Deductible vs non-deductible expenses under IRC: what a Portuguese company can deduct

This guide speaks primarily to companies on organized accounting (Ldas, single-member private limited companies known as sociedades unipessoais por quotas, and SAs). If you are an ENI on the simplified regime, the coefficients in article 31 of the CIRS replace the actual-expense logic; the ENI vs Lda comparison explains the difference. There is also a simplified regime under the CIRC (articles 86-A to 86-C), available to smaller companies that opt in: there, taxable profit is determined by coefficients applied to income, and the expense-by-expense deduction logic described in this guide largely stops applying. Confirm with the accountant which regime applies to your company.

The deductibility test: article 23 of the CIRC

Article 23 of the Portuguese Corporate Income Tax Code (CIRC) sets the general rule: all expenses and losses incurred or borne by the taxpayer to obtain or safeguard income subject to IRC are deductible. Two cumulative conditions, in practice:

• Connection with the business activity. The expense must relate to the business, not to the personal sphere of the manager-member or of third parties. A restaurant meal during a work meeting passes the test; a birthday dinner for one of the members does not.
• Adequate documentation. Article 23 of the CIRC allows any documentary support that lets the taxpayer prove the expense was actually incurred, but it requires an invoice whenever the supplier is legally obliged to issue one (under article 29 and following of the CIVA and Decree-Law 28/2019). Between businesses, that in practice means an invoice or invoice-receipt in the buyer’s name. Where the supplier is not required to issue an invoice, another probative document is acceptable, provided it unambiguously identifies the expense.

A real expense with insufficient or defective documentation can be corrected (for example, by requesting an invoice from the supplier); an expense with no supporting evidence at all falls into the “undocumented expenses” regime (next section), which is much harsher.

Documentation: what the AT requires

Where the supplier is required to issue an invoice, it must contain, at minimum, the elements listed in article 36 of the CIVA for full invoices or article 40 of the CIVA for simplified invoices: supplier and buyer identification, date, description of the good or service, price, sequential number and, where applicable, itemized VAT.

Simplified invoices (talões de caixa) only qualify below certain thresholds. A relevant point: since 2025, suppliers enrolled in the special VAT exemption regime of article 53 of the CIVA can issue simplified invoices without the value ceiling that applies to the general regime. For IRC deduction, a simplified invoice is acceptable where it includes the buyer’s NIF and the other applicable legal elements.

Electronic invoices must guarantee authenticity of origin and integrity of content (article 12 of Decree-Law 28/2019). The methods expressly listed are: qualified electronic signature, qualified electronic seal, and electronic data interchange (EDI). An AT-certified invoicing program helps in several dimensions but does not, by itself, substitute one of these methods for the authenticity and integrity requirement of an electronic invoice; other reliable control methods can also be accepted under the general terms of the decree.

Two axes: IRC deductibility and Tributação Autónoma

Each expense should be considered on two separate axes, because the same expense can combine both dimensions:

• Axis 1: IRC deductibility. An expense that meets the article 23 test is IRC-deductible (it reduces taxable profit). If it falls under one of the article 23-A exclusions (IRC and other taxes on profits, fines and penalties, illegal expenses, excluded financial charges, undocumented expenses, among others), it is non-deductible.
• Axis 2: Tributação Autónoma. Regardless of IRC deductibility, article 88 of the CIRC provides for specific autonomous taxations on certain categories: passenger vehicles, entertainment expenses, per diems not invoiced to the client, certain manager bonuses, payments to entities in significantly more favorable tax regimes, and undocumented expenses. TA is paid together with the Modelo 22 and can be due even when the company has no taxable profit (a tax loss can, however, aggravate the applicable rate by 10 percentage points under paragraph 14, with the exceptions described further below).

Combining the two axes, in practice:

A. IRC-deductible + no TA. Reduces taxable profit by 100% and generates no TA. Examples: office rent, accountant fees, raw materials, regular salaries, business insurance, professional software subscriptions, activity-related training.

B. IRC-deductible + TA applies. Recorded as an expense (reducing taxable profit) but additionally taxed by TA. Examples: passenger-vehicle charges within the caps, entertainment expenses, per diems not invoiced to the client.

C. Non-deductible + no TA. Neither reduces taxable profit nor generates TA. Examples: IRC paid, fines and penalties, illegal expenses (article 23-A of the CIRC).

D. Non-deductible + TA applies. The most punitive combination and worth knowing. Typical example: undocumented expenses (article 88(1)), which are non-deductible and subject to a 50% TA. Vehicle charges above the Portaria 467/2010 cap similarly combine the non-accepted depreciation portion (added back to taxable profit) with TA on the full set of vehicle charges.

Article 23-A distinguishes undocumented expenses (with no supporting evidence at all) from expenses with insufficient or defective documentation: only the former automatically trigger the 50% TA. An invoice made out to “consumidor final” or without the buyer’s NIF may be insufficient for deduction, but if the transaction is otherwise identifiable (from the rest of the invoice content and the associated payment), it does not automatically qualify as an undocumented expense; the specific treatment depends on the case.

Tributação Autónoma in 2026: rates in force

Tributação Autónoma is set out in article 88 of the CIRC. It taxes specific expense categories autonomously, regardless of whether there is a profit. The most frequent 2026 rates:

Passenger vehicles and motorcycles

Applies to acquisition costs (through depreciation), fuel, maintenance, repair, insurance, tolls, and long-term rental (ALD/AOV) charges. Rates depend on the vehicle’s acquisition cost, in force since 1 January 2025. Note: article 88(6) of the CIRC excludes from these TA rates the charges related to vehicles used for public transport, vehicles intended to be rented in the course of the taxpayer’s normal activity (car-rental companies, for example), and vehicles covered by a written personal-use agreement with a worker or member of a corporate body, as provided for in article 2(3)(b)(9) of the CIRS (the in-kind benefit is then taxed as IRS income in the beneficiary’s hands). These exclusions also apply to fully electric vehicles under paragraph 20 of the same article.

Qualifying plug-in hybrid vehicles (minimum 50 km electric range and emissions below 50 gCO₂/km, or below 80 gCO₂/km when homologated under Euro 6e-bis), under article 88(18) of the CIRC. The same rates apply to qualifying natural-gas (GNV) vehicles:

Fully electric vehicles (article 88(20) of the CIRC): charges are TA-exempt where the vehicle’s acquisition cost is up to 62,500 €; above that cap, the charges are taxed autonomously at 10%. Here, the acquisition cost is determined under article 2(4) of Decree-Regulation 25/2009 and includes non-deductible VAT (see the note further below and binding information PIV 28789); it is not the same ex-VAT reference used for the VAT-deduction cap on the acquisition, set out in article 21(2)(f) of the CIVA. The Euro 6e-bis condition does not apply to fully electric vehicles.

Note on the simplified regime. Article 88(16) of the CIRC expressly disapplies the TA rates in paragraphs 7, 9, 11 and 13 (entertainment, per diems/travel, profits distributed to exempt entities, manager bonuses) to companies taxed under the CIRC simplified regime. Under that regime, taxable profit is determined by coefficients, and most of the logic in this section does not apply. The remaining TA rates (vehicles, undocumented expenses, payments to offshore jurisdictions) continue to apply.

Other frequent categories

* The applicable rate depends on the taxpayer’s status (paragraphs 1 and 2 of art. 88); for an ordinary commercial Lda, 35% applies. It does not apply where the taxpayer shows that the transactions were actually carried out and are neither abnormal in character nor excessive in amount (statutory defense in paragraph 8 itself).

The +10 percentage-point aggravation for tax losses

Article 88(14) of the CIRC provides that TA rates are increased by 10 percentage points when the taxpayer reports a tax loss for the year. The 2026 State Budget (Law 73-A/2025 of 30 December) kept for 2026 a transitional rule that disapplies this aggravation, but only where certain conditions are met:

• the company had taxable profit in at least one of the preceding three periods and complied with the filing duties for the two preceding periods; or
• 2026 is the company’s start-up period or one of the following two periods.

Outside these cases, a company with a tax loss in 2026 remains subject to the 10-percentage-point uplift on TA rates. Confirm with the accountant whether the company meets the specific requirements for the year in question.

Vehicles: the most complex case

Passenger-vehicle charges are, for many Ldas, the biggest TA line. It is worth considering them in three dimensions:

• Deductible charge vs fiscal cap (depreciation). Depreciation on a passenger vehicle is deductible only up to an acquisition-cost cap set out in Portaria 467/2010, with four thresholds currently in force: 62,500 € for fully electric vehicles, 50,000 € for plug-in hybrids, 37,500 € for LPG- or CNG-fueled vehicles, and 25,000 € for all remaining vehicles (including petrol, diesel, and conventional hybrids that are not plug-in). These caps are not automatically updated every year; confirm them for the year in question. The excess is added back to taxable profit. Note on the IRC acquisition cost (the basis for depreciation and TA): under article 2(4) of Decree-Regulation 25/2009, the acquisition cost includes VAT that is not deductible (typical case for combustion passenger vehicles, for the 50% non-deductible portion on LPG/CNG vehicles, and for VAT-exempt companies) and excludes VAT that is deductible. In short: where the vehicle’s VAT is fully or partly deductible under article 21(2)(f) or (g) of the CIVA, the IRC reference cost is net of that deductible portion; otherwise it is the VAT-inclusive amount.
• TA on all charges. TA applies to the full set of charges (depreciation, fuel, maintenance, insurance, tolls, IUC), at the rate applicable to the vehicle’s acquisition cost, per the tables above.
• VAT with differentiated rules. VAT on the acquisition, lease, and running costs of passenger vehicles is generally non-deductible under article 21(1)(a) of the CIVA. Article 21(2)(f) and (g) open specific exceptions on acquisition and leasing (not on use, repair, or maintenance), using the Portaria 467/2010 caps net of VAT: (i) VAT is fully deductible on the acquisition/lease of fully electric vehicles whose cost (ex-VAT) does not exceed 62,500 €; (ii) it is fully deductible on plug-in hybrid vehicles up to 50,000 € (ex-VAT), with no requirement to meet the electric-range and emissions test of article 88(18) (that test only governs the reduced TA rates); (iii) it is 50% deductible on LPG- or CNG-fueled vehicles up to 37,500 € (ex-VAT); (iv) VAT on fuels (diesel, LPG, natural gas, and biofuels) is 50% deductible, with petrol fully excluded; (v) VAT on electricity consumed by electric and plug-in hybrid vehicles is fully deductible; (vi) VAT on vehicles used in specific activities (driving schools, transport, rental without driver) has its own regime. See the AT guidance in Ofício-Circulado 25088/2025.

Operational leases (renting). The ofício-circulado clarifies that, in renting, if the monthly invoice breaks out the vehicle-lease component from the other services (maintenance, insurance, admin), the VAT on the lease portion is deductible within the caps above; if the invoice is presented as a single bundled amount, the VAT on the full monthly charge is fully non-deductible.

Before buying a vehicle in the company’s name, the comparative calculation against personal purchase + per diems or mileage is worth a dedicated conversation with the accountant, particularly for vehicles above 37,500 € (where TA jumps to 25-32%).

Entertainment expenses and meals

The entertainment-expense category covers receptions, meals, trips, outings and shows offered in the country or abroad to clients, suppliers or other people or entities. They are IRC-deductible provided they meet the article 23 test (business connection + documentation) and are taxed autonomously at 10%.

A practical distinction:

• Restaurant meal with a client or supplier: entertainment expense; deductible and subject to 10% TA.
• Team meal: may qualify as a personnel cost (a separate, more favorable regime), depending on context and documentation.
• Personal meal for the manager-member with no business component: does not pass the article 23 test and is not deductible.

The expense record should at least identify the purpose (for example, “meeting with Client X”); inspectors look for this signal.

Per diems and travel

Per diems (paid to a manager or employee on a business trip) and personal-vehicle mileage allowances have a specific treatment. Under article 88(9), the 5% Tributação Autónoma applies only to the portion that is not invoiced to clients and is not taxed as IRS income in the beneficiary’s hands. Two routes, therefore, to disapply the TA: (i) expressly itemize the amount on the client invoice as a reimbursement (a generic mention that “travel is included” is not enough); or (ii) treat the amount as IRS-taxable income in the beneficiary’s hands (with withholding and Social Security contributions under the general rules). If neither route applies, the 5% TA is due.

In every case, for IRC deduction purposes an itinerary record (boletim itinerário) is required, with the elements the law demands: identification of the beneficiary employee, location, date, and duration of the trip, business purpose, vehicle registration and owner identification (for personal-vehicle travel), and kilometers traveled with the compensation calculation. Without that record, the expense is not deductible, with a statutory exception: amounts paid as per diems that are taxed as IRS income in the beneficiary’s hands remain deductible for the company (under article 23-A(1)(h) of the CIRC).

Daily limits for per diems exempt from IRS and Social Security are set by ministerial order, aligned with civil-service values, updated periodically. As a rule, only the portion that exceeds the limit is taxed as remuneration (IRS Category A) in the beneficiary’s hands and subject to Social Security contributions under article 46 of the Contributory Code. The full amount paid can, however, be treated as remuneration where the substantive conditions for a genuine travel allowance are not met (real and documented travel, itinerary-record elements, etc.); see the AT’s binding information PIV 26307.

Salaries, bonuses, and other remuneration

Salaries and employer Social Security contributions on those salaries are fully IRC-deductible expenses, with no associated TA (on the portion that is regular remuneration).

Bonuses and other variable remuneration paid to managers/administrators have specific rules: under article 88(13)(b) of the CIRC, a 35% TA applies when the variable remuneration cumulatively exceeds (i) 25% of the beneficiary’s annual remuneration and (ii) 27,500 €. There is an exception: the TA does not apply where at least 50% of the variable remuneration is deferred for a minimum of three years and payment is conditional on the company’s positive performance over that period. Simply formalizing a plan with objective metrics, without this deferral-and-conditionality architecture, does not avoid the TA; the plan should be designed with specific tax support. Note: under article 88(16) of the CIRC, this TA does not apply to companies taxed under the CIRC simplified regime.

VAT on expenses

In addition to the IRC treatment, each expense has a VAT treatment. General rules:

• VAT is deductible if the company is a VAT taxpayer with a right to deduct, if the document meets the CIVA formal requirements, and if the expense’s nature is not excluded by article 21 of the CIVA.
• VAT is non-deductible or partially deductible in several categories. Article 21 exclusions cover, among others: accommodation, meals, drinks, tobacco, entertainment expenses, and passenger transport (with exceptions). For passenger vehicles, the regime is not homogeneous: (i) for fuels (diesel, LPG, natural gas, and biofuels), 50% of the VAT is deductible, and petrol is fully excluded; (ii) for electricity consumed by electric and plug-in hybrid vehicles it is fully deductible; (iii) on acquisition and leasing, the three exceptions of article 21(2) of the CIVA apply: 100% deductible on fully electric vehicles up to 62,500 € ex-VAT, 100% deductible on plug-in hybrids up to 50,000 € ex-VAT (with no requirement to meet the article 88(18) range/emissions test), and 50% deductible on LPG- or CNG-fueled vehicles up to 37,500 € ex-VAT. See the vehicles section for the detail.

For the detail of monthly vs quarterly regimes, deadlines, and the “August rule”, see the VAT guide.

Practical routine

Five points to avoid losing deductions to documentation problems:

1. Ask for the company’s NIF from the first cent. A receipt without the buyer’s NIF typically compromises VAT deduction and may be insufficient for IRC where the supplier is required to issue an invoice. Missing details can sometimes be corrected (by requesting a proper invoice or a corrective version). Where the configuration is available, setting the NIF as the default on expense apps avoids rework.
2. Ask for an invoice when the law requires an invoice. In transactions where the supplier is required to issue an invoice (the rule in business-to-business relationships), a plain receipt does not meet the article 23 test. In cases where the supplier is not required to issue an invoice, another form of probative document can be accepted, provided it unambiguously identifies the expense.
3. Attach the business purpose to entertainment expenses. A short note (“business meeting, Client X, project Y”) on the receipt (or in the expense system) helps demonstrate the connection with the business activity if the expense is later reviewed.
4. Itinerary record for per diems and personal-vehicle travel. Without a complete record (with the elements the law demands), the allowance is not IRC-deductible, with the statutory exception of amounts that are taxed as IRS income in the beneficiary’s hands, whose deduction is preserved under article 23-A(1)(h) of the CIRC.
5. Monthly review with the accountant on borderline expenses. Meals, trips, vehicles, entertainment. Review each one while fresh, not six months later at year-end.

In Limitada, expense extraction and reconciliation automatically pulls the data from invoices and receipts (date, supplier, NIF, category, amount, VAT) and reconciles with bank transactions, inside the Expenses/Reconciliation area. Everything is organized in one place; sharing with the accountant via dedicated access is part of the Pro plan. See the expense integration.

This article is for information only. Specific rates, limits, and requirements applicable to your company should be confirmed with the certified accountant responsible for the company’s bookkeeping, having regard to the year in question and the specific situation.