Portugal’s 2026 draft budget proposes tax cuts for companies, including a corporate tax rate reduction to 19% (and 15% for SMEs), as part of the plan to lower the rate to 17% by 2028. 

Portugal’s government has 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.

The 2026 budget also includes limited changes for property taxes, tax incentives, VAT, and other indirect taxes.

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. 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.

Youth housing incentive

To discourage youth emigration, individuals under 36 years old will be exempt from Municipal Property Transfer Tax (IMT) when purchasing homes valued up to EUR 330,500.

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.

Personal income tax relief

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%.

The revised personal income tax brackets/rates are:

  • up to EUR 8,342 – 12.50%
  • over EUR 8,342 up to 12,587 – 15.70%
  • over EUR 12,587 up to 17,838 – 21.20%
  • over EUR 17,838 up to 23,089 – 24.10%
  • over EUR 23,089 up to 29,397 – 31.10%
  • over EUR 29,397 up to 43,090 – 34.90%
  • over EUR 43,090 up to 46,566 – 43.10%
  • over EUR 46,566 up to 86,634 – 44.60%
  • over EUR 86,634 – 48.00%