Taxes in the Autonomous Region of the Azores are a topic that raises many questions for those who live in the archipelago, are thinking about moving to the islands or have a company operating in the region. Although Portugal has a national tax system, regional autonomy allows some rules to be adapted to the island reality, marked by the distance from the mainland and the costs inherent to living in an outermost region.
The main difference is the fact that the Azores can apply their own reductions in taxes such as IRS, IRC and VAT.
According to , regional legislative assemblies are allowed to reduce the national rates of these taxes up to a limit of 30%, taking into account the financial and budgetary situation of the region, explains the Official Gazette.
Fiscal autonomy designed to compensate for insularity
In the case of the Azores, this fiscal adaptation is not recent. The regional diploma that adapts the national tax system to the archipelago says that reducing the tax burden aims to improve the living conditions of residents and reinforce the competitiveness of companies that bear the costs of insularity, according to .
In practice, this means that the tax situation of a person or company in the Azores may be different from that observed on the mainland. However, this difference does not mean that everyone automatically pays less in all taxes, because there are rules regarding tax residence, location of the activity, type of income and nature of the operation to be taken into account.
Lower VAT than on the mainland
One of the most visible differences is in ICMS. In mainland Portugal, the rates are 6%, 13% and 23%, while in the Autonomous Region of the Azores they are 4%, 9% and 16%, respectively for the reduced, intermediate and normal rate, indicates the gov.pt portal.
This can make a difference in the final price of many goods and services, although the impact felt by the consumer always depends on the product, the sector and the way in which each company reflects this difference in prices. The normal rate of 16% in the Azores, for example, is well below the 23% applied on the mainland.
IRS also has regional adaptation
In the IRS, the regional rule provides for a 30% reduction on the applicable national rates, when natural persons resident in the Azores are involved. The same diploma explains that the reduction applies to income tax owed by tax residents in the region, regardless of where they carry out their activity.
Still, it is worth distinguishing tax rate and final tax. The amount each taxpayer pays also depends on income, deductions, family composition and withholding taxes. For 2026, specific withholding tax tables were approved for income from dependent work and pensions of holders resident in the Azores, with effect from January 1, 2026, according to Order No. 1179/2026.
Companies also have different rules on IRC
Companies with headquarters, effective management or permanent establishment in the Azores also benefit from tax adaptation. The regional regime determines a 30% reduction in national IRC rates, applicable under the terms provided for entities with fiscal ties to the region.
Furthermore, the Budget of the Autonomous Region of the Azores for 2026 maintains an IRC rate of 8.75% for companies that directly and primarily carry out an agricultural, commercial, industrial or service provision activity, as long as they are qualified as micro, small or medium-sized companies, in accordance with Regional Legislative Decree No. 27/2025/A, and which must be presented as the applicable rate under the terms of article 41.º-B of the Tax Benefits Statute, as a rule to the first 50,000 euros of tax base.
The same regional budget also provides for tax benefits linked to the reinvestment of profits in areas considered strategic, such as tourism promotion, research and development, strengthening export capacity, renewable energy, energy efficiency, aquaculture, fish processing and the acquisition of electric vehicles.
Not everything changes, but there are important differences
Despite these particularities, the Azores remain integrated into the Portuguese tax system. In other words, many tax procedures, declarations and obligations follow national rules, even if adapted in specific points by regional legislation.
For taxpayers, the big difference is mainly in the reduced rates and the region’s specific tax framework. For companies, the location of the activity, the headquarters, the permanent establishment and the volume of business attributable to the Azores can be decisive in understanding which regime applies.
Basically, living or investing in the Azores does not mean being outside the Portuguese tax system, but within a version adapted to the reality of the archipelago. It is this autonomy that explains why taxes such as VAT, IRS and IRC may have a different weight on the islands when compared to the mainland.
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