Approval granted for IRS reduction
In a move aimed at providing tax relief across various income levels, Portugal's Finance Minister, Joaquim Miranda Sarmento, has proposed a series of tax rate reductions as part of the 2025 State Budget. If approved, these reductions will have a significant impact, estimated to be around 500 million euros.
The proposed changes, which are set to be presented for a final vote in the Assembly of the Republic, involve reductions in the marginal rates for the first to eighth income brackets. The specific reductions are as follows:
- The first income bracket falls from 13% to 12.5%. - The second bracket decreases from 16.5% to 16%. - The third bracket reduces from 22% to 21.5%. - The fourth bracket decreases from 25% to 24.4%. - The fifth bracket is lowered from 32% to 31.4%. - The sixth bracket goes from 35.5% to 34.9%. - The seventh bracket decreases from 43.5% to 43.1%. - The eighth bracket reduces from 45% to 44.6%.
If the proposal is approved, the rate for the last income bracket will remain at 48%. However, there is an additional proposal to further reduce the marginal rates for the second to fifth brackets by 0.3 percentage points in the State Budget for 2026.
The changes to the withholding tax tables are intended to reflect the reduction in taxpayers' pockets. The timeline for these changes is August, September, and from October onwards. From October, new tables will be implemented that reflect the reduction on a monthly basis. The Minister aims to implement the changes in August and September for retroactive payments.
It is worth noting that the changes to the withholding tax tables will have retroactive effect from January this year. If enacted, the proposal will be published in the Official Gazette.
The 2025 State Budget also includes other tax adjustments, such as the reduction of the general Corporate Income Tax (IRC) rate and withholding tax rates for self-employed workers. These adjustments are part of the government's broader strategy to stimulate economic growth and support businesses and individuals.
The legislative proposal reduces tax rates for the 1st to 8th income brackets. If approved, this will mark a significant step in Portugal's ongoing efforts to support its citizens and businesses by easing the tax burden. The proposal will be submitted to the President of the Republic for approval after the vote.
[1] Source: Portuguese Ministry of Finance [2] Source: Portuguese Assembly of the Republic [3] Source: Portuguese Ministry of Economy [4] Source: Portuguese Ministry of Labour and Social Security
The proposed tax rate reductions, as part of Portugal's 2025 State Budget, will have a substantial impact of approximately 500 million euros if approved. This legislative proposal, from Portugal's Finance Minister, Joaquim Miranda Sarmento, involves reductions in marginal rates for the first to eighth income brackets, impacting both individuals and businesses in Portugal's finance and business sectors.
