The Portuguese thin-capitalization rules were removed from the Corporate Income Tax Code by the Budget Law for 2013, and replaced by an interest barrier regime (see Sec. 10.2).

Prior to 2013, the thin-capitalization rules applied when the total indebtedness (including any loans, guarantees, and trade-related credits more than 6 months overdue) of a Portuguese corporate taxpayer to a particular non-resident related party at any date in the tax period was twice the amount of the corporate borrower's net equity held by such non-residents. Interest paid on such debts in excess of the 2:1 ratio was not tax deductible by the debtor. Thin-capitalization did not apply when the non-resident related lender was domiciled in an EU Member State.

Interest on excessive debt could be deducted if the taxpayer could prove that the loan conditions were comparable to those agreed by non-related parties in similar transactions under the same circumstances. In this respect, there is generally a limitation for the deductibility of interest and other remuneration for shareholders' loans to the company in the part exceeding the amount corresponding to the 12-month EURIBOR rate at the date of constitution of the debt plus 1.5% spread. However, this is a mere indication and the determination of the proper remuneration under the transfer pricing rules prevails (see Sec. 13.4.2.). Loans from entities from blacklisted tax haven entities were excluded from the possibility of this evidence and, therefore, interest on excessive debt was always not acceptable.

From 1 January 2013 onwards, cost incurred with indebtedness is deductible up to the higher of EUR 1 million or (ultimately) 30% of the earnings before depreciation and amortization, interest and taxes (EBITDA), except for the banking and insurance sectors.

The interest that is not deducted in a given year, because it exceeds the cap referred above, may be deducted in the 5 following years provided the thresholds are not superseded in any given year. Moreover, a borrowing capacity which is not used in a given year may be carried forward to increase the borrowing capacity of the 5 following years.

If the special taxation scheme for groups of companies provided in the Corporate Income Tax Code applies, these limits apply to each company of the group. These limits mutatis mutandis also apply to permanent establishments of non-resident entities.