Portugal released the state budget law for 2025 (Law No. 26/XVI/1) on 10 October 2024, proposing various VAT measures. The draft Budget Law for 2025 proposes reduced corporate tax rates for companies and SMEs and revised personal income tax rates, amongst other measures.
The budget law must receive parliamentary approval before it can be enacted. Once approved, it will take effect on 1 January 2025.
Corporate tax rate
The corporate tax rate is set to decrease from 21% to 20%. Additionally, the reduced rate for SMEs on the initial EUR 50,000 of taxable income will be lowered from 17% to 16%.
Lower VAT rate for rehabilitation projects
The government has decided to set criteria for eligible construction or rehabilitation on residential properties and exclude reduced rate services for properties exceeding a value limit as set by the government’s social housing policies.
VAT refunds are available for specific expenses incurred by certain entities
Under Decree-Law 84/2017, the Institute for the Conservation of Nature and Forests, firefighter associations, municipalities, and forest management units can receive a partial or full VAT refund on certain expenses. This is applicable provided the input VAT isn’t deductible or refunded by another scheme.
Tax on petroleum, energy products (ISP), and CO2 emissions
Petroleum and energy products used for electricity and town gas production in mainland Portugal will be taxed at 100% of the ISP rate and 100% of the CO2 emissions surcharge. However, products used in the European Emissions Trading Scheme, biomethane, biofuels, green hydrogen, and other renewable gases are exempt from the CO2 surcharge.
Vehicle tax (ISV)
The ISV rates will stay the same for engine capacity and environmental components. A 25% rate will apply to EU-registered plug-in hybrid passenger cars with a minimum 25 km electric range between 1 January 2015 and 31 December 2020.
VAT exemption extension
The VAT exemption with deduction is extended until 31 December 2025 for fertilisers, soil conditioners, and products for feeding livestock used in agriculture, as well as for products intended for feeding companion animals by legally constituted animal protection associations.
