Portugal’s parliament approved the government’s 2027 State Budget bill at first reading on 28 October, including a reduction in the corporate income tax rate to 18% and tax relief for individuals. The proposal also extended several tax incentives, maintained sectoral contributions and introduced changes to tax compliance requirements.
Portugal’s parliament approved Proposed Law No. 110/XVII/2.ª, which approves the State Budget for 2027, at first reading on 28 October. The centre-right minority government secured passage after the opposition Socialist Party abstained, despite opposition from the far-right Chega party.
The budget forecasts economic growth of 2.1% in 2027, down from an estimated 2.3% in 2026, and targets a budget surplus of 0.1% of gross domestic product (GDP). The government also expects public debt to decline to 84.5% of GDP in 2027 from 87.5% in 2026.
The bill must undergo committee discussions and amendments before a second and final parliamentary vote scheduled for 24 November.
Corporate tax
The budget proposes reducing the corporate income tax rate from 19% to 18%. It also extends the System of Tax Incentives for Business Research and Development (SIFIDE II) through the 2027 tax period.
Companies seeking to qualify for the wage increase tax deduction under Article 19.º-B of the Tax Benefits Statute (EBF) must increase their average annual base salary by at least 4.5%. They must also provide a minimum 4.5% base pay increase to workers earning at or below the company’s average.
The increased autonomous IRC rates under Article 88(14) of the IRC Code will not apply in 2027 to companies that recorded taxable profit in at least one of the three preceding tax years or are within their first three years of activity.
The budget also allocates revenue corresponding to 2% of IRC rates, capped at EUR 484,711,257, to the Social Security Financial Stabilisation Fund.
Personal tax
The proposed budget updates the progressive Personal Income Tax (IRS) brackets and rates. The rates range from 12.2% for taxable income up to EUR 8,666 to 48% for income exceeding EUR 89,995.
The additional solidarity tax rates remain unchanged at 2.5% on taxable income between EUR 89,995 and EUR 250,000 and 5% on amounts exceeding EUR 250,000.
The reference value for the minimum existence threshold is set at the higher of EUR 13,580 or 1.5 × 14 × IAS (Social Support Index). The special IRS regime for individuals becoming tax residents in Portugal under the Programa Regressar is extended until 2027.
Permanent housing provided by employers to workers in Portugal will be exempt from IRS and Social Security contributions during 2027, subject to the rental limits under the Affordable Lease Programme (Programa de Apoio ao Arrendamento).
Performance, productivity and profit-sharing bonuses paid to employees will also be exempt from IRS up to 6% of the worker’s annual base salary.
VAT and indirect taxes
The budget maintains the municipal allocation of 7.5% of VAT revenue, amounting to EUR 135,270,751. Municipalities will also receive a 5% share of IRS revenue, totalling EUR 748,752,544.
The proposal increases the taxation of certain fossil fuels through changes to the ISP and CO2 carbon tax. Heavy fuel oils used for electricity generation, heat co-generation or town gas on mainland Portugal will be subject to 100% of the ISP rate and 100% of the CO2 tax. Petroleum products used for electricity generation in the Azores and Madeira will face the same levels.
Natural gas under NC 2711 used for main-activity power and gas production will be subject to 50% of the ISP rate and 50% of the CO2 tax. Facilities operating under energy rationalisation agreements will be subject to 100% of the CO2 carbon tax. The resulting revenue will be allocated to the Environmental Fund for climate measures.
A reduced rate equivalent to 25% of the standard excise duty will continue to apply to medronho spirit distilled in designated municipalities until 31 December 2027. General environmental rates will increase by 4%.
Property and vehicle taxes
The proposed budget updates the brackets for Municipal Property Transfer Tax (IMT) on primary permanent residences and secondary or rental residences.
For primary permanent residences, the exemption threshold will be EUR 108,792. The applicable rates will then range from 2% to 8% across the relevant property-value brackets, with flat rates of 6% and 7.5% applying to properties above the specified thresholds.
For secondary or rental residences, the rates will range from 1% to 8% across the lower brackets, followed by flat rates of 6% and 7.5% for higher-value properties.
The additional Single Road Tax (IUC) on Category A and B diesel vehicles will remain in place in 2027.
Sectoral contributions and compliance
The budget extends the Banking Sector Contribution, Pharmaceutical Industry Contribution and Extraordinary Energy Sector Contribution (CESE) for 2027. The Medical Device Suppliers Contribution (SNS) will also be maintained. Monthly public broadcasting contribution amounts will remain frozen.
For tax compliance, taxpayers will be exempt from inventory valuation reporting for the 2026 and 2027 tax periods. The requirement to submit accounting SAF-T (PT) files is postponed to tax periods beginning in 2028 and beyond, with submission scheduled for 2029.
Invoices issued as PDF files will continue to qualify as electronic invoices through 31 December 2027.
Finance Minister Joaquim Miranda Sarmento said the country’s fiscal position would allow the government to cut taxes, increase pensions and public investment, and reduce public debt. The government forecasts that the tax burden on households and businesses will fall to 23.8% of GDP in 2027 from an estimated 24.1% in 2026.
