What is the derrama and how is it calculated?

What is the derrama?

The derrama is not a separate tax: it is a surcharge added to corporate income tax (IRC), charged on the company's same taxable profit. In other words, after working out the IRC on the profit, the company also pays an additional percentage of that profit as derrama.

There are two distinct derramas: the derrama municipal, levied by the municipality where the company is based, and the derrama estadual, a national surcharge only the highest profits pay. You can estimate both with our derrama calculator.

The municipal surcharge

The derrama municipal is a tax of the municipality where the company is based, up to a ceiling of 1.5 % of taxable profit². The calculation is simple:

Municipal surcharge = taxable profit × the council's rate (up to 1.5 %)

The point most people get wrong is assuming the rate is always 1.5 %. It is not: 1.5 % is the ceiling, but each town hall sets its own rate, which can be lower and can change every year. On top of that, many councils apply a reduced rate or an exemption to companies with low turnover (usually up to €150,000 a year). That is why, in the derrama calculator, the council's rate is a field you fill in. Confirm the current rate with the town hall or the tax portal.

The state surcharge

The derrama estadual is a national surcharge only the highest profits pay. It applies marginally in brackets on taxable profit, like income-tax brackets¹:

Because the first bracket starts at €1.5 million, the vast majority of companies pay no state surcharge. And because it is marginal, only the part of the profit inside each bracket is taxed at that bracket's rate, not the whole profit.

How the total derrama is calculated

The total derrama is the sum of the two:

Total derrama = municipal surcharge + state surcharge

1. Municipal surcharge: taxable profit × the council's rate (up to 1.5 %).
2. State surcharge: zero for most; it only counts above €1.5 million of profit.

For the company's full tax, add the IRC itself: see how in our IRC calculator, which sums the IRC and the two surcharges.

Worked example

A company with €40,000 of taxable profit, in a municipality with a 1.5 % surcharge:

• municipal surcharge = €40,000 × 1.5 % = €600;
• state surcharge = €0 (profit is far below €1.5 million);
• total derrama = €600.

A large company with €5 million of profit, in the same municipality:

• municipal surcharge = €5,000,000 × 1.5 % = €75,000;
• state surcharge = (€5 − €1.5) million × 3 % = €105,000;
• total derrama = €180,000.

Try your case in the derrama calculator.

Derrama, IRC and self-employment

The derrama only exists on top of IRC, and IRC only applies to companies and other legal entities. A self-employed worker (recibos verdes) is an individual: they pay IRS and have no derrama. If you are weighing whether to work as self-employed or to incorporate, compare the two sides with the self-employed (recibos verdes) calculator (IRS and Social Security) and the IRC calculator (the company's tax, with the derramas).

What this calculation does not include

The calculator shows only the surcharges, from the taxable profit you enter. It does not compute the IRC itself (that is the IRC calculator), does not determine the taxable profit from your accounts, does not apply each council's actual rate (it is a field you fill in) and does not cover the rules of the autonomous regions (Madeira and the Azores). Use the estimate to get a sense of the order of magnitude and confirm the figures with your accountant.