Portugal’s 2026 budget introduces lower corporate tax rates, extends the reduced VAT rate, and broadens personal income tax reductions to cover employment income, self-employment, pensions, and certain capital gains.
Portugal’s parliament has published the final text of the 2026 State Budget Law on 12 December 2025, after it was approved by the parliament on 27 November 2025.
The final version of the budget law largely mirrors the initial proposals; however, it includes the following changes:
Personal Income Tax Changes
Under the 2026 PIT measures, Portugal introduces a tax exemption for firefighters’ voluntary service allowances (up to EUR 3,222.78), allows workers in high-risk or physically demanding professions to deduct insurance premiums covering sports injuries, and extends PIT deductions to expenses related to specified cultural and educational activities.
Reduced VAT
The reduced VAT rate is extended to game meat, applying a 6% rate in mainland Portugal and 4% in the Autonomous Regions of Madeira and the Azores.
Other tax measures remain unchanged:
Corporate Tax Reductions
Portugal will continue reducing the corporate tax rate, cutting the standard rate from 20% to 19% in 2026, with further decreases to 18% in 2027 and 17% in 2028, while SMEs with annual profits up to EUR 50,000 will benefit from a reduced rate of 15%.
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 proposed extending the transitional rule, which allows PDF invoices to be recognised as electronic invoices for all tax purposes until 31 December 2026.
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.
