Portugal's tax transparency regime: what it is, who it applies to, and how it works

That last sentence is the one that catches people out. There is no box to tick on the business start-up declaration and no election to make. If your company meets the conditions, it is in the regime. You typically find out when your accountant fills in the Modelo 22.

What the regime does, in two sentences

The company computes its taxable base normally, under the CIRC rules. Then, instead of paying corporate income tax on it, it attributes that base to its members, who include it in their own taxable income.

Article 6(1) of the CIRC:

“The taxable base, determined under this Code, of the companies listed below, having their seat or effective management in Portuguese territory, is attributed to their members and included in their taxable income for personal or corporate income tax purposes as applicable, even where no profits have been distributed.”

Quotations from Portuguese legislation and official instructions in this guide are unofficial translations; the Portuguese original governs.

The rationale is to avoid economic double taxation in structures that are, in substance, a profession carried on through a company: tax once, in the member’s hands, rather than taxing the profit at company level and the dividend again afterwards.

Who it applies to

Article 6(1) covers three kinds of company with seat or effective management in Portugal:

(a) Civil-law companies not incorporated in commercial form.

(b) Professional companies. This is the category that covers most affected Ldas, and there are two alternative qualifying routes, under article 6(4)(a):

1. A company formed to carry on one professional activity from the list in article 151 of the CIRS, in which all individual members are professionals in that activity; or
2. A company more than 75% of whose income comes from carrying on activities on that list, jointly or singly, provided that, cumulatively, for more than 183 days of the tax period: there are no more than five members, none of them a public-law entity, and at least 75% of the share capital is held by professionals carrying on those activities, wholly or partly, through the company.

The second route was introduced by Law 82-C/2014 and applies to tax periods beginning on or after 1 January 2015. It widened the scope considerably: it is no longer necessary for all members to be professionals in the activity.

(c) Asset-management companies, where the majority of the capital belongs, directly or indirectly, for more than 183 days of the financial year, to a family group; or where the capital belongs, on any day of the financial year, to no more than five members, none of them a public-law entity.

Article 6(4) defines the terms these limbs use. An “asset-management company” is one that confines itself to managing assets or holdings kept as a reserve or for enjoyment, or to buying property for its members to live in; and also one that carries on other activities as well but derives, on a three-year average, more than 50% of its income from those assets. A “family group” means people connected by marriage, adoption, or kinship or affinity in the direct or collateral line up to the fourth degree.

There is an express exclusion that is easy to overlook. Article 6(5) provides that, for the purposes of limb (c), companies that carry on the business of managing shareholdings in other companies and hold shareholdings meeting the conditions in article 51(1) of the CIRC are not treated as asset-management companies. A holding company meeting those conditions therefore falls outside limb (c) on that basis.

There is also article 6(2), covering complementary groupings of companies (ACE) and European economic interest groupings (EEIG). These behave differently in one important respect (see the section on losses).

How the attribution is split

The attribution follows the terms set out in the articles of association or, failing that, is made in equal shares (article 6(3)). So it is not necessarily by shareholding. If the articles set out a different split, that is the one that governs for tax.

What changes: no corporate income tax

Article 12 of the CIRC is short and leaves no room:

“Companies and other entities to which the tax transparency regime applies under article 6 are not subject to corporate income tax, save as regards autonomous taxation.”

Note the exception, because it produces the most surprises in practice.

Autonomous taxation is still payable, by the company

A transparent company may well have tax to pay to the tax authority. Expenses subject to autonomous taxation under article 88 of the CIRC (vehicles, entertainment, per diems, undocumented expenses) are taxed at company level and paid by the company; they are not attributed to members.

The official Modelo 22 filling instructions say so expressly: in box 10, which computes the tax, “under the tax transparency regime and by virtue of article 12 of the CIRC, this box is not filled in, except for field 365 relating to autonomous taxation”, with payment falling to the entity under the transparency regime.

One further note on the 10-percentage-point increase in article 88(14), which applies to taxpayers reporting a tax loss. For the 2026 tax period, article 95(5) of Law 73-A/2025 disapplies that increase where the taxpayer had taxable profit in one of the three preceding periods and met the article 120 and 121 filing obligations in the two preceding periods, or where it is in the period in which activity commences or one of the two following it. Note that filing compliance alone is not enough: outside the commencement-of-activity rule, there must also have been taxable profit in one of the three preceding periods. Check your own financial year, because these suspensions are enacted year by year.

Neither municipal nor state derrama is due

Both are charged on taxable profit subject to and not exempt from IRC: that is the formula article 87-A(1) of the CIRC uses for the state derrama, and the same one article 18(1) of Law 73/2013 (the local authority financial regime) uses for the municipal one. Since article 12 removes the charge to IRC, a transparent company’s taxable profit is not “subject”, and neither derrama reaches it.

The mechanism is worth holding on to, not just the result: the reason is not that the company has no tax assessed; it is that the taxable profit is not subject to IRC at all. The tax authority reached this conclusion in its binding ruling in Case 371/08, and the result is confirmed today by the box 10 rule above: both the municipal derrama (field 364) and the state derrama (field 373) are declared in that box, which is not filled in.

Payments on account

For professional companies, which is the most common case, the tax authority’s position is that the company itself does not make them. It is still worth knowing where that conclusion comes from, and how far it extends, because the explanation often circulates truncated.

First, what the statute does not say: article 104 contains no carve-out for the tax transparency regime. There is no exempting provision in the CIRC.

The tax authority’s position does exist, though, and is long-standing. Circular 8/90 of the IRC Services Directorate, at point 6, states that professional companies “do not have to make payments on account, an obligation which falls, for personal income tax purposes, on their members as holders of category B income”. The obligation does not disappear; it moves to the members. Note the scope: the circular deals expressly with professional companies, which are most cases in practice, but it is not a pronouncement on every article 6 entity. (It also uses the IRC Code’s earlier numbering, in which today’s article 6 was article 5.)

For the other article 6 entities the circular is silent, but an arithmetic argument points the same way in steady state: payments on account are calculated, under article 105(1), on the tax assessed in the previous period, and in a company that was already transparent in that period, that tax does not exist.

The year of entry into the regime is the one to watch. If the company was taxed normally last year and has only now become transparent, there is assessed tax in the reference period, so the arithmetic reasoning does not carry over unaided. Where payments on account have nonetheless been made, the tax authority indicates they are taken into account automatically when the Modelo 22 is processed. That is a conversation to have with your accountant in the transition year, not something to work out by inference.

As for the special payment on account, the question no longer arises for anyone: article 106 was repealed by Law 12/2022, with effect from tax periods beginning on or after 1 January 2022.

What does not change: almost every other obligation

This is the part most often underestimated. Not being subject to IRC relieves the company of almost nothing.

Article 117(9) of the CIRC is explicit:

“The fact that entities covered by the tax transparency regime under article 6 are not subject to corporate income tax does not relieve them of submitting or filing the returns referred to in paragraph 1.”

In practice, the following all continue:

• The Modelo 22 return, filed normally. On the cover sheet, box 04, fields 1 and 7 are ticked simultaneously: general regime and tax transparency.
• The IES, with its respective annexes.
• Organised accounts and all accounting obligations.
• Invoicing obligations, whether met through certified software or through the invoicing application the tax authority provides, as applicable, together with retention of documents for the statutory period. This is the subject of the guide on where to keep your company invoices.
• VAT, entirely unchanged: transparency is a corporate-income-tax regime and does not touch VAT. See the guide on monthly vs quarterly VAT and deadlines.
• Corporate obligations (minutes, accounts approval, RCBE), all unchanged.

On the member’s side: personal income tax, category B

Article 20 of the personal income tax code (the CIRS) deals with the attribution:

“Income of the members of the entities referred to in article 6 of the CIRC who are individuals comprises the result of the attribution made under the terms and conditions set out therein or, where higher, the amounts paid or made available to them during the year in question by way of advances on account of profits.”

And paragraph 2: those amounts are included “as net income under category B”.

Three practical consequences:

It enters as net income. No coefficient or expense deduction applies to the attributed figure: it already comes computed under the CIRC rules.

What counts is the higher of the two figures. If advances on account of profits paid during the year exceed the attributed taxable base, it is the advances that are taxed. Paragraph 5 of the same article requires adjustments in subsequent years to eliminate any resulting double taxation.

Social security contributions can be deducted. Article 20(6) allows mandatory social-protection contributions demonstrably borne by a taxpayer carrying on their professional activity through a transparent company to be deducted, provided they have not been deducted on another basis.

And on the corporate-member side, the attributed taxable base goes in field 709 of box 07 of that member’s own Modelo 22.

Deductions and withholding tax are not lost

A common worry is that withholding tax borne by the company, or foreign tax credits, are lost because the company has no tax assessed. They are not.

Article 90(5) of the CIRC requires those deductions to be attributed to the members, in the same proportion as the taxable base, to be used against their own tax. The tax authority applied this rule expressly to a law firm with foreign-source income in its binding ruling in Case 185/2017.

The operational point is timing: the attribution relates to the period the taxable base belongs to, so members must ask the company in good time for what they need: both the attributed amount and the proportionate share of deductions. They should be requested early enough to feed the year-end close.

Losses: the asymmetry almost everyone misses

If the company makes a loss, can the members use it? It depends which kind of entity it is, and the difference is large.

In an article 6(1) company (civil-law companies, professional companies, asset-management companies), the answer is no. Article 52(7) of the CIRC:

“Tax losses relating to the companies mentioned in article 6(1) are deducted solely from the taxable profits of those same companies.”

The loss stays with the company and is carried forward against its own future taxable profits. That follows from the mechanism: what article 6(1) attributes is taxable base, which cannot be negative. In a loss year the attribution is simply nil. The member gets nothing to set against other income.

In an ACE or EEIG (article 6(2)) the answer is yes. Paragraph 2 requires “the profits or losses of the financial year, determined under this Code” to be attributed directly to the members. Losses therefore pass through in the year they arise, unlike under paragraph 1, where what is attributed is the taxable base, which cannot be negative.

The structure of the Modelo 22 reflects the asymmetry: field 755 of box 07 is for “tax loss attributed by an ACE or EEIG (art. 6)”, and there is no equivalent field for article 6(1) companies, precisely because in those there is no loss to attribute.

At company level, the general article 52 rules then apply, including the cap on the deduction and the rules in paragraphs 8 and 9 on changes in ownership of the capital, which may affect the carry-forward. Paragraph 8 concerns changes exceeding 50% and admits an exception; paragraph 9 disregards certain changes. It is not, therefore, an automatic loss of the carry-forward, but something to confirm case by case. Note also that this paragraph concerns article 6(1) companies: in an ACE or EEIG the loss has already been attributed to the members and does not remain with the entity.

How to tell whether your company is in the regime

There is no register to consult. The status is not recorded in the taxpayer’s file: it does not appear on the business start-up declaration or on a declaration of changes.

The chargeable event is deemed to occur on the last day of the tax period (article 8(9) of the CIRC), so that is when the status crystallises for that period. It does not follow that every article 6 condition is assessed on that single day; several are measured across the period, and the difference is worth holding on to:

• The second route to professional-company status requires the conditions to hold for more than 183 days of the tax period.
• The family-group asset-management company requires majority capital for more than 183 days of the financial year; the five-member variant only needs to hold on any day of the financial year.
• The 75% income test is, by its nature, measured across the whole period.

The practical effect is the same whichever test is in play: a company can move into or out of the regime from one year to the next with no formal act at all, simply because a member joined or left, or because the mix of income changed. The status is then declared on the Modelo 22, with fields 1 and 7 of box 04 ticked simultaneously.

In practice, the question to put to your accountant is a direct one: “during this financial year, did the company fall within any limb of article 6(1)?”, not merely “did it on 31 December?”

Is it worth it? The question is the wrong one

Because the regime is mandatory, there is no decision to make about being in it. The decision that does exist is earlier and different: which vehicle to use, and with what corporate structure (number of members, composition of the capital, nature of the activities). Those choices determine the status, and they are the subject of the guide on sole trader (ENI) vs Portuguese Lda and the one explaining share capital, members and management.

If you are forming a professional company, or admitting a member to one that exists, that is where the status can be determined or changed. Note that it is not all decided at that moment: the income-composition and duration tests can only be established across the period, so the actual status is confirmed at the year end.

This article is for information only and is not tax advice. Whether the regime applies depends on specific facts, some measured across the tax period and others at the date of the chargeable event; confirm your situation with a certified accountant.