Corporate Tax in Portugal and Transferring Profits to Israel: 19% IRC in 2026, Withholding Tax on Dividends, the Tax Treaty and What Happens in Israel

An Israeli business owner operating in Portugal usually asks three questions: how much tax the company will pay in Portugal, how much will be withheld when the profit goes out to Israel, and what will happen in Israel. This guide answers all three under Portuguese and Israeli law and under the double taxation treaty between the countries, as of November 2026. It does not replace individual tax planning.

1What is the corporate tax rate in Portugal in 2026?

As of November 2026, under article 87 of the Corporate Income Tax Code (Código do IRC) published on the Portal das Finanças, the general rate in mainland Portugal for tax periods beginning in 2026 is 19%. Law 64/2025 of 7 November 2025 set a gradual reduction: 18% for periods beginning in 2027, and 17% from 2028. A small or medium-sized company meeting the conditions pays 15% on the first 50,000 euros of taxable profit, and the balance is taxed at the general rate.

An example for illustration only: a small or medium-sized company on the mainland with taxable profit of 200,000 euros, in a municipality levying a 1.5% surcharge, will pay about 7,500 euros on the first 50,000 euros, 28,500 euros on the balance, and 3,000 euros of municipal surcharge, i.e. about 39,000 euros. The actual calculation depends on adjustments to profit, carried-forward losses, autonomous taxes on certain expenses and the eligibility conditions.

2Are there special tax regimes for businesses in Portugal?

Yes, but they depend on conditions. Among others: a reduced rate for small and medium-sized companies, lower rates in Madeira and the Azores, a rate of 12.5% for small and medium-sized companies whose activity and effective management are in the inland regions of the mainland, and the IFICI regime for employees and defined professionals moving to Portugal, which replaces NHR. On IFICI see residency and tax in Portugal for Israelis. Groups with consolidated revenue of 750 million euros or more are also subject to the global minimum tax (Pillar Two).

3What do you need to know about VAT in Portugal?

As of November 2026, according to PwC Worldwide Tax Summaries, the standard VAT rate in mainland Portugal is 23%, with reduced rates of 13% and 6%. In Madeira the rates are 22%, 12% and 4%, and in the Azores 16%, 9% and 4%. A Portuguese company registers for VAT as part of its declaration of commencement of activity.

An Israeli company that makes taxable supplies in Portugal without a permanent establishment there, and without a seat or permanent establishment in another EU member state, must under article 30 of the Portuguese VAT Code appoint a tax representative in Portugal. Exception: a business that makes only supplies on which the Portuguese customer accounts for VAT under the reverse charge mechanism, under article 2(1)(e), (g) or (h) of the Code, should not need to register.

4How much tax is withheld when the Portuguese company distributes a dividend to Israel?

As of November 2026, under article 10(2) of the tax treaty between Israel and Portugal, withholding tax on a dividend to an Israeli resident is limited to 15%, or to 5% where the beneficial owner is a company (other than a partnership) that directly holds at least 25% of the capital of the distributing company. Without the treaty, Portuguese law withholds 28% from a dividend to an individual who is not resident in Portugal and 25% from a dividend to a non-resident company.

For the paying company to withhold at the treaty rate, the Israeli shareholder gives it in advance a signed form Modelo 21-RFI, with a certificate of residence from the Israel Tax Authority. If the documents did not arrive in time, the company withholds the full rate, and the shareholder may claim a refund within two years of the end of the year in which the income was made available to them. The Portuguese company reports payments to non-residents on form Modelo 30.

5What happens in Israel when a dividend arrives from Portugal?

Yes, the dividend is taxed in Israel as well, with a credit for the tax withheld in Portugal. An Israeli resident is taxed on worldwide income, so the dividend is reported and taxed in Israel as well. Under article 23(2)(a) of the treaty, Israel gives a credit for the tax paid in Portugal, up to the amount of Israeli tax on the same income and subject to Israeli law on credit for foreign taxes.

• Individual: a dividend from a foreign company is usually taxed at 25%, or 30% for a substantial shareholder (10%+) (section 125B of the Income Tax Ordinance), and Israeli surtax may also apply. The 15% withheld in Portugal is credited against the Israeli tax.
• Israeli company: a dividend from a foreign resident company is usually taxed at 23%, with a credit for the tax withheld in Portugal. In certain conditions the company may elect the regular corporate tax and receive an indirect credit for the corporate tax paid by the Portuguese company.
• Indirect credit under the treaty: article 23(2)(b) provides that where an Israeli company holds at least 25% of the capital of the Portuguese company, the credit will also take into account the Portuguese tax paid by the distributing company on its income.
• Reporting: holding a foreign company may require filing an annual return and Form 150. See the Israeli side of activity abroad.

6Could the Portuguese company be treated as a controlled foreign company?

Usually not, where the Portuguese company is an active business. The Israeli controlled foreign company (CFC) rules under section 75B of the Israeli Income Tax Ordinance apply, among other things, where most of the company's income or profits are passive, such as interest, dividends, rent and royalties, and where the effective tax on the passive income did not exceed 15%. An active Portuguese company paying 19% is usually far from these conditions. A Portuguese holding company whose income is mostly passive and enjoys exemptions needs to be examined. Details in tax for an Israeli investor in a foreign project company.

7Salary or dividend: which is better for an Israeli owner who manages the company?

There is no single answer, and the decision depends on tax rates in both countries, on social security and on where the work is actually performed. The points worth knowing:

• Directors' fees: under article 16 of the treaty, fees received by an Israeli resident as a member of the board of directors or a supervisory body of a Portuguese company may be taxed in Portugal. Under the protocol to the treaty, the article does not apply to payment for another function that is not membership of the body itself.
• Employment income: under article 15 of the treaty, a salary for work performed in Israel is usually taxed only in Israel. Work performed in Portugal may be taxed there, unless all the conditions are met: a stay of up to 183 days, an employer that is not resident in Portugal, and a salary not borne by a permanent establishment in Portugal.
• In Portugal: employment income of a non-resident is taxed in 2026 at a flat rate of 25%. Social security contributions for managers (gerentes) are 23.75% for the employer and 11% for the manager, according to PwC.
• Dividend: paid out of profit after corporate tax, and taxed by withholding under the treaty and by Israeli tax with a credit.
• Deductible expense: a salary set on market terms reduces taxable profit in Portugal, and a dividend does not.

8When does an Israeli company have a permanent establishment in Portugal?

Under article 5 of the treaty, a permanent establishment is a fixed place of business through which the business of the enterprise is carried on, including a place of management, a branch, an office, a factory or a workshop. A building site or installation project is a permanent establishment only if it lasts more than 12 months. A person other than an independent agent, who acts in Portugal on behalf of the company and habitually exercises an authority to conclude contracts in its name, also creates a permanent establishment. By contrast, preparatory and auxiliary activity, such as a warehouse used only for storage or collecting information, does not create a permanent establishment.

The implication: an Israeli company that sends an employee to Portugal to sign deals, or that rents a permanent office there, may be liable to Portuguese corporate tax on the profit attributed to the activity there. On choosing the structure, see also our guide on Israel's tax treaties.

9What does each scenario look like in practice?

The answer depends on who holds the company and where the activity takes place. The table summarises five common scenarios based on the rates above, as of November 2026:

10What should be done before the first dividend distribution?

Before the distribution, make sure the Portuguese company receives the Modelo 21-RFI form and an Israeli residence certificate in advance, so that it withholds at the treaty rate, and coordinate the reporting in Israel. The practical sequence:

1. Approve the financial statements and the distribution at the partners' meeting, in accordance with the articles and Portuguese law.
2. Obtain a certificate of residence for the relevant year from the Israel Tax Authority.
3. Complete form Modelo 21-RFI and give it to the Portuguese company before payment.
4. Check with a Portuguese tax adviser whether the 5% rate or the participation exemption applies, where the shareholder is an Israeli company.
5. Coordinate with the Israeli accountant the reporting, the credit and the advance payments in Israel.
6. Keep the withholding certificates and the transfer documents for the annual return in Israel.

This guide is general information as of November 2026 and is not tax advice, and every case is examined on its merits with an accountant in Israel and a tax adviser in Portugal.

More on doing business in Portugal: Setting up a company in Portugal · An Israeli company operating in Portugal · Commercial disputes and litigation in Portugal · Comparison of 8 countries · All guides for companies and businesses

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