Allowances and compensation for travel in own vehicle

Workers and members of corporate bodies, hereinafter referred to as personnel, often have the need to travel in the performance of their duties, on behalf of the entities with which they are affiliated, incurring expenses.

To meet these expenses, the employer may provide compensations/allowances, which may be referred to as daily allowances and/or compensation for travel in own vehicle.

Daily allowances are considered the daily amounts (for consecutive or non-consecutive days) granted to personnel to compensate for food, lodging, and/or transportation. The use of one's own car in the service of the employer should be understood as compensation for fuel expenses for any vehicle that is not part of the tangible fixed assets of the employer entity, and for which the employer entity is not responsible or liable for any expenses.

It should be noted that these amounts have an underlying purpose, namely to reimburse expenses incurred when traveling on behalf of the entity, and as such should not be understood as a substitute for compensation, with the aim of mitigating the impacts of taxation and contributions applicable to compensation.

In this context, necessary domicile is understood as:

  • The location where personnel agreed to perform their duties (e.g., the headquarters of the employing entity);
  • Another location where they actually work when assigned to a different location from the agreed one (e.g., personnel is assigned to work on a project in Viseu, having agreed to their duties at the headquarters in Porto); or
  • When it is not possible to establish a specific location for the performance of their duties, the location where the center of their functional activity is located.

For the eligibility of the expenses presented, it will be important to include this information in the clauses of the contract signed between the personnel and the employing entity.

In this sense, the following cannot be covered by this concept: travel from their residence (personnel's home) to the necessary domicile, and vice versa. This does not mean that if the necessary domicile stipulated in the contract coincides with the personnel's residence, they cannot be reimbursed for travel from their residence to the entity's service.

Employing entities define the values to be granted, and it is not necessary for personnel to provide proof of the expenses incurred.

Personal Income Tax (IRS)

Considering the administrative doctrine resulting from Circular No. 12/91, of 29/04, from the DGCI and the provisions of article 2, paragraph 3, subparagraph d), of the IRS Code, the amounts granted within the scope of private law do not constitute dependent work income, provided they do not exceed the legal limits established in the Regulations governing travel made by the public administration.

1 - Official Circular No. 20257, of 2023-06-21.

According to this Circular, in the case of daily allowances granted by non-public entities to their workers and members of corporate bodies, the value of the daily allowances granted to Government members may be taken as a reference, whenever the functions performed and/or the level of their remuneration are not comparable or reportable to those of public servants, i.e., 69.19 euros or 167.07 euros, depending on whether the travel is domestic or international.

In other cases, the legal limits of the daily allowances are considered the maximum limit for public servants.

It should be noted that the legislation also establishes the general conditions under which personnel are entitled, regulating the corresponding allowances, to be made in accordance with the following tables: Whenever the amounts correspond to the payment of meals and/or lodging, there will be no entitlement to the respective allowances when the corresponding service is provided in kind.

Finally, it is emphasized that the aforementioned amounts must be included in the payslip in separate lines, with the discrimination of the amount not subject to taxation and the amount subject to taxation (if any), as well as in the annual income statement to be issued by the employing entity. Regarding the monthly income statement, the amount not subject to taxation must be reported with code A22, and the amount subject to taxation with code A.

Corporate Income Tax (IRC)

In the view of employing entities, in order for daily allowances and travel in own vehicle to be deductible for the determination of taxable profit, even when accounted for as expenses, it is necessary for personnel to prepare a schedule through which it is possible to control the trips to which those expenses refer, unless they constitute normal compensation in the worker's sphere and, as such, subject to taxation under IRS.

Mandatory elements of the itinerary schedule

Daily allowances:

  • Name of the beneficiary
  • Location or locations to which the beneficiary traveled
  • Reason and date of the trip
  • Duration of stay

2 - Decree-Law No. 106/98, of 24/04, Decree-Law No. 192/95, of 28/7, and Order No. 1553-D/2008, of December 31.

  • Daily Amount Granted

Use of Own Vehicle:

  • Beneficiary's Name
  • Location(s) Traveled to
  • Reason and Date of Travel
  • Duration of Stay
  • Daily Amount Granted
  • Vehicle Identification
  • Vehicle Owner
  • Number of Kilometers Traveled

The signature of the beneficiaries on the maps is an essential element for recognizing the authorship of the document and, consequently, for its acceptance as evidence.

According to the Corporate Income Tax (IRC), "expenses incurred or supported related to daily allowances and compensation for the use of the employee's own vehicle, at the service of the employer, not invoiced to clients, accounted for in any form, except to the extent that they are subject to taxation under IRS in the sphere of the respective beneficiary, are also autonomously taxed at a rate of 5%."

The legislator understood that whenever these amounts not subject to taxation under IRS are not expressly invoiced to clients (explicit mention in the invoice and evidenced separately), they are autonomously taxed (TA).

Notwithstanding the position of the Tax Authority (AT), in administrative decisions 3, it has been understood that although there is necessary evidence regarding the identification of expenses for each payment made, it does not imply that the indication of these expenses must appear on the invoices, although it is necessary for the accounting to allow determining which invoice each of the amounts related to these amounts refers to.

There is an exception 4 to this obligation for companies transporting goods, given the nature of their activity, although they are required to possess other evidence. Considering the above, the impacts on IRC may be summarized as per the table below:

In the case of individual taxpayers with organized accounting, the legislator maintained the second condition of incidence of TA, conditioned on the existence of fiscal losses in the period to which the expenses relate, when the expense is not fiscally accepted (not invoiced to clients and without itinerary map).

2 - Process no. 85/2012-T and Process 478/2019-T, both from CAAD.

3 - Ruling of 28.06.2004 from the DGI and Information no. 22144, dated 06.07.04 from DSIRC.