The Portuguese Parliament approved the proposal for tax relief on personal income tax (IRS) in 2025 with a commitment to further reduction in the following year, to be included in the State Budget for 2026 (OE2026).
In the plenary vote, five parties supported the initiative: PSD, CDS-PP, Chega, IL, and PAN. The PS and JPP abstained, while Livre, PCP, and BE voted against.
Before coming into effect, the decree requires review and promulgation by the President of the Republic, Marcelo Rebelo de Sousa, and publication in the official government gazette, Diário da República.
The government plans to update the withholding tax tables to reflect the changes to 2025 incomes across the first to eighth brackets.
The fiscal relief, estimated by the government at 500 million euros for 2025, will affect taxpayers across all brackets. Although the decree reduces rates from the first to the eighth brackets, taxpayers in the ninth will also benefit since IRS is calculated progressively.
The revised table lowers rates for the first to third brackets by 0.5 percentage points, 0.6 points for the fourth to sixth brackets, and 0.4 points for the seventh to eighth brackets, compared to the current rates.
The rate for the first bracket drops from 13% to 12.5%, the second from 16.5% to 16%, the third from 22% to 21.5%, the fourth from 25% to 24.4%, the fifth from 32% to 31.4%, the sixth from 35.5% to 34.9%, the seventh from 43.5% to 43.1%, and finally, the eighth from 45% to 44.6%. The rate for the ninth income bracket remains at 48%.
The recently approved decree includes another clause, added by the PSD and CDS-PP, ensuring that “in the State Budget for 2026,” the government proposes to further reduce the marginal rates from the second to the fifth brackets by 0.3 percentage points.
This initiative binds the government to draft a new IRS table, implementing further rate reductions for the second to fifth brackets for incomes received in 2026.
The additional reduction by 0.3 points was formalized to align with Chega, which had proposed similar legislation and withdrew its bill following PSD’s commitment to include this cut in the OE2026.
As the IRS is decreasing in 2025, the government will adjust the withholding tables so that monthly deductions better match the final IRS amount.
Finance Minister Joaquim Miranda Sarmento stated on July 7 that the government plans to apply distinct tables soon, in two phases: “in August and September” to account for IRS reductions retroactively to January, and “from October,” to reflect the monthly deductions.
The IRS is calculated annually on total income earned by a taxpayer over 12 months. To collect tax revenue throughout the year, employees and pensioners subject to IRS remit a predetermined amount monthly, based on withholding tables.
This amount is deducted from salaries and pensions. In the following year, when the Tax Authority calculates the final IRS, it adjusts for what has already been paid, resulting in a refund, additional tax payment, or no change.
[News updated at 1:32 PM]
