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Portugal: Changes approved by the 2025 State Budget Law

Portugal - 

The State Budget for 2025 introduces tax measures focused on business competitiveness and increasing workers' wages.
 

The State Budget Law for 2025, approved by Law No. 45-A/2024 of December 31, introduced a set of tax measures specifically aimed at enhancing the competitiveness of companies and improving employee salaries, of which we highlight the following, effective as of January 1, 2025.

  • Corporate Income Tax (IRC):
    • IRC rates are reduced by 1%, with the general rate decreasing from 21% to 20% and the rate applicable to SMEs and small mid-caps on the first EUR 50.000 of taxable income decreasing from 17% to 16%.
    • The autonomous taxation rates applicable to expenses related to passenger cars, certain light goods vehicles, motorcycles, and mopeds, as well as the acquisition value thresholds determining the corresponding rate, are adjusted to:
      • 8% (previously 8,5%) for vehicles with an acquisition cost below EUR 37.500 (previously EUR 27.500)
      • 25% (previously 25,5%) for vehicles with an acquisition cost equal to or above €37,500 (previously EUR 27.500) and below EUR 45.000 (previously EUR 35.000)
      • 32% (previously 32,5%) for vehicles with an acquisition cost equal to or above EUR 45.000 (previously EUR 35.000)
    • The transitional provision is reintroduced, establishing the non-application, in the 2025 tax period, of the rule that increases autonomous taxation rates by 10% when the taxpayer incurs tax losses, provided that:
      • The taxpayer has reported taxable profits in one of the three previous tax periods and has submitted the Modelo 22 and IES declarations for the two preceding tax periods
      • The 2025 tax period corresponds to the commencement of activity or one of the two subsequent periods
    • Expenses incurred on health or medical insurance for the benefit of employees, retirees, or their family members, when considered as social utility benefits, are now considered at 120% of their value.
    • The fiscal incentive for salary increases has been adjusted to raise the additional deduction from 50% to 100% of the expenses related to salary increases, and the maximum deduction limit from four to five times the value of the guaranteed minimum monthly remuneration (RMMG), increasing from EUR 3.280 to EUR 4.350. Furthermore, the required increase in the average annual base salary per employee, compared to the end of the previous year, is now a minimum of 4,7% (previously 5%). Additionally, the average increase in the annual base salary for employees earning an amount equal to or less than the company's average annual base salary at the end of the previous year must also meet a minimum of 4,7%.
    • The spread applied to the 12-month Euribor average for the calculation of the deduction from taxable income under the Corporate Capitalization Incentive (ICE) has been increased from 1,5% to 2%, now regardless of the company's size. Additionally, this deduction is increased by 50% in 2025, with a limit of EUR 4.000.000 or 30% of EBITDA (adjusted in accordance with the IRC Code), whichever is greater.
  • Personal Income Tax (IRS):
    • The IRS exemption is reinstated, up to a limit of 6% of the worker's annual base salary, regarding the amounts paid or made available to workers or members of statutory bodies in 2025. These amounts must be voluntarily and irregularly borne by the employer and granted as productivity bonuses, performance bonuses, profit-sharing or balance sheet gratuities. As in 2024, the application of this regime in 2025 depends on the employer having made an eligible salary increase of 4,7% for the purposes of the salary enhancement tax incentive described above.
    • As a result of the update to the Social Support Index (IAS) from EUR 509,26 to EUR 522,50, the minimum subsistence threshold increases from the greater of EUR 11.480 or EUR 10.694,46 to the greater of EUR 12.180 or EUR 10.972,50.
    • The value of the meal allowance excluded from IRS when paid via card or meal voucher increases from EUR 9,60 to EUR 10,20 in 2025, while the allowance paid in cash remains at EUR 6,00.
    • The Young People IRS Regime, which provides a regressive exemption for income from categories A and B earned by taxpayers (not dependents) up to the age of 35, no longer requires proof of educational attainment. It is extended for a period of 10 years, and the annual deduction limit is updated to EUR 28.737,50 (equivalent to 55 times the value of the IAS).
    • The taxable income brackets are updated by 4,62%, while the current progressive IRS general rates remain unchanged.
    • The specific deduction for category A increases to 8,54 times the IAS, which corresponds to EUR 4.462,15.
    • The withholding tax rate on income from professional activities is reduced from 25% to 23%.
  • Portuguese Property Transfer Tax (IMT):
    • An update of the brackets used to determine the applicable IMT rate for the transfer of urban properties or autonomous units of urban properties exclusively intended for housing is planned, with an increase of 2,3%. The threshold above which IMT is payable is raised from EUR 101.917 to EUR 104.261.
  • Reporting obligations:
    • The obligation to submit the SAF-T (PT) file related to accounting has been deferred once again, now applying to the 2026 tax periods and beyond, to be submitted in 2027 and in subsequent periods.
  • Value Added Tax:
    • The extension of the possibility to use PDF invoices (without a digital signature or certification seal) as electronic invoices for all purposes under tax legislation is once again anticipated, now until December 31, 2025.