Closer Than You Think: Tax Savings for Companies in Portugal’s Interior

Portugal offers specific tax advantages for companies based in the country’s Interior. The savings may not be huge (at least not yet), butfor small businesses they can make a noticeable difference. And becausePortugal is such a small country, setting up in the Interior still keeps you close to the main economic centers — while unlocking incentives that rewardinvestment, job creation, and regional development.

1. Reduced CIT (IRC) Rate

• Who can benefit: micro, small and medium-sized enterprises (SMEs) and     small mid-cap companies.
• The benefit: a reduced corporate tax rate of 12.5% applies to the     first €50,000 of taxable profit. The remaining profit is taxed at     the normal corporate rate of 20%.
• Conditions  for benefiting from the reduced rate:

                Be effectively managed in the Interior(headquarters and main decision-making located in an eligible municipality).

                Have no salary arrears.

                Not result from a recent spin-off (within the past two years).

                Use direct assessment methods to determine taxable profit (not indirect methods).

                Maintain supporting documentation to prove eligibility in case of tax inspection.

Example — Company with €250,000 taxable profit

• 12.5% on the first €50,000 = €6,250
• 20% on the remaining €200,000 = €40,000
• Total IRC = €46,250

💡 Without the Interior regime,an SME would pay €48,000 in IRC on €250,000 of profit. With the Interiorreduced rate, the liability falls to €46,250 — a saving of €1,750on the first €50,000 of taxable profit.

2. Incentive for Job Creation

• Rule: salary costs and the employer’s Social Security contributions related to net     job creation can be deducted at 120% of their value.
• Net  job creation is measured by comparing the average monthly number of     employees in a year against the previous year — not simply counting     new hires.
• Only permanent employment contracts are eligible.
• Employees must also be tax residents in the Interior.
• Excluded: temporary workers, secondments, or multiple-employer arrangements.

Example from a recent Tax Authority clarification:

• 2022 average monthly headcount = 7.32
• 2023 average monthly headcount = 7.77
• Increase = +0.45 → No benefit, because the increase must be at least +1.
• If the increase had been +2.65 → costs relating to 2 workers could be     deducted at 120%.

⚠️ Note: in the first year ofactivity, hiring staff does not qualify, as there is no previous year for comparison.

3. Complementary Incentive

• Investment support (RFAI): companies making eligible investments in the Interior can apply higher tax credits than those available elsewhere in the country.
• Municipal property tax relief: local authorities may also grant additional benefits, such as IMI and IMT exemptions for properties linked to Interior projects.

What is considered “Interior”?

‍The “Interior” corresponds to municipalities classified by the Portuguese Government as low-density or inland regions, defined in Portaria n.º208/2017. These areas are generally located away from the country’s maincoastal urban centers (Lisbon, Porto, Algarve) and include much of central andnorthern inland Portugal, as well as parts of Alentejo.

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