Portugal vs Spain Taxes

The choice of the place where to develop the economic activity, or how to carry out the internationalization of a company, is a strategic decision that involves fundamental tax considerations. Spain and Portugal offer specific tax environments for companies and entrepreneurs. Below, we tell you what the difference is between taxes in Portugal and those in Spain. Personal Income Taxes Both countries tax personal income, but there are significant differences in tax rates and tax structures. In Spain, personal income tax is progressive, depending on the income obtained, and can reach up to 47%. Portugal follows a similar process, with taxation also in tranches. Portugal offers interesting tax advantages for “digital nomads” and people who come to work in the innovation/scientific research sectors.

Corporate Income Tax

As for corporate tax, Spain and Portugal also have corporate tax. In Spain, the standard rate is 25%, while in Portugal it is by brackets: 17% for the first €50,000 of profits and 21% for higher profits, which can be reduced to 12.5% in inland areas of Portugal for tax bases of less than €50,000. In the particular case of Madeira, the Corporate Income Tax is lower, 11.9% for the first €50,000 of profits and 14.7% for higher profits. But, if beyond being in Madeira, companies take advantage of the ZFM, this special status attracts an IS of 5%. But there are rigorous requirements to meet, and some restrictions too! Ask us (links to the contacts page), if you are interested.

Value Added Tax (VAT)

As for VAT, both countries apply general and reduced rates. In Spain, the general rate is 21%, while in Portugal it is 23%. However, Portugal has a reduced rate of 6% for certain goods and services.

PTT (Property Transfer Tax)

In reference to the Property Transfer Tax (PTT) in Spain, this tax varies depending on the autonomous community, which can generate significant disparities. In Portugal, the PTT is more homogeneous and is usually lower, which can be attractive for acquisition and corporate restructuring operations. Their percentages vary from 2 to 8%, depending on the value of the property.

International Taxation

Both Spain and Portugal have double taxation treaties with numerous countries, which provides legal certainty and avoids double taxation for multinational companies. In addition, the fact that both countries are members of the European Union facilitates the mobility of capital and the freedom to provide services and the application of the corresponding directives such as Directive 2011/96/EU, which allow the non-taxation of at least 95% in the distribution of dividends and in the transfer of shares and/or participations between parent-subsidiary companies.

Expatriate Workers Considerations

When a company considers setting up branches or subsidiaries abroad, the tax implications for expatriate staff are significant. Both Spain and Portugal offer special regimes to attract qualified professionals and facilitate the international mobility of workers, especially the application of article 7p of the Personal Income Tax Law in Spain that allows the exemption from taxation of up to €60,100 on income from employment carried out abroad, in countries where it has signed an Agreement to avoid double taxation.

Conclusions on the taxation of Portugal vs Spain

The choice between Spain and Portugal from a tax point of view will depend on the company’s strategy and specific needs. While Spain has slightly higher tax rates, progressivity and tax benefits can be attractive factors. Portugal, on the other hand, stands out for its lower tax rates and specific regimes that can be beneficial for certain profiles. When setting up a company, you will have to focus your business plan very well, taking into account the specificities of each market, such as its size, competition, cultural, business, and tax aspects, among others. It is also very important to define a sales strategy so that the forecast of results corresponds as closely as possible to reality. Once that initial step is done, at CE Consulting Portugal we offer specialized tax advice to complete that business plan and help you make the best decision. Contact us!