{"id":1041,"date":"2026-10-03T10:38:11","date_gmt":"2026-10-03T10:38:11","guid":{"rendered":"https:\/\/borderlessadvice.com\/?ba_guide=business-income-tax-irs-vs-irc-portugal"},"modified":"2026-10-03T10:38:11","modified_gmt":"2026-10-03T10:38:11","slug":"business-income-tax-irs-vs-irc-portugal","status":"publish","type":"ba_guide","link":"https:\/\/borderlessadvice.com\/?ba_guide=business-income-tax-irs-vs-irc-portugal","title":{"rendered":"Business income tax in Portugal: IRS vs IRC basics"},"content":{"rendered":"

Portugal does not use one single \u201cbusiness income tax\u201d for every business. The first question is who legally earns the income<\/strong>. If you operate in your own name as a freelancer, trabalhador independente<\/em> or ENI, your business\/professional income is generally Category B income under IRS<\/strong>. If the activity is carried on by a Portuguese company such as a Sociedade Unipessoal por Quotas<\/em> or Lda.<\/em>, the company’s taxable profit is generally subject to IRC<\/strong>.<\/p>\n\n

2026 fast orientation:<\/strong> an individual does not simply pay a flat \u201cbusiness tax rate\u201d: Category B taxable income feeds into the person’s IRS calculation. A mainland company with a tax period starting in 2026 is generally subject to a 19% IRC rate<\/strong>. A qualifying PME or Small Mid Cap generally gets 15% on the first \u20ac50,000 of taxable profit<\/strong>, with the general rate on the excess. The statutory headline rate in Article 87 is being phased down: 19% applies in 2026, 18% in 2027 and 17% from 2028 under the current transitional rule.<\/div>\n\n

1. IRS, IRC and IVA are three different questions<\/h2>\n\n
Tax<\/th>What it broadly taxes<\/th>Typical business example<\/th><\/tr><\/thead>
IRS<\/strong><\/td>Income of individuals<\/td>A self-employed person earning Category B business\/professional income<\/td><\/tr>\n
IRC<\/strong><\/td>Income\/profit of companies and other entities within the IRC rules<\/td>A Portuguese Lda. or Unipessoal Lda.<\/td><\/tr>\n
IVA<\/strong><\/td>Taxable supplies\/consumption<\/td>IVA charged, exempted or reverse-charged on invoices<\/td><\/tr>\n<\/tbody><\/table>\n

These can coexist. A freelancer can owe IRS and also have IVA obligations; a company can owe IRC and also account for IVA. See our VAT \/ IVA guide<\/a> for the transaction-tax rules.<\/p>\n\n

2. If you work in your own name: Category B IRS<\/h2>\n

Business and professional income earned personally is generally Category B (rendimentos empresariais e profissionais<\/em>). The taxable Category B amount is determined either under the regime simplificado<\/strong> or using contabilidade organizada<\/strong>. It is then part of the individual’s IRS position; the simplified coefficient itself is not<\/strong> an IRS tax rate.<\/p>\n

Autoridade Tribut\u00e1ria \u2014 self-employment \/ Category B<\/a><\/p>\n\n

3. Simplified IRS regime: the \u20ac200,000 threshold<\/h2>\n

You are generally within the simplified Category B regime if the previous year’s gross Category B income did not exceed \u20ac200,000<\/strong> and you have not opted for taxation based on organised accounts. At the start of activity, the estimate declared when opening activity is used for the initial classification.<\/p>\n

You can opt for organised accounting when opening activity or, for a later change, by submitting a declaration of changes by the end of March<\/strong> of the year in which you want the change to apply.<\/p>\n

Exceeding \u20ac200,000 once does not always force an immediate switch. Under current Article 28, the simplified regime ceases when the limit is exceeded in two consecutive tax periods<\/strong>, or in a single period by more than 25%<\/strong> \u2014 effectively more than \u20ac250,000 \u2014 with organised accounting applying from the following period.<\/p>\n

CIRS Article 28 \u2014 methods for determining Category B income<\/a><\/p>\n\n

4. What the simplified coefficients actually do<\/h2>\n

The simplified regime applies statutory coefficients to different kinds of gross income to determine the amount that enters the taxable-income calculation. Important current examples include:<\/p>\n\n
Type of Category B income<\/th>Coefficient<\/th>Simple illustration<\/th><\/tr><\/thead>
Sales of goods\/products and qualifying restaurant\/beverage\/hotel activity<\/td>0.15<\/strong><\/td>\u20ac40,000 \u00d7 0.15 = \u20ac6,000 before other applicable IRS rules<\/td><\/tr>\n
Professional activities specifically listed under Article 151<\/td>0.75<\/strong><\/td>\u20ac40,000 \u00d7 0.75 = \u20ac30,000 before other applicable IRS rules<\/td><\/tr>\n
Other services not covered by the preceding categories<\/td>0.35<\/strong><\/td>\u20ac40,000 \u00d7 0.35 = \u20ac14,000 before other applicable IRS rules<\/td><\/tr>\n<\/tbody><\/table>\n
Do not choose your own coefficient.<\/strong> Your actual activity and the legal classification control it. Article 31 also contains other coefficients and special rules, including expense-substantiation rules for some activities. The multiplication examples above explain the mechanism; they are not complete tax calculations.<\/div>\n

CIRS Article 31 \u2014 simplified-regime coefficients<\/a><\/p>\n\n

5. Simplified does not mean \u201c25% tax-free expenses\u201d<\/h2>\n

A common mistake is to read the 0.75 coefficient as \u201cthe government automatically gives every professional a 25% expense deduction\u201d. The legal mechanism is more specific. For relevant coefficients, Article 31 links the full presumed deduction to verification of qualifying expenses and deductions, subject to its formula and exceptions. Keep business invoices properly associated with the activity in e-Fatura and do not assume that every personal expense can be used.<\/p>\n\n

6. Organised accounting for an individual<\/h2>\n

With contabilidade organizada<\/em>, Category B income is determined using accounting rules rather than the simplified coefficients, with the adaptations required by the IRS Code. This can make sense where real deductible business costs are substantial or the activity is more complex, but it also brings greater accounting obligations. Above the statutory conditions, organised accounting can become mandatory.<\/p>\n

The choice should be modelled using your expected revenue and genuine deductible costs rather than made solely from turnover. A contabilista certificado<\/em> can compare the two methods before the March deadline.<\/p>\n\n

7. How and when a self-employed person reports the income<\/h2>\n

Category B income is normally reported with the annual Modelo 3 IRS return<\/strong>, using the applicable business\/professional annex. The ordinary filing window is 1 April to 30 June<\/strong> for the previous year’s income. Residents generally report their worldwide income, subject to the detailed residence, treaty and foreign-tax-credit rules.<\/p>\n

CIRS Article 60 \u2014 IRS filing deadline<\/a><\/p>\n\n

8. If the business is a company: IRC<\/h2>\n

A Portuguese company is a separate taxpayer. Its accounting result is adjusted under the IRC Code to determine taxable profit (lucro tribut\u00e1vel<\/em>) and taxable amount (mat\u00e9ria colet\u00e1vel<\/em>). The company’s turnover is therefore not<\/strong> simply multiplied by the IRC rate.<\/p>\n

For tax periods beginning during 2026<\/strong>, the general mainland IRC rate is 19%<\/strong> under the transitional provision of Law 64\/2025. The current Article 87 text states 17%, but that rate applies to periods beginning in or after 2028; the transition sets 19% for 2026 and 18% for 2027.<\/p>\n\n

9. PME \/ Small Mid Cap reduced rate<\/h2>\n

A qualifying small or medium-sized enterprise or Small Mid Cap carrying on an agricultural, commercial or industrial economic activity can apply a 15% IRC rate to the first \u20ac50,000 of taxable amount<\/strong> for periods beginning in 2026, with the applicable general rate on the excess. Eligibility is not simply \u201cmy company is small\u201d; the statutory enterprise classification and other rules, including applicable EU de minimis rules, matter.<\/p>\n

CIRC Article 87 \u2014 IRC rates and transitional note<\/a><\/p>\n\n

10. Example: \u20ac80,000 taxable amount in a qualifying PME<\/h2>\n

If a mainland company qualifies for the reduced PME\/Small Mid Cap rate and has \u20ac80,000 of taxable amount in a 2026 tax period, a simplified illustration of the base IRC is:<\/p>\n