Portugal: Increase in Tax Rates

Portugal's government approved additional measures relating to the Stability and Growth Program on 13 May 2010 to reduce its deficit. The measures include increases in the corporate income tax, personal income tax, withholding tax, stamp tax and value added tax (VAT) rates.


Corporate income tax

A surtax of 2.5 percentage points on taxable profits exceeding EUR 2 annually will be due, meaning that the corporate income tax rate on profits in excess of this amount will be 27.5% (i.e. the 25% standard rate, plus the surtax of 2.5%).


Personal income tax

A surtax also will be imposed on the worldwide income of individuals and represents an increase of 1% to 1.5% in the general personal income tax rates, depending on the applicable tax bracket. This measure, which clearly will increase the final tax burden on individuals, is expected to have a cash flow impact through the increased monthly withholding tax on employment and pension income.


Withholding tax

A 1.5 percentage point increase will apply to the final withholding tax rates on investment income of individuals, such as dividends, interest and royalties, as well as to employment, professional and pension income. The withholding tax rates, therefore, will increase from 20% to 21.5% which, as a result of their final nature, will represent an immediate increase in the tax collection of the state.


Stamp tax

A new surtax applicable to consumer credit transactions (already subject to stamp tax on both capital and interest) is envisaged. It is not yet clear whether this surtax will apply to capital or interest in these transactions.


Value added tax

A one percentage point increase in all the Value added tax rates will apply, possibly with effect from 1 July 2010. This implies that the standard 20% VAT rate will become 21%, the intermediate rate 13% (from 12%) and the reduced rate 6% (from 5%). It is not yet confirmed whether the same increase will apply to the Value added tax rates applicable in the Autonomous Regions of Madeira and of the Azores which, if confirmed, will become 15%, 9% and 5%.

The austerity plan measures have not yet been enacted, although publication in the Official Gazette is expected in the near future, thus having an impact on the 2010 tax year.