Portugal’s 2026 budget introduces reduced corporate tax rates and the extension of the reduced VAT rate. A lower personal income tax now also applies to employment, self-employment, pensions and certain capital gains.
Portugal’s parliament has approved the new 2026 Budget Bill on 27 November 2025.
The Bill will proceed to presidential promulgation, followed by the formal publication of the law.
The main tax measures of the 2026 Budget Bill are the reduced corporate tax rates and the extension of the reduced VAT rate. A lower personal income tax now applies to employment, self-employment, pensions and certain capital gains, due to reduced income brackets (down about 3.5%) and slightly lower rates in the second to fifth brackets (down about 0.3%).
Corporate tax reductions
As part of the ongoing plan to lower the corporate tax rate to 17% by 2028, the standard rate will be cut from 20% to 19% next year, with further reductions planned to 18% in 2027 and 17% in 2028. For small and medium-sized enterprises (SMEs) earning up to EUR 50,000 annually, the rate will drop from 16% to 15%.
Extension of reduced VAT rate
The reduced VAT rate of 6% (or 4% in the Autonomous Regions of Madeira and the Azores) is extended to activities involving the transformation of olives into olive oil.
Introduction of VAT group regime
The government proposes to implement a VAT group regime allowing companies within the same corporate group to be treated as a single taxable entity for VAT purposes.
Extension of PDF invoicing validity
The government proposes extending the transitional rule, which allows PDF invoices to be recognised as electronic invoices for all tax purposes until 31 December 2026.
Reduced personal income tax
To increase disposable income for low- and middle-income households, tax rates on annual earnings between EUR 8,340 and EUR 29,400 will be reduced by 0.3 percentage points. The lowest rate in this bracket will fall to 15.7%, and the highest to 31.1%.
Personal income tax rates now increase progressively from 12.50% on income up to EUR 8,342 to a top marginal rate of 48% for income above EUR 86,634. The brackets include several steps in between, with mid-range rates rising through 15.70%, 21.20%, 24.10%, 31.10%, 34.90%, 43.10%, and 44.60%.
Earlier, Portugal’s government presented the draft State Budget Law for 2026 (Draft Law No. 37/XVII/1) to parliament on 9 October 2025, proposing tax cuts for companies and lower-income households.
