The 2025 State Budget introduces a range of changes that will affect citizens, businesses, and the overall economy in Portugal. Aimed at fostering economic growth, supporting wage increases, and stimulating business investment, the new measures include tax adjustments, incentives for job creation, and strengthening business capital. In this post, we will explore the main changes that have come into effect, explaining how they may benefit or impact your financial situation and businesses in the country.

IRS – Personal Income Tax

1. Young IRS (IRS Jovem)
Who can benefit?
The Young IRS now covers individuals up to 35 years old (previously it was up to 26) and no longer requires completing a degree.
Duration of the benefit
The benefit lasts for 10 years, starting from the first year the young individual earns income and opts for this regime. If there are years without income, the benefit can be suspended and resumed later, as long as the individual is under 35 years old.
How much can you save on IRS?
The IRS exemption is applied progressively, up to a limit of 55 times the IAS (Index of Social Support):

  • 1st year – 100% exemption
  • 2nd to 4th year – 75% exemption
  • 5th to 7th year – 50% exemption
  • 8th to 10th year – 25% exemption
    Employers must calculate tax on the total income but only withhold IRS on the portion that is not exempt.

2. Release Tax
Non-residents performing extra work in Portugal will not pay IRS on the first 100 hours worked. If the limit is exceeded, a 25% withholding tax applies.

3. Withholding Tax

  • Supplementary work (Category A – Employees)
    The withholding tax is now half of the normal tax rate applied to the monthly salary.
  • Independent work (Category B)
    The IRS withholding rate is reduced from 25% to 23% for certain professions.

4. Meal Allowance
If the meal allowance is paid via vouchers/cards, only the portion exceeding 70% of the legal limit will be considered taxable income.

5. Bonuses and Rewards
Bonuses for productivity, performance, profit-sharing, and balance-sheet bonuses are exempt from IRS up to 6% of the annual base salary. These bonuses are also exempt from Social Security, but only if the company increases employee salaries as provided under article 19-B of the Fiscal Benefits Statute (EBF).

6. Payments on Account (Self-Employed Workers – Category B)
Self-employed workers will pay 65% of the usual payments on account to the State.

IRC – Corporate Income Tax

1. Reduction of IRC Rates
The general IRC rate decreases from 21% to 20%.
For small and medium-sized enterprises (SMEs), the rate applied to the first €50,000 of profit also drops from 17% to 16%.

2. Health Insurance Benefits
Companies paying health or illness insurance for employees, retirees, or their families will be able to deduct an additional 20% of these costs from their corporate tax accounts.

3. Taxation of Vehicles and Companies with Losses

Lower taxes on cars: The tax rates on expenses related to passenger cars, commercial vehicles, motorcycles, and motorbikes will decrease, and the tax brackets will be adjusted.

Companies with losses: The 10% increase in autonomous taxation for companies with tax losses will no longer apply, as long as:

  • The loss occurs in the first three years of activity; or
  • The company made a profit in one of the last three years and fulfilled all tax obligations.

Tax Benefits

1. Tax Benefit for Companies Increasing Salaries
Companies will receive a greater tax deduction if they increase the salaries of their employees with permanent contracts, provided that:

  • The average salary increase is at least 4.7% (previously it was 5%);
  • The average increase for employees earning up to the company’s average base salary is also at least 4.7%.

Note: Only employees covered by a collective labor agreement signed or updated within the last three years will be considered.
The maximum amount of expenses that can benefit from this incentive increases from 4 to 5 times the minimum wage, meaning a deduction of €4,350 in 2025.

2. Tax Benefit for Investments in Companies
If a taxpayer invests money in a company in which they hold a stake, they can deduct up to 20% of this amount from their taxes, either on the profits distributed by the company or on the difference between the gains and losses from selling the stake.
This benefit does not apply to investments in banks, insurance companies, or other entities supervised by the Bank of Portugal or the Insurance and Pension Funds Supervision Authority.

3. Tax Benefit for Strengthening Company Capital
The tax incentive for strengthening company capital is now calculated based on the 12-month Euribor rate plus a 2 percentage point spread.
In 2025, this incentive will be increased by 50%, up to a maximum of €4 million or 30% of the company’s EBITDA.