Portugal vs. Spain taxes: Where are taxes lower?

Thinking about relocating and torn between Spain and Portugal? As we pointed out in our European tax rankings, there’s a big difference in tax rates from one country to the next. This can have a direct impact on your disposable income, so it’s something to consider carefully before choosing your destination. To help with your decision, let’s take a deeper dive into Portugal vs. Spain taxes.

While Spain and Portugal share many of the same taxes, the rates can vary significantly. In this article, we’ll break down the key taxes in both countries, with the updated rates for 2025, covering both businesses and individuals. We’ll also explore the potential tax advantages you could benefit from, depending on your situation. Keep reading to find out which country is the best fit for you.

Taxes for companies or legal entities

If you’re torn between Spain and Portugal because you’re thinking of starting a business, it’s important to know that the tax systems for companies in both countries have some key differences that impact both large corporations and small businesses. In Portugal, tax rates can vary slightly depending on the region, while Spain has a more uniform system, making tax planning and management a bit easier. That said, both countries aim to provide a stable tax framework that helps businesses plan for growth effectively.

Let’s take a look at the main taxes for businesses and legal entities in each country. This comparison also covers the most attractive tax benefits and exemptions to help you maximize your project’s profitability. Let’s dive in!

Corporate income tax in Portugal vs. Spain

Corporate tax is levied on company profits and plays a key role in the overall tax burden of each country. Both Portugal and Spain have standard rates, but there are specific tax incentives for certain types of businesses that can make a big difference.

• Portugal: The general corporate tax rate is 21%, but small and medium-sized businesses (SMEs) enjoy a lower rate of 17% on the first 25,000 euros ($27,100) of profit. On top of that, some regions apply an additional “state surcharge” for companies with higher profits, which can raise the tax rate by up to 9%. This means that in certain areas, larger or more profitable businesses could face a much higher tax burden.
• Spain: The standard corporate tax rate is 25%. However, new businesses benefit from a reduced rate of 15% during their first two years of profit. There are also tax deductions available for research, development, and technological innovation (R&D+i), which makes Spain an attractive option for startups and tech companies.

In summary, although Spain’s general tax rate is a bit higher than Portugal’s, the tax incentives for new businesses and innovative industries could make Spain a better choice in some situations.

Tax on economic activities (IAE) in Portugal and Spain

The business activity tax (IAE) is another important levy for companies, and it depends on the type of activity and the company’s location. While both countries administer this tax locally, there are some differences in how it’s applied.

• Portugal: The equivalent of the IAE is the “municipal surcharge”, a tax that ranges from 0% to 1.5% on company profits, depending on the municipality. Some areas offer exemptions to businesses as part of their strategy to attract investment and boost local economic growth, which can be beneficial for those seeking regions with lower tax rates.
• Spain: The IAE is mandatory for businesses with an annual turnover of over one million euros. The rate depends on both the type of activity and the municipality where the business operates. Rates tend to be higher in urban areas and for high-impact activities, such as industries or high-performance services.

In short, while Spain requires the IAE for larger companies, Portugal offers more flexibility with this tax. This makes certain regions in Portugal more attractive for new or smaller businesses.

Real estate tax (IBI or IMI) for companies

For businesses that own property, the property tax (IBI) is a fixed, ongoing cost. This tax, based on the cadastral value of each property, is an important consideration for companies with real estate holdings or plans to invest in properties.

• Portugal: The municipal property tax (IMI) is charged at a rate between 0.3% and 0.45% of the property’s cadastral value. In certain areas, local governments may offer reductions or incentives to lower this rate, especially in regions focused on attracting investment.
• Spain: The property tax (IBI) also varies by municipality, with rates typically ranging from 0.4% to 1.3%. Since this tax is set by each local council, it’s a good idea to research the tax conditions in each area before purchasing property.

While both countries apply this tax in a similar way, the variation in rates and local benefits can make the property tax in Portugal more affordable in certain areas.

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VAT in Portugal and Spain

VAT (Value Added Tax) is a consumption tax paid by the end consumers of goods and services. Although businesses handle it and factor it into their prices, it’s the consumer who ultimately covers the cost. Companies are required to charge VAT on their sales and can also deduct the VAT they pay on purchases. This affects both pricing strategies and cash flow, particularly in sectors with essential goods or exports.

• Portugal: The standard VAT rate is 23%, with reduced rates of 13% and 6% for essential goods like food, medicine, and public transportation. This setup allows businesses to keep prices more competitive on everyday items, as the lower rates reduce the tax burden. Moreover, Portuguese companies that sell to other EU countries don’t need to charge VAT on intra-EU transactions.
• Spain: The standard VAT rate is 21%, which is a bit lower than in Portugal. There are also reduced rates of 10% and 4% for items like food, medicine, and social services. Like in Portugal, transactions between businesses registered in the EU VAT system are VAT-exempt. However, when importing goods from outside the EU, businesses must pay VAT, which affects the overall import costs.

In general, Spain’s VAT rate is a bit lower than Portugal’s, which can affect the final prices of goods and services. The VAT exemption on intra-EU transactions for businesses registered in the EU also makes trade easier and enhances the competitiveness of European companies in the global market. The ability to deduct VAT on purchases is a benefit for businesses in both countries, as it reduces their tax burden and helps improve profitability.

Other taxes and business contributions

Apart from the main taxes, there are other specific fees and contributions that can affect a company’s finances in both Portugal and Spain. These taxes apply under certain conditions and are important to understand, as they can create an additional financial burden depending on the company’s activities and property ownership.

• Municipal Transfer Tax (IMT) in Portugal: This tax is applied when purchasing property. The rate varies depending on the type and value of the property, and it can be a significant cost for businesses planning to acquire real estate as part of their investment strategy.
• Tax on Constructions, Installations and Works (ICIO) in Spain: This tax applies to any construction, installation, or project that requires an urban planning permit. The rate can reach up to 4% of the actual cost of the project, making it a significant expense for businesses involved in infrastructure development or planning to build their own workspaces.
• Property Transfer Tax in Spain: This tax applies to the purchase of real estate and the transfer of business assets when they are not subject to VAT. The rate typically ranges from 6% to 10%, depending on the autonomous community. It’s a significant expense for companies in growth mode that are acquiring property or assets.

These additional taxes, while specific, can add up to significant costs in certain cases, especially if the company plans to acquire property or carry out construction projects.

Tax benefits for new companies

Both Portugal and Spain provide tax incentives to help new businesses get started and attract investment. These benefits ease the initial financial burden and lower taxes during the first few years, which can be essential for startups and growing projects.

• Portugal: Portugal’s tax system provides opportunities for businesses to benefit from lower rates and targeted incentive programs, especially in Lisbon and Madeira. There’s also a special tax scheme for “Non-Habitual Residents,” which offers a 20% tax rate for the first ten years, benefiting skilled professionals and retirees who start a business in the country.
• Spain: New businesses benefit from a reduced 15% corporate tax rate during their first two years of profitability. Additionally, research, development, and technological innovation (R&D+i) activities qualify for further deductions, making it an attractive option for tech startups and innovative projects. Companies can also take advantage of reduced social security contributions during their early years of operation.

Ultimately, choosing between Portugal and Spain to start your business comes down to your specific tax needs and the kind of business you plan to build. Spain has strong incentives for startups and innovation-driven sectors, while Portugal offers lower rates for small businesses and regional benefits. Both countries have appealing opportunities, but the specifics of each tax system and local perks could make all the difference. It’s important to consider what aligns best with your business goals and growth plans.

Taxes for individuals or natural persons

Similar to starting a business, the tax burden can play a significant role when deciding where to live as an individual. Both Portugal and Spain have progressive income taxes and consumption taxes, but the specifics and rates vary. Let’s go over the main personal taxes in both countries so you can determine which one suits your situation best.

VAT in Portugal vs. Spain

As we explained earlier in the section on VAT for businesses, it’s the final consumer who bears the cost of this tax. It’s added to the price of products or services and influences the cost of living in both countries. While both Portugal and Spain have a standard rate and reduced rates for certain items, there are some key differences between them.

• Portugal: The standard VAT rate is 23%, with reduced rates of 6% and 13% for certain items like food, medicine, and public transportation. This setup helps ease the cost of essential goods, which can reduce everyday expenses.
• Spain: The general VAT rate in Spain is 21%, with reduced rates of 10% and 4% for similar categories such as food and medical devices.

As a result, while both countries have a similar VAT system, Spain offers a slightly lower standard rate, which can affect the final cost of goods and services for consumers.

Portugal vs. Spain: where do you pay less personal income tax?

Personal income tax is one of the key factors for those planning to move. It depends on your income, and both countries have a progressive system that applies higher rates to larger earnings.

• Portugal: Income tax rates range from 14.5% to 48%, depending on income levels. Additionally, Portugal offers the “Non-Habitual Resident” (NHR) scheme, which allows certain foreign residents to benefit from a reduced 20% tax rate for ten years, making it an appealing option for qualified professionals and retirees.
• Spain: Income tax rates vary from 19% to 47%. While the range is similar to Portugal’s, Spain doesn’t offer a scheme as advantageous as the NHR. However, there are deductions for residents and regional exemptions that can help lower the tax burden in certain situations.

To sum up, Portugal’s non-habitual resident program offers a major benefit for specific income groups. In contrast, Spain has a more standardized system, with only slight regional differences.

Wealth tax in Portugal vs. Spain

Wealth tax is based on the value of assets and properties, making it an important consideration for those who own significant property or valuable assets. There are notable differences between the two countries in this regard.

• Portugal: There is no direct wealth tax. However, real estate is subject to the IMI (Municipal Property Tax), which is based on the property’s assessed value, with rates ranging from 0.3% to 0.45%. The absence of a wealth tax is a significant advantage for those looking to preserve their assets.
• Spain: The Wealth Tax targets individuals with a net worth above 700,000 euros ($760,700), though the primary residence is exempt up to 300,000 euros ($325,600). The tax rate is progressive, ranging from 0.2% to 3.5%, depending on the region. While some areas offer additional exemptions, it’s still a relevant tax for those with substantial assets.

Unlike Spain, Portugal doesn’t have a specific wealth tax, making it a more attractive option for those looking to reduce their tax burden on assets.

Inheritance and gift tax in Portugal vs. Spain

This tax is an important factor when planning estates and transferring assets. There are notable differences between the two countries in how it’s applied and the exemptions offered.

• Portugal: Inheritance and gift taxes don’t apply to direct family members, like children or spouses. This makes it possible to transfer assets without hefty tax costs, which is a big advantage for families looking to settle long-term.
• Spain: Inheritance and gift taxes vary depending on the region and the relationship to the deceased or donor. Rates range from 7.65% to 34%. While some regions offer exemptions, the tax burden can be significant for heirs, especially if they don’t live in the same area.

Portugal is more favorable when it comes to inheritance taxes for direct family members, as there are no taxes imposed. In Spain, however, the tax burden can be quite high depending on the region and the family relationship.

Comparison of taxes in Portugal vs. Spain

When it comes to taxes, is it more beneficial for you to live in Portugal or Spain? Although they have some similar taxes, each country has its own unique advantages. Portugal’s non-habitual resident program has drawn many professionals and retirees, while Spain stands out with tax breaks for new businesses and regional incentives that make it an attractive option.

To help you make your decision, let’s take a look at the main taxes in both countries, covering those that affect both businesses and individuals. Review the details and see which country aligns better with your tax situation.

Portugal vs. Spain taxes for individuals

Both Portugal and Spain tax consumption, income, and wealth, but there are key differences in how they apply these taxes. For instance, Portugal doesn’t charge inheritance tax on direct family members and doesn’t have a specific wealth tax, while Spain has regional variations that can lower the tax burden in certain areas. Below is a direct comparison of the most relevant taxes for individuals in both countries.

Taxes Portugal vs. Spain for legal entities or companies

For businesses looking to lower their tax load, both Portugal and Spain offer attractive options, but with some key differences. Spain has a standard corporate tax rate, though new businesses can benefit from certain reductions. On the other hand, Portugal offers a reduced tax rate for small and medium-sized enterprises on their initial profits. These distinctions can have a big impact on operating costs, especially for businesses seeking a tax-friendly environment over the long term. The table below highlights the main taxes affecting businesses in both countries.

Ultimately, if taxes are a key factor in choosing between Portugal and Spain, it’s important to consider your specific situation and goals. Portugal offers benefits like the non-habitual resident regime and no wealth or inheritance tax for direct family members. Spain, however, has a more uniform system and tax breaks for new and innovative businesses. If the tax details seem overwhelming, it’s worth consulting an advisor to help you pick the best option. And don’t forget to grab your Holafly eSIM for any questions!

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