Italy and Portugal offer two of the most discussed tax environments in Europe for international entrepreneurs and mobile professionals. Both countries have introduced special regimes designed to attract foreign talent and capital, yet their structures, eligibility rules and effective costs differ substantially. This guide compares the two jurisdictions across corporate taxation, personal income tax, special preferential programmes, residency requirements and ongoing compliance obligations - giving founders, executives and investors the information they need to make a well-grounded choice.
Corporate income tax is the starting point for any serious tax-regime comparison. In Italy, the standard corporate income tax - known as IRES, Imposta sul Reddito delle Società - applies at a flat rate to the worldwide income of resident companies. Regional production tax, IRAP, adds a further layer at the regional level, meaning the combined effective burden on corporate profits is meaningfully higher than the headline IRES figure alone. IRAP applies to a broader base than net profit, since it disallows deductions for labour costs and financial charges, making it particularly relevant for service businesses and those with significant payroll.
In Portugal, the standard corporate income tax is called IRC, Imposto sobre o Rendimento das Pessoas Coletivas. The headline rate is lower than Italy';s combined IRES-plus-IRAP burden in most scenarios. Portugal also operates a municipal surcharge - derrama municipal - and a state surcharge - derrama estadual - on profits above certain thresholds, so the effective rate for highly profitable companies rises above the headline figure. However, for small and medium-sized companies and startups, Portugal has introduced reduced rates and specific incentive regimes that can bring the effective corporate tax burden to a materially lower level than in Italy.
A practical distinction worth noting: Italy has historically offered a participation exemption on dividends and capital gains from qualifying subsidiaries, which benefits holding structures. Portugal similarly provides a participation exemption - the SGPS regime and the general participation exemption under the IRC code - and has positioned itself as a competitive holding jurisdiction within the EU. For groups with complex cross-border structures, Portugal';s combination of a lower headline rate and a robust participation exemption often makes it the more attractive corporate base.
Personal income tax in Italy operates under a progressive IRPEF scale, with rates rising from a low band to a top marginal rate that applies to income above a relatively modest threshold by international standards. Italy also levies regional and municipal surcharges on top of IRPEF, so the true marginal rate for high earners in major cities can be notably higher than the national headline figure. Social contributions add further cost for self-employed individuals and company directors who receive employment-equivalent remuneration.
Portugal';s personal income tax - IRS, Imposto sobre o Rendimento das Pessoas Singulares - follows a similar progressive structure. The top marginal rate is comparable to Italy';s national rate, and when municipal surcharges and solidarity surcharges are included, high earners in Lisbon or Porto face effective rates in a similar range to those in Milan or Rome. Neither country is a low-tax jurisdiction in the conventional sense for ordinary residents paying standard rates.
The critical differentiator for internationally mobile individuals is the existence of special preferential regimes in both countries. Italy introduced the Impatriate Workers Regime - Regime dei Lavoratori Impatriati - which provides a significant exemption on employment and self-employment income for qualifying individuals who transfer their tax residence to Italy and have not been resident there for a defined preceding period. Portugal';s equivalent was the Non-Habitual Resident regime - NHR - which offered a flat rate on certain categories of income and a ten-year benefit window. Portugal has since reformed this programme, replacing it with the IFICI regime - Incentivo Fiscal à Investigação Científica e Inovação - targeting specific professional categories. Understanding which regime applies to a given individual';s situation is now more complex than it was under the original NHR framework.
Italy';s Impatriate Workers Regime is governed by Legislative Decree 209/2023, which substantially revised the earlier framework. Under the current rules, qualifying individuals benefit from a partial exemption on employment income, self-employment income and business income for a period of five years from the year of transfer of tax residence to Italy. The exempted portion of income is significant, reducing the effective IRPEF base materially.
Eligibility requires that the individual has not been tax resident in Italy for a specified number of years immediately before the transfer. The individual must also commit to maintaining Italian tax residence for a minimum period; failure to do so triggers repayment of the tax benefit. The regime applies to workers who transfer to Italy under an employment contract with an Italian employer or who move to Italy to carry out self-employment or entrepreneurial activity. Certain professional categories - including athletes - are subject to different rules and a less favourable exemption percentage.
In practice, founders should consider several non-obvious requirements. The individual must register with the Italian Anagrafe - the civil registry - and formally establish their habitual abode in Italy. Simply spending more than 183 days in Italy is not sufficient on its own; the registration step is a de facto prerequisite for the regime to apply correctly. A common mistake among foreign founders is assuming that the regime applies automatically upon arrival, when in reality a formal application and careful documentation of the transfer date are required. Professional fees for structuring the move and obtaining a tax ruling from the Agenzia delle Entrate - Italy';s revenue authority - typically start from the low thousands of EUR.
Portugal';s Non-Habitual Resident regime was one of the most discussed preferential tax programmes in Europe for over a decade. It offered qualifying individuals a flat rate on certain Portuguese-source income and, in many cases, an exemption on foreign-source income, for a ten-year period. The programme attracted a substantial number of remote workers, retirees and high-net-worth individuals to Portugal, particularly to Lisbon, Porto and the Algarve.
The NHR regime was closed to new applicants at the end of a recent legislative cycle, and Portugal replaced it with the IFICI regime. IFICI is narrower in scope. It targets individuals engaged in qualifying activities - broadly, researchers, highly qualified professionals in technology and innovation sectors, and certain investment-related roles. The flat rate applicable under IFICI is set at a level that remains attractive relative to standard IRS rates, and the ten-year benefit window is preserved. However, individuals who do not fall within the qualifying professional categories cannot access IFICI, which represents a significant narrowing compared to the original NHR.
For individuals who registered under NHR before the closure, the existing benefit continues for the remainder of their ten-year window. This creates a two-tier situation in Portugal: legacy NHR holders with broad income exemptions, and new arrivals who must qualify under the more restrictive IFICI criteria. A common mistake among those planning a move to Portugal now is assuming that the original NHR terms still apply to new registrations. They do not. Anyone considering Portugal as a tax base should verify their eligibility under IFICI before committing to a relocation.
If you are evaluating which jurisdiction better fits your professional profile and income structure, we can help structure the analysis correctly the first time. Contact info@vlolawfirm.com for a consultation.
For international groups considering where to locate a holding company or an intermediate structure, the choice between Italy and Portugal involves several dimensions beyond the headline corporate rate. Italy offers a well-developed participation exemption under the TUIR - Testo Unico delle Imposte sui Redditi - which exempts a substantial portion of dividends received from qualifying subsidiaries and capital gains on the disposal of qualifying shareholdings. Italy also has an extensive network of double tax treaties, covering most major jurisdictions, which reduces withholding taxes on cross-border flows.
Portugal';s participation exemption is similarly broad and applies to dividends and capital gains from qualifying shareholdings held for a minimum period. Portugal has positioned itself as a gateway jurisdiction for investment into Africa and Latin America, leveraging its treaty network and historical ties. For groups with operations in Portuguese-speaking markets, a Portuguese holding company can offer both treaty benefits and operational synergies.
One practical scenario: a technology founder based in the United States who wishes to establish a European holding company for a group with subsidiaries in multiple EU countries. Italy offers a large domestic market, strong IP protection and access to the EU';s patent box regime - Regime Patent Box - which provides a reduced effective rate on income derived from qualifying intellectual property. Portugal offers a lower headline corporate rate, a competitive holding regime and, for the founder personally, the possibility of accessing IFICI if their role qualifies. The optimal choice depends on the group';s specific income mix, the founder';s personal tax situation and the intended exit strategy.
A second scenario: a family office seeking to consolidate European investments under a single holding entity. Italy';s IRES participation exemption and its network of bilateral investment treaties make it a credible option, but the IRAP layer and the complexity of Italian tax compliance add cost and administrative burden. Portugal';s IRC framework, combined with lower compliance costs and a simpler administrative environment, often makes it the preferred choice for smaller family office structures. Many underestimate the ongoing compliance cost differential between the two jurisdictions when making the initial location decision.
A tax-regime comparison that focuses only on income tax rates gives an incomplete picture. VAT, social contributions and the cost of ongoing compliance are material factors for any operating business.
Italy applies the standard VAT rate - IVA - at a level consistent with the EU average, with reduced rates for specific categories of goods and services. The Italian VAT system is administered by the Agenzia delle Entrate, and compliance requirements include periodic returns, annual declarations and, for businesses above certain thresholds, electronic invoicing through the Sistema di Interscambio - SDI. Electronic invoicing is mandatory for most Italian businesses and has been progressively extended to cross-border transactions. Foreign founders often underestimate the administrative burden of Italian VAT compliance, particularly the SDI requirement, which has no direct equivalent in most other EU jurisdictions.
Portugal applies a standard VAT rate - IVA - at a similar level to Italy, with reduced rates for specific sectors. Portuguese VAT compliance is generally considered less administratively intensive than Italy';s, partly because the electronic invoicing obligation, while present, has been implemented in a less prescriptive manner. The Autoridade Tributária e Aduaneira - AT - is the competent authority for Portuguese tax administration.
Social contributions differ significantly between the two countries. In Italy, employer social contributions on employment income are among the highest in the EU, adding a substantial percentage to the gross cost of each employee. This is a critical factor for businesses with significant Italian payroll. Portugal';s social contribution rates are lower, though still material. For a business choosing between Italy and Portugal as its primary operating jurisdiction, the payroll cost differential can be more significant than the corporate income tax rate differential, particularly in the early years when headcount is growing.
Ongoing compliance costs - accounting, tax filings, statutory audits where required, and legal advice - are generally lower in Portugal than in Italy. Italian tax law is complex, frequently amended and subject to significant interpretive uncertainty. The volume of tax circulars, rulings and legislative changes that practitioners must track is considerable. Portuguese tax law is also complex, but the administrative environment is generally regarded as more predictable and less burdensome for foreign-owned businesses.
What are the main risks of choosing Italy over Portugal purely for the impatriate tax regime?
The Italian Impatriate Workers Regime provides a meaningful reduction in personal income tax for qualifying individuals, but it carries several risks that are not always apparent at the outset. The regime requires formal registration with the Italian civil registry and a genuine transfer of habitual abode, not merely spending a certain number of days in Italy. If the individual fails to maintain Italian tax residence for the minimum required period, the benefit is clawed back, potentially with interest and penalties. Additionally, the regime applies only to certain categories of income; passive income such as dividends, interest and rental income from Italian property is generally not covered. Founders who derive significant income from equity stakes in non-Italian companies should model their effective rate carefully before assuming the regime will deliver the expected saving.
How long does it take to establish tax residence and access a preferential regime in Italy or Portugal, and what does it cost?
In Italy, the process of formally transferring tax residence typically takes between one and three months from the date of physical relocation, assuming the individual registers promptly with the Anagrafe and obtains a codice fiscale - tax identification number. Accessing the Impatriate regime requires filing the relevant documentation with the Agenzia delle Entrate, and obtaining a formal ruling, while not mandatory, is advisable for complex situations. Professional fees for the full process - legal advice, tax structuring, registration assistance and ruling application if needed - typically start from the low thousands of EUR and can reach the mid-thousands for more complex cases. In Portugal, establishing NHR or IFICI status historically took between one and four months, depending on the efficiency of the AT and the completeness of the application. Professional fees are generally in a similar range to Italy, though the process is often considered more straightforward.
Is Portugal still a better choice than Italy for remote workers and digital entrepreneurs after the NHR closure?
The answer depends heavily on the individual';s professional category and income structure. For remote workers and digital entrepreneurs who do not fall within the IFICI qualifying categories - broadly, researchers and highly qualified technology or innovation professionals - Portugal no longer offers the broad flat-rate benefit that made it so attractive under the original NHR. Standard IRS rates apply, and the effective personal tax burden for high earners is comparable to Italy';s. For those who do qualify under IFICI, Portugal remains competitive. Italy';s Impatriate regime, by contrast, is available to a broader range of employment and self-employment categories, making it potentially more accessible for founders and executives who cannot meet IFICI';s professional criteria. The optimal choice requires a case-by-case analysis of income type, professional status and long-term residency intentions.
Italy and Portugal each offer genuine tax planning opportunities for internationally mobile founders, executives and investors, but neither is a simple low-tax destination. Italy';s strength lies in its broad Impatriate regime, its large domestic market and its developed holding and IP structures. Portugal';s advantage is a lower corporate rate, a simpler compliance environment and, for qualifying professionals, the IFICI programme. The right choice depends on the specific income mix, business structure and personal circumstances of each individual or group.
VLO Law Firms advises international clients on tax regime planning in Italy and Portugal. We can assist with eligibility analysis, regime applications, corporate structuring, residency transfers and ongoing compliance. To request a consultation, contact: info@vlolawfirm.com