Tax Updates: State Budget Proposal for 2026 and New Measures Also Planned for 2026
António Pratas Nunes | Lawyer
On 9 October 2025, the Minister of Finance presented to the Portuguese Parliament the State Budget Proposal for 2026.
This is a budget of continuity — without major structural reforms — but one that reinforces the Government’s ongoing strategy of gradually reducing taxation and supporting household income and business competitiveness.
One of the key highlights of the proposal is the increase of the national minimum wage by €50, bringing it to €920 per month in 2026, with the goal of reaching €1,100 by the end of the legislature. This measure forms part of the Government’s broader policy of income convergence and seeks to offset the impact of inflation on lower wages.
From a macroeconomic perspective, the Government forecasts economic growth above 2% in 2026, the maintenance of a budget surplus, and a reduction of public debt to below 90% of GDP — a milestone not achieved for more than 16 years. These projections were disclosed by the Ministry of Finance during the presentation of the budget proposal and confirmed by the Minister of Finance, in the official press conference held on the same day.
Corporate Tax (IRC) Measures
In what concerns corporate taxation, the State Budget Proposal for 2026 continues the Government’s commitment to gradually easing the tax burden on businesses.
However, the reduction of the corporate income tax (IRC) rate — from 20% to 19% in 2026, and from 16% to 15% on the first €50,000 of taxable income for SMEs and small mid-cap companies — has not yet been formally included in the draft budget law.
These measures remain part of the Government’s political and fiscal roadmap and will therefore require separate legislative approval.
This forms part of a multi-year plan to reduce the corporate income tax rate by one percentage point per year, aiming to reach a general rate of 17% by 2028, thereby bringing Portugal closer to the European average corporate tax level.
Until the nominal reduction takes effect, the Budget maintains the tax incentive for wage valuation, allowing companies to deduct 200% of the eligible costs associated with salary increases as tax-deductible expenses. The required average annual salary increase for 2026 is set at 4.6%, compared to 4.7% in 2025, representing a slight easing of the eligibility threshold.
This incentive is designed to promote competitiveness and reward companies that invest in stable employment and the improvement of employee compensation.
Additionally, the proposal extends the reduced autonomous taxation regime for plug-in hybrid and natural gas vehicles, now including vehicles approved under the new EU environmental standard Euro 6e-bis, with CO₂ emissions below 80g/km. This alignment with European environmental benchmarks seeks to promote the renewal of the corporate vehicle fleet and encourage a gradual transition to cleaner energy sources.
Personal Income Tax (IRS) Measures
The 2026 State Budget Proposal introduces a 3.5% update to personal income tax brackets and a 0.3 percentage-point reduction in marginal rates from the 2nd to the 5th bracket, aiming to mitigate the impact of inflation on employment income.
In addition, the minimum subsistence threshold rises by 5.75%, from €12,180 to €12,880, ensuring greater protection for low-income taxpayers and preserving the progressivity of the system
- Personal Income Tax 2025 – Current Rates
| Taxable Income (€) | Normal Rate (%) | Average Rate (%) |
|---|---|---|
| Up to 8,059 | 12.50 | 12.50 |
| Over 8,059 - 12,160 | 16.00 | 13.68 |
| Over 12,160 – 17,233 | 21.50 | 15.98 |
| Over 17,233 – 22,306 | 24.40 | 17.90 |
| Over 22,306 – 28,400 | 31.40 | 20.79 |
| Over 28,400 – 41,629 | 34.90 | 25.27 |
| Over 41,629 – 44,987 | 43.10 | 26.61 |
| Over 44,987 – 83,696 | 44.60 | 34.93 |
| Above 83,696 | 48.00 | - |
- Personal Income Tax 2026 – Proposed Rates (updated by 3.5%)
| Taxable Income (€) | Normal Rate (%) | Average Rate (%) |
|---|---|---|
| Up to 8,342 | 12.50 | 12.50 |
| Over 8,342 – 12,587 | 15.70 | 13.58 |
| Over 12,587 – 17,838 | 21.20 | 15.82 |
| Over 17,838 – 23,089 | 24.10 | 17.70 |
| Over 23,089 – 29,397 | 31.10 | 20.58 |
| Over 29,397 – 43,090 | 34.90 | 25.13 |
| Over 43,090 – 46,566 | 43.10 | 26.47 |
| Over 46,566 – 86,634 | 44.60 | 34.86 |
| Above 86,634 | 48.00 | - |
- Productivity and Performance Bonuses, Profit-Sharing and Balance-Sheet Gratifications
The proposal maintains the IRS exemption regime for bonuses and profit-sharing, under terms identical to those in force in 2025.
Accordingly, amounts paid or made available in 2026 by employers to employees or members of statutory bodies, on a voluntary and non-regular basis, as productivity or performance bonuses, profit-sharing, or balance-sheet gratifications, are exempt from IRS up to 6% of the employee’s annual base salary.
These amounts will also be excluded from the Social Security contribution base, provided that, in 2026, the employer has implemented a qualifying salary increase, meaning an average annual wage rise of at least 4.6% (compared to 4.7% in 2025).
The employer must make express reference to this condition in the annual income statement issued to the employee for IRS reporting purposes.
Minimum Subsistence Threshold
The minimum subsistence threshold (“mínimo de existência”) defines the minimum level of annual income exempt from personal income tax, ensuring that each taxpayer retains sufficient income to meet basic living needs.
For 2026, the reference amount is updated by 5.75%, from €12,180 to €12,880, with the minimum subsistence threshold equal to the higher of €12,880 and 1.5 × 14 × the IAS (Indexante dos Apoios Sociais).
This adjustment reflects the growth in the national minimum wage and aims to reinforce progressivity and fairness in the tax system by preventing low-income earners from entering the taxable base.
These changes reflect both
technical corrections and social policy objectives.
Together with the modest rate reductions and the maintenance of bonus-related exemptions, the update of the minimum subsistence threshold strengthens income protection for lower earners and maintains effective progressivity across all brackets.
Housing and Youth Measures
The 2026 State Budget Proposal maintains a strong focus on housing policy, combining technical updates to property taxation with new fiscal incentives aimed at promoting affordable housing and long-term rental contracts.
Although not all measures have been formally included in the budget law, the Government has already announced a set of policies designed to encourage moderate rents and support young buyers entering the housing market.
Measures Included in the 2026 Budget Proposal
The proposal updates all Property Transfer Tax (IMT) brackets by 2%, in line with the expected inflation rate for 2026.
The full IMT exemption for primary residences increases from €104,261 to €106,346, while the special exemption for young buyers (up to age 35) rises from €324,058 to €330,539.
Although the IMT rate structure remains unchanged, these adjustments slightly expand the number of properties qualifying for partial or total exemption — particularly in medium-value urban areas, where price growth has been most significant.
- IMT 2025 – Primary Residence (in force)
| Bracket | Taxable Value (€) | Marginal Rate (%) | Average Rate (%) |
|---|---|---|---|
| 1st | Up to 104,261 | 0.0 | 0 |
| 2nd | 104,261 – 142,618 | 2.0 | 0.5379 |
| 3rd | 142,618 – 194,458 | 5.0 | 1.7274 |
| 4th | 194,458 – 324,058 | 7.0 | 3.8361 |
| 5th | 324,058 – 648,022 | 8.0 | - |
| 6th | 648,022 – 1,128,287 | 6.0 (flat rate) | - |
| 7th | Above 1,128,287 | 7.5 (flat rate) | - |
- IMT 2026 – Proposed Budget (values updated by 2%)
| Bracket | Taxable Value (€) | Marginal Rate (%) | Average Rate (%) |
|---|---|---|---|
| 1st | Up to 106,346 | 0.0 | 0 |
| 2nd | 106,346 – 145,470 | 2.0 | 0.5379 |
| 3rd | 145,470 – 198,347 | 5.0 | 1.7274 |
| 4th | 198,347 – 330,539 | 7.0 | 3.8361 |
| 5th | 330,539 – 660,982 | 8.0 | - |
| 6th | 660,982 – 1,150,853 | 6.0 (flat rate) | - |
| 7th | Above 1,150,853 | 7.5 (flat rate) | - |
IMT Jovem – Youth Property Transfer Tax (comparative 2025 vs 2026)
- IMT Jovem 2025 (in force)
| Bracket | Taxable Value (€) | Marginal Rate (%) | Average Rate (%) |
|---|---|---|---|
| 1st | Up to 324,058 | 0.0 | 0 |
| 2nd | 324,058 – 648,022 | 8.0 | - |
| 3rd | 648,022 – 1,128,287 | 6.0 (flat rate) | - |
| 4th | Above 1,128,287 | 7.5 (flat rate) | - |
- IMT 2026 – Proposed Budget (values updated by 2%)
| Bracket | Taxable Value (€) | Marginal Rate (%) | Average Rate (%) |
|---|---|---|---|
| 1st | Up to 330,539 | 0.0 | 0 |
| 2nd | 330,539 – 660,982 | 8.0 | - |
| 3rd | 660,982 – 1,150,853 | 6.0 (flat rate) | - |
| 4th | Above 1,150,853 | 7.5 (flat rate) | - |
Additional Housing Measures Announced by the Council of Ministers for 2026
In addition to the measures formally included in the State Budget, the Government announced a complementary fiscal and regulatory package in the housing sector, to be implemented progressively from 2026 onwards.
Among the most significant measures is the reduction of the VAT rate to 6%, applicable to the construction of residential properties for sale up to €648,000, as well as to the rental of properties with monthly rents up to €2,300.
If approved, this measure will remain in force until 2029, with the aim of reducing construction costs and increasing the supply of housing in the mid-price segment.
The Council of Ministers also approved a higher IMT rate for non-resident property acquisitions, with an exemption for Portuguese emigrants, and an AIMI (Additional Municipal Property Tax) exemption for properties rented at up to €2,300 per month, further encouraging the use of residential property for rental purposes.
In terms of personal income tax, the Government has proposed a reduction of the IRS rate on rental income, from 25% to 10%, applicable to long-term rental contracts at moderate rent levels, defined as rents up to €2,300 per month. This significant reduction is designed to reward landlords who offer affordable housing and encourage the conclusion of long-term tenancy agreements.
For tenants, the deductible amount of rent expenses in IRS will increase from €800 to €900 in 2026, and to €1,000 in 2027, directly reducing the income tax payable on housing costs. The deduction will apply to rents paid in 2026 and will be declared in the 2027 tax return.
Taken together, these measures — still subject to legislative approval and subsequent regulation — aim to address the imbalance between housing supply and demand, while promoting rent moderation, contractual security, and the mobilisation of residential property for affordable leasing.
The State Budget for 2026 mainly focuses on technical IMT adjustments and the youth exemption, while the Council of Ministers’ measures introduce a qualitative change in housing policy, centred on tax reductions for moderate rents, higher tenant deductions, and the removal of charges on affordable housing.
Their actual impact will depend on legislative approval and regulatory implementation throughout 2026.
Conclusion
The 2026 State Budget reflects a pragmatic approach: maintaining fiscal discipline while gradually implementing targeted tax reliefs for households and businesses.
Although the core budget introduces only limited technical adjustments — notably in IMT and income tax brackets — the complementary measures announced by the Council of Ministers reveal a more ambitious political agenda: one focused on housing accessibility, income growth, and corporate competitiveness.
The true scope of these reforms will depend on parliamentary approval and implementation throughout 2026, as Portugal continues its effort to balance economic growth with fiscal responsibility.
LVP Advogados will continue to monitor the ongoing parliamentary discussions and any amendments to the State Budget Proposal until the final vote at the end of November, providing timely updates on measures that may affect individuals, businesses and investors in Portugal.
For further information or tailored legal assistance regarding the 2026 State Budget measures, please contact our team.
