Portugal Budget 2026: personal and corporate tax changes

The Portuguese State Budget for 2026, released on 27 November, introduces a raft of updates impacting both individuals and businesses. With rising living costs and a changing economic environment, the government’s measures focus on boosting household budgets, encouraging fairer pay, and supporting business growth. Whether you’re an employee, landlord, business owner, or company director, understanding these changes is crucial for smart financial planning.

This article outlines the major updates on both personal and corporate tax, exploring how they may affect you and offering practical guidance for getting ahead in 2026.

Overview of key changes

For individuals:

• Minimum wage increase: rises by 5.7% to €920 per month
• Social Support Index (IAS): increased to €537.13
• Higher personal income tax allowance: now €4,587.09
• Wider income tax brackets: increased by 3.5%, reduced rates below €29,397
• Increased rent deductions: €900 in 2025; €1,000 from 2027

For businesses:

• Corporate tax rate reduction: main rate decreasing from 20% to 17% by 2028 (19% in 2026); reduced rate dropping to 15%
• Tax-exempt bonuses for wage increases: companies that raise wages by at least 4.6% can distribute tax-free bonuses
• Corporate tax incentives for wage growth: lower corporate tax rates for employers who raise wages for permanent staff

Personal tax updates in the 2026 budget

Minimum wage increase

The national minimum wage leaps by 5.7%, from €870 to €920 per month. This aims to put more money into the pockets of lower-paid workers, supporting spending and raising the baseline for wage negotiations countrywide.

Increased Social Support Index (IAS)

The Social Support Index (IAS) rises to €537.13 in 2025. This benchmark underpins:

• Personal income tax allowances: your untaxed income threshold climbs to €4,587.09.
• Social security payment ceilings: relevant for high earners and self-employed, as increased IAS means higher possible contributions or benefits.

Revised income tax brackets and rates

Tax brackets widen by 3.5%, so you can earn more before moving up a tax band. Rates are also lower for those earning less than €29,397, increasing take-home pay for middle and lower earners.

• Lowest tax bracket: up to €8,342
• Highest tax bracket: begins at €86,634 (was €83,696)

By adjusting both thresholds and rates, fewer people are caught in higher tax bands as salaries rise. However, these adjustments are not expected to fully offset the impact of wage increases. This means that if your salary goes up in 2026, the amount of tax you pay will likely also be higher.

Higher deductions for rent

Recognising housing cost pressures, the annual rent deduction increases to €900 in 2025, and will rise to €1,000 in 2027. Make sure your rental agreement is registered and all rent is paid with your taxpayer number (NIF) to claim the allowance.

Corporate tax changes: supporting wage growth and business competitiveness

Gradual reduction in corporate tax rates

The government is cutting the main corporate tax rate from 20%, dropping by 1% each year to reach 17% by 2028. For 2026, the standard rate will be 19%. The reduced bracket for smaller companies will also fall to 15% – a significant cut for qualifying businesses.

Tax-free bonuses for wage growth

Companies that increase staff salaries by at least 4.6% can grant a tax-exempt bonus. For example, an employee earning €950 gross receives a salary increase to €1,000 (over the 4.6% threshold). The employer can distribute a €60 bonus (representing the “extra” over the pay rise), which is exempt from personal income tax – social security contributions still apply.

Corporate tax incentives for permanent job increases

Firms that permanently up wages by at least 4.6% for their employees will enjoy additional corporate tax savings. This incentive is designed to stimulate fairer pay and improved job stability.

What do these changes mean for you?

Individuals:

• Wage increases and wider tax bands mean fewer people will move into higher tax brackets as salaries rise. However, these changes likely won’t fully offset rising wages, so a salary increase in 2026 may still mean paying more tax overall.
• Higher personal allowance and increased rent deductions make the annual IRS (personal income tax) return more favourable for tenants and low-to-middle earners.
• Revisit your budget: plan for increased net income and explore ways to boost savings or investments.
• Track your tax bracket: know where you lie in the new income band structure and optimise your tax planning.
• File correctly: make sure all rent and deductible expenses are properly reported to maximise your returns.

Businesses:

• Plan hiring and wages: consider adjusting salary structures early to benefit from tax-exempt bonuses and reduced corporate tax rates.
• Assess profit forecasts: lower headline tax rates mean you can reinvest more profit back into your company.
• Stay compliant: document wage increases and bonus payments clearly to ensure you qualify for all tax incentives.
• Use professional support: navigating corporate tax updates and wage incentives can be complex – timely advice is crucial, speak to our team.

How RHJ Accountants can help

Major tax changes open the door to new opportunities – if you act early and strategically.

• For individuals:
we break down your income profile and highlight new deductions, helping you file optimised tax returns and plan your financial future.
• For businesses:
our team will show you how to structure pay increases and bonuses for maximum tax efficiency, and ensure you take full advantage of falling corporate tax rates and incentive schemes.

Let’s make the 2025 budget work for you.
Reach out to RHJ Accountants for tailored advice, strategic planning, and hands-on support for both your personal and business finances in Portugal.

Frequently asked questions

What are the main changes to the personal income tax (IRS) brackets for 2025?

For 2025, the income tax brackets have been widened by 3.5%, and tax rates for those earning less than €29,397 have been reduced. This means you can earn more money before moving into a higher tax band. For example, the lowest tax bracket now covers income up to €8,342, and the highest bracket starts at €86,634.

How does the minimum wage increase affect my taxes?

The national minimum wage has been increased to €920 per month, which will boost your gross income. Although this is a positive change, your income is still subject to social security contributions and personal income tax (IRS). The tax brackets have been widened, which means fewer people will move into higher tax brackets as their salaries rise. However, these changes likely won’t fully offset rising wages, so a salary increase in 2026 may still result in paying more tax overall.

What is the new rent deduction limit, and how can I claim it?

The maximum annual deduction for rental expenses on your personal tax return has increased to €900 for 2025. To claim this, your rental contract must be officially registered with the tax authorities (Finanças), and you must request that your landlord issues official rent receipts with your taxpayer number (NIF).

What is the Index of Social Support (IAS), and how does its increase impact my tax allowance?

The IAS (Indexante dos Apoios Sociais) is a benchmark used to calculate social benefits and tax allowances. For 2025, it has increased to €537.13. This directly raises the general personal income tax allowance to €4,587.09. A higher allowance means a larger portion of your income is non-taxable, which reduces your overall tax bill.

Do the new tax brackets benefit everyone equally?

The changes are designed to provide the most significant relief to lower and middle-income earners. By widening the brackets and reducing rates for income under €29,397, these taxpayers will see a more noticeable reduction in their tax burden. High-income earners also benefit from the bracket adjustments, but the impact is proportionally smaller.

What are the key changes to corporate tax rates?

The standard corporate tax rate will be progressively reduced, starting with a drop from 20% to 19% in 2026, with a long-term goal of reaching 17%. Additionally, the reduced rate for the lower profit bracket will fall to 15%, providing significant relief for small and medium-sized enterprises (SMEs).

How can my company benefit from the new wage increase incentives?

The budget introduces a significant tax incentive for businesses that increase the wages of permanent employees by at least 4.6%. Companies that do so will benefit from a reduction in their corporate tax bill. This measure is designed to reward businesses for investing in their workforce.

What are tax-exempt bonuses, and how do they work?

If a company implements a qualifying wage increase (at least 4.6%), it can then offer employees tax-exempt bonuses. For the employee, these bonuses are not subject to personal income tax (IRS), although social security contributions still apply. This makes the bonus more valuable to the employee and serves as a powerful, tax-efficient reward tool for the employer.