Corporate Income Tax (CIT) Payments on Account (PC) are crucial tax prepayments for the financial management of any company in Portugal. In 2026, these payments continue to be made in three instalments, with specific due dates and a well-defined calculation method, based on the net tax assessed in the previous year. It is essential to understand the rules associated with these payments, including the possibility of limitation or suspension, and the differences from abolished tax obligations, such as the Special Payment on Account (PEC).
Corporate Income Tax Payments on Account: Rationale and Purpose
Corporate Income Tax (CIT) Payments on Account (PC) represent one of the most significant tax obligations for companies in Portugal. It is not an additional tax, but rather a system of advance payments of the CIT due, designed to ensure a regular flow of revenue for the State throughout the tax year. This mechanism is explicitly detailed in articles 104 to 107 of the CIT Code (CIRC), forming a central part of the assessment of this tax.
The underlying logic of PCs is that companies, throughout the year, generate profits and should, therefore, pay CIT. Instead of concentrating the entire payment at the end of the financial year, after submitting Form 22, the legislator opted for a system of phased payments. In this way, the State avoids large fluctuations in its revenues, and companies can manage their cash flow more predictably, avoiding an excessively heavy tax burden at a single moment. When Form 22 is submitted, the PC amounts already made are deducted from the total tax assessed. If the sum of the PCs is greater than the CIT due, the company will be entitled to a refund; otherwise, it will have to settle the remaining difference.
It is vital to emphasise that PCs are calculated based on data from the previous year, which can, in some cases, lead to discrepancies between the amount advanced and the tax actually due in the current year. This particularity requires proactive tax management and, sometimes, the need to adjust payments, as we will see below.
Legal Framework: Articles 104 to 107 of the CIRC
Payments on Account find their legal basis in the following articles of the CIT Code:
- Article 104 of the CIRC: Defines the obligation for payments on account and their purpose as advance payments of the tax due.
- Article 105 of the CIRC: Establishes the method for calculating payments on account, the applicable percentages, and the tax base.
- Article 106 of the CIRC: Determines the due dates for payments.
- Article 107 of the CIRC: Provides for the possibility of ceasing or reducing payments, as well as the conditions and consequences associated with that decision.
A thorough understanding of these articles is indispensable for any accounting professional or financial manager, ensuring compliance with obligations and optimisation of the tax burden.
Tax Calendar for 2026: Due Dates for Payments on Account
For most entities whose tax period coincides with the calendar year, Payments on Account are made in three instalments. The year 2026 follows this pattern, with fixed due dates that must be strictly observed to avoid fines and late payment interest. Punctuality in fulfilling these obligations is a cornerstone of good tax management.
The due dates for CIT Payments on Account in 2026 are as follows:
- 1st Payment on Account — 31 July 2026: This is the first instalment of the CIT advance, marking the beginning of the payment cycle for the financial year.
- 2nd Payment on Account — 30 September 2026: The second instalment is due at the end of the third quarter, consolidating the advance payments for the year.
- 3rd Payment on Account — 15 December 2026: The last instalment of the year, which closes the PC cycle before the end of the financial year. This is the instalment that offers the most flexibility for adjustment, as provided for in Article 107 of the CIRC.
It is important to note that the total amount calculated for Payments on Account is, as a rule, divided into three equal instalments. However, this rule may be altered in the event of limitation or suspension of the last payment.
Exceptions to the Tax Period
For companies with a tax period different from the calendar year, the due dates are adapted. In these cases, the first Payment on Account is due in the 7th month of the tax period, the second in the 9th month, and the third in the 12th month, always on the penultimate working day of each of these months (except the 12th month, for which the deadline is the 15th). This flexibility allows companies to align their tax payments with their own financial cycles.
Methodology for Calculating Payments on Account
The calculation of Payments on Account is a process that, although standardised, requires attention to specific details, namely the tax base and the applicable percentages. The calculation base is the CIT assessed in the previous year, net of withholding taxes – which we call “net tax assessed”. It is fundamental to understand that the PCs for 2026 are not calculated based on the 2026 CIT rates, but rather on the tax assessed in the previous financial year (2025).
According to paragraph 1 of Article 105 of the CIRC, the amount of Payments on Account is determined by applying a percentage to the net tax assessed from the previous tax period. This percentage varies depending on the company's turnover (VN) in the previous year, as follows:
- Turnover ≤ €500,000: The applicable percentage is 80% of the net tax assessed. This measure aims to alleviate the anticipated tax burden on small and medium-sized enterprises.
- Turnover > €500,000: The applicable percentage is 95% of the net tax assessed. Larger companies contribute a higher percentage of their taxes in advance.
After determining the total amount of Payments on Account, this amount is divided into three equal instalments, to be paid on the stipulated due dates.
Practical Calculation Examples
Practical Example 1: Company with Turnover Less Than €500,000
Consider a company with the following data for the 2025 financial year:
- Turnover (VN) in 2025 = €300,000
- CIT assessed in 2025 = €10,000
- Withholding taxes made in 2025 = €1,000
Calculation:
- Determination of Net Tax Assessed for 2025:
Net Tax Assessed = Tax assessed - Withholding taxes
Net Tax Assessed = €10,000 - €1,000 = €9,000 - Application of Percentage:
Since the VN (€300,000) is ≤ €500,000, the 80% percentage applies.
Total Payment on Account = 80% × €9,000 = €7,200 - Value of each Instalment:
Each instalment = €7,200 / 3 = €2,400
This company will pay three instalments of €2,400 each, on 31 July, 30 September, and 15 December 2026.
Practical Example 2: Company with Turnover Greater Than €500,000
Now, consider a company with the same net tax assessed, but with a higher turnover:
- Turnover (VN) in 2025 = €800,000
- CIT assessed in 2025 = €10,000
- Withholding taxes made in 2025 = €1,000
Calculation:
- Determination of Net Tax Assessed for 2025:
Net Tax Assessed = Tax assessed - Withholding taxes
Net Tax Assessed = €10,000 - €1,000 = €9,000 - Application of Percentage:
Since the VN (€800,000) is > €500,000, the 95% percentage applies.
Total Payment on Account = 95% × €9,000 = €8,550 - Value of each Instalment:
Each instalment = €8,550 / 3 = €2,850
In this case, the company will pay three instalments of €2,850 each, on the same dates in 2026.
Limitation or Suspension of the 3rd Payment on Account (Article 107 of the CIRC)
The Payments on Account system, although efficient in its design, can sometimes result in advance payments exceeding the tax actually due at the end of the financial year. To mitigate this problem, the legislator provided a "safety valve" in Article 107 of the CIRC, which allows companies to limit or even suspend the third Payment on Account.
Conditions for Limitation or Suspension
A company may choose not to make or to reduce the third Payment on Account if it verifies that the amount of Payments on Account already made (the 1st and 2nd) is equal to or greater than the CIT that will, foreseeably, be due at the end of the financial year. This estimate must be made based on the expected tax assessed for the current year.
The decision to limit or suspend payment is based on a projection of the year's tax result. If the company anticipates a significant drop in its profits or the existence of tax credits that reduce the CIT payable, it may be advantageous to use this option to avoid an excessive advance of capital to the State.
Associated Risks: Compensatory Interest
Despite the flexibility, this measure is not without risks. Paragraph 2 of Article 107 of the CIRC establishes a penalty for cases where the estimate proves to be incorrect. If the suspension or limitation of the 3rd PC results in a total amount of Payments on Account that is more than 20% lower than the final tax that would be due as a Payment on Account (i.e., 80% or 95% of the net tax assessed for the year), the company will be subject to the payment of compensatory interest. This interest is levied on the difference between the amount that should have been paid and the amount actually paid, counted from the due date of the 3rd PC until the due date of the tax assessment.
This rule aims to discourage unrealistic estimates and the improper use of suspension, ensuring that companies act with due diligence and responsibility. The decision to suspend or limit the 3rd PC must, therefore, be preceded by a rigorous analysis and a well-founded tax projection, ideally with the support of a tax specialist.
Companies in Their First Year of Activity and Other Specificities
The rules for Payments on Account apply to most companies, but there are important specificities to consider in certain situations, such as starting an activity or dissolution.
Companies in their 1st Year of Activity
One of the most notable exceptions to the general rule of Payments on Account concerns companies in their first year of activity. According to paragraph 1 of Article 105 of the CIRC, the calculation base for PCs is the net tax assessed from the previous tax period. However, a company starting its activity does not have a previous tax period for reference. Consequently, companies in their first year of activity are exempt from making Payments on Account. PCs only become due from the second financial year, based on the tax assessed in the first year.
Companies in Dissolution or Cessation of Activity
In the event of dissolution or cessation of activity, the rules also change. Article 104, paragraph 3, of the CIRC, provides that there are no Payments on Account in the tax period in which the cessation of activity or dissolution of the entity occurs. This exemption makes sense, as the company will be closing its operations and its CIT assessed may be significantly different or even nil.
Other Cases of Exemption
There are also other situations that may lead to the exemption from Payments on Account, namely when the net tax assessed from the previous tax period is less than a certain amount (currently, €200, according to paragraph 1 of Article 104 of the CIRC). This limit aims to relieve companies with a reduced tax burden from additional administrative obligations.
Payments on Account (PC) vs. Special Payment on Account (PEC): A Crucial Distinction
It is still common today to confuse Payments on Account (PC) with the Special Payment on Account (PEC). However, it is essential to clarify that they are distinct tax obligations and that the PEC is no longer part of the Portuguese tax landscape.
Payments on Account (PC): A Current Obligation
As extensively discussed, Payments on Account are CIT prepayments that remain in force and are essential for companies' tax management. Their purpose is to anticipate the payment of tax due, being deducted from the final CIT assessment in Form 22. They are provided for in Articles 104 to 107 of the CIRC.
The End of the Special Payment on Account (PEC)
The Special Payment on Account (PEC) was a tax obligation that was in force in Portugal between 1998 and 2021. Unlike PCs, the PEC was a minimum CIT payment, regardless of whether the company had profits or not, except under certain conditions. Its main objective was to combat tax evasion and ensure a minimum contribution to the State from all companies, even those that showed tax losses or reduced profits.
However, the PEC was subject to much criticism over the years, often being pointed out as an excessive burden for companies in difficulty, especially SMEs. Recognising these concerns, the legislator decided to abolish it.
The repeal of the PEC was formalised through Article 326 of Law no. 12/2022, of 27 June (State Budget for 2022), which expressly repealed Article 106 of the CIRC (the article that regulated the PEC). Thus, since the 2022 financial year, companies in Portugal are no longer subject to this obligation. This change represented a significant tax and administrative relief for many companies.
It is, therefore, crucial that managers and accountants are aware of this distinction and the abolition of the PEC to avoid confusion and ensure correct compliance with current tax obligations.
Framework in 2026 CIT and the Relevance of Tax Planning
Although the 2026 Payments on Account are calculated based on the 2025 CIT assessed, it is essential to keep in mind the general tax framework for 2026. The CIT rates and other tax benefits applicable in the current year will influence the final amount of tax payable and, consequently, the decision regarding the limitation or suspension of the 3rd PC.
CIT Rates in 2026
The general CIT rate in mainland Portugal for 2026 remains, as a rule, at 19%. However, it is important to consider special regimes for small and medium-sized enterprises (SMEs), which benefit from a reduced rate. In 2026, SMEs (that meet the requirements of Article 2 of Decree-Law no. 372/2007, of 6 November) continue to benefit from a rate of 15% on the first €50,000 of taxable income. For the excess, the general rate of 19% applies. In the Autonomous Regions of Madeira and the Azores, rates may show slight differences, generally lower, to promote local investment.
The existence of these differentiated rates underscores the importance of adequate tax planning. A company that qualifies as an SME may have a significantly lower final CIT than a company that does not fall into this category, even with the same level of profits.
The Importance of Tax Planning for PCs
The fact that PCs are calculated based on the previous year means that they may not reflect the economic reality of the current year. If a company anticipates a significant reduction in profits in 2026 compared to 2025, the Payments on Account calculated on 2025 will likely be excessive. In such cases, the possibility of limiting or suspending the 3rd PC (Article 107 of the CIRC) becomes a crucial cash management tool.
Effective tax planning involves:
- Results Projection: Estimating the current year's tax result as accurately as possible.
- Analysis of Tax Credits: Identifying and quantifying potential tax credits (e.g., tax benefits for investment, deductions from tax assessed) that may reduce the CIT payable.
- Risk Assessment: Weighing the risks of compensatory interest if the estimate for the 3rd PC proves to be too optimistic.
An accountant or tax consultant can play a fundamental role in this process, helping the company make informed decisions that optimise its cash flow and minimise tax risks.
Common Errors to Avoid in Payments on Account
The management of Payments on Account, although seemingly simple, is prone to some common errors that can have significant financial implications for companies. Being aware of these misconceptions can help prevent them.
- Confusing PC with PEC: As already mentioned, the Special Payment on Account (PEC) has been abolished. Continuing to refer to it as a current obligation or confusing its rules with those of PCs can lead to calculation errors or undue payments.
- Ignoring Article 107 of the CIRC: Many companies pay the 3rd PC without analysing whether the payments already made are sufficient, missing the opportunity to optimise their treasury. The lack of results projection for the current year prevents an informed decision.
- Inaccurate Estimate for Suspension/Limitation: When deciding to limit or suspend the 3rd PC, an overly optimistic estimate of the CIT due can lead to the application of compensatory interest, as per paragraph 2 of Article 107 of the CIRC. It is preferable to be conservative in projections.
- Not Considering Withholding Taxes: The calculation base for PCs is the net tax assessed after withholding taxes. Forgetting to deduct withholding taxes can lead to an incorrect calculation and excessive Payments on Account.
- Unawareness of Turnover: The applicable percentage (80% or 95%) depends directly on the previous year's turnover. an error in its determination will alter the total value of the PCs.
- Not Aligning Tax Period: For companies with a tax period different from the calendar year, the due dates for PCs are different. Not adjusting the calendar can result in delays and fines.
- Lack of Treasury Planning: PCs represent significant cash outflows. The absence of treasury planning that considers these dates and amounts can generate liquidity difficulties for the company.
Avoiding these errors requires attention to detail, knowledge of tax legislation, and, in many cases, the support of specialised professionals.
Conclusion: Proactive Management for Tax Optimisation
Corporate Income Tax Payments on Account are an undeniable and recurring component of the Portuguese tax landscape. Understanding their nature, due dates, calculation methodology, and possibilities for adjustment is crucial for effective financial and tax management of any company.
The correct application of Articles 104 to 107 of the CIRC, particularly the possibility of limiting or suspending the 3rd Payment on Account, offers companies a valuable tool to optimise their cash flow. However, this optimisation requires rigorous analysis and a well-founded tax projection to avoid the penalties associated with compensatory interest.
It is imperative that companies invest in continuous tax planning, which includes not only compliance with obligations but also the identification of efficiency opportunities. Staying abreast of applicable CIT rates, tax benefits, and legislative changes is fundamental for making informed decisions. The clear distinction between the current Payments on Account and the abolished Special Payment on Account is a paradigmatic example of the need to keep tax knowledge updated.
In a dynamic business environment, where treasury management is a critical success factor, a proactive approach to Payments on Account is not just a matter of legal compliance but a strategy for business sustainability and growth. If your company intends to review its Payments on Account strategy, optimise its tax prepayments, or needs specialised support in projecting its CIT, do not hesitate to seek professional advice. Competent tax management can translate into significant savings and greater financial stability.
HVR is at your disposal to help you navigate the complex world of Portuguese taxation. If you want an in-depth analysis of your 2026 Payments on Account and a personalised tax strategy, talk to us. Our team of specialists is ready to support you in making the best decisions for your company.
Frequently Asked Questions (FAQ)
What are CIT Payments on Account?
These are advance payments of Corporate Income Tax (CIT) that companies make throughout the year. These advances are subsequently deducted from the total CIT amount assessed in Form 22 at the end of the financial year. They are provided for in Articles 104 to 107 of the CIRC.
What are the due dates in 2026 for Payments on Account?
For entities with a tax period coinciding with the calendar year, the dates are: 31 July, 30 September, and 15 December 2026. The total amount is divided into three equal instalments.
How is the value of Payments on Account calculated?
The calculation is based on the CIT assessed in the previous year, net of withholding taxes (net tax assessed). A percentage is applied to this net tax assessed: 80% if the previous year's Turnover (VN) is equal to or less than €500,000, or 95% if the VN is greater than €500,000.
Is it possible not to make or to reduce the 3rd Payment on Account?
Yes, Article 107 of the CIRC allows for the suspension or limitation of the 3rd PC if the payments already made (1st and 2nd) are equal to or greater than the CIT foreseeably due at the end of the financial year. However, if the suspension/limitation results in a payment that is more than 20% lower than what would be due, compensatory interest will be applied.
Does the Special Payment on Account (PEC) still exist?
No. The Special Payment on Account (PEC) was abolished by Article 326 of Law no. 12/2022 (State Budget for 2022), which repealed Article 106 of the CIRC. The PEC was in force between 1998 and 2021.
Does a company in its first year of activity have to make Payments on Account?
No. Companies in their first year of activity are exempt from making Payments on Account, as they do not have a previous year's CIT assessed to serve as a calculation base. They only become due from the second financial year.
What are the main errors to avoid in PC management?
Common errors include: confusing PC with the abolished PEC, ignoring the possibility of suspending the 3rd PC, making inaccurate estimates for this suspension (leading to compensatory interest), not considering withholding taxes in the calculation of the net tax assessed, and being unaware of the impact of turnover on the applicable percentage.
Sources and Legal References
- Decree-Law no. 442-B/88, of 30 November – Approves the Corporate Income Tax Code (CIRC). (Articles 104, 105, 106, 107 of the CIRC)
- Law no. 12/2022, of 27 June – State Budget for 2022. (Article 326)
- Decree-Law no. 372/2007, of 6 November – Establishes the regime for defining micro, small and medium-sized enterprises. (Article 2)
- Ordinance no. 271/2022, of 8 November – Approves Form 22 CIT Declaration.
- Tax Procedure and Process Code (CPPT) – For reference on compensatory and late payment interest.