changes every partner’s tax for years.
Want us to handle this for you?
Companies
Monthly accounting
Bookkeeping, tax obligations and managing partners’ salaries, all in one place.
€250 + VAT / month
Self-employed
Recibos verdes without the stress
Tax returns, VAT and Social Security handled by people who know the regime inside out.
from €80 + VAT / month
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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