The 2026 State Budget Law introduces targeted tax adjustments focused on income tax relief, limited VAT changes, and continued sector-specific contributions, while essentially preserving existing corporate tax measures and gradually tightening environmental levies. 

RF Report

Portugal has gazetted the State Budget Law for 2026 (Law No. 73-A/2025) on 30 December 2025, introducing a series of fiscal recalibrations aimed at balancing social relief with targeted economic incentives.

While maintaining several extraordinary contributions across specific industries, the budget focuses on updating income tax brackets, incentivising young professionals, and regulating new consumer products such as nicotine pouches.

The tax measures included in the final law largely reflect those in the draft and remain relatively limited in scope.

Corporate tax

The standard corporate income tax rate will continue its gradual reduction, falling from 20% to 19% in 2026, then to 18% in 2027, and 17% in 2028. Small and medium-sized enterprises with annual profits up to EUR 50,000 will continue to benefit from a reduced rate of 15%.

Reduced VAT rate

The reduced VAT rate is now extended to game meat, applying 6% in mainland Portugal and 4% in the Autonomous Regions of Madeira and the Azores.  Additionally, the reduced VAT rate of 6% is now extended to the processing of olives into olive oil.

VAT group regime

The government intends to introduce 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 invoice validity

The transitional rule permitting PDF invoices to be recognised as valid electronic invoices for all tax purposes will be extended until 31 December 2026.

Personal income tax (PIT) changes

The 2026 State Budget Law updates the personal income tax brackets/rates, which are as follows:

Income lower limit (EUR) Income upper limit (EUR) Tax rate (%)
0 8,342 12.50%
8,342 12,587 15.70%
12,587 17,838 21.20%
17,838 23,089 24.10%
23,089 29,397 31.10%
29,397 43,090 34.90%
43,090 46,566 43.10%
46,566 86,634 44.60%
86,634 No Limit 48.00%

Under the 2026 PIT measures, Portugal introduces a tax exemption for firefighters’ voluntary service allowances of up to EUR 3,222.78.

Property and local taxation (IMT and IMI)

The budget updates the IMT (municipal tax on onerous transfers of property) brackets. For urban buildings intended exclusively for permanent primary residence, the first-tier exemption now applies to properties valued up to EUR 106,346. Properties valued above EUR 1,150,853 are subject to a flat rate.

Excise and special contributions

The government has opted to maintain several “extraordinary” contributions to fund the state’s social and economic obligations:

  • Banking sector: The base contribution on the banking sector remains in force.
  • Energy sector (CESE): The extraordinary contribution continues, though it now excludes assets used for the transport and distribution of electricity starting in 2026.
  • Pharmaceutical and medical devices: Contributions from the pharmaceutical industry and suppliers of medical devices to the National Health Service remain active.
  • Environment: Fuel tax (ISP) exemptions are being gradually eliminated. For example, products used to generate electricity or heat in mainland Portugal are now taxed at 100% of the ISP rate.

Earlier, Portugal’s parliament published the final text of the 2026 State Budget Law on 12 December 2025, following its approval on 27 November 2025.