The government has proposed a reduction in the corporate tax rate from the current 20% to 19% in 2026, with further reductions to 18% in 2027 and 17% in 2028.
“We are implementing an additional three percentage point decrease over the next three years,” announced Finance Minister Joaquim Miranda Sarmento at a press conference following the Council of Ministers meeting, after a reduction from 21% to 20% earlier this year.
Miranda Sarmento described the reduction as “a very relevant competitiveness measure,” emphasizing that it will make Portugal more attractive for foreign direct investment.
“The reduction in corporate tax is crucial for the competitiveness of the Portuguese economy. Even before this reduction, Portugal had the second highest nominal marginal tax rate in the OECD, due to additional state and municipal surcharges. The effective rate is one of the highest, especially compared to countries at our level of development, which are our direct competitors,” he explained, justifying the government’s initiative that follows the electoral program of AD (PSD/CDS-PP) and is enshrined in the government program.
In addition to the general rate cut, the proposed law includes another provision to further reduce the corporate tax rate for small and medium-sized enterprises (SMEs) on the first slice of profits, up to 50,000 euros of taxable income.
The government suggests lowering the current 16% rate to 15% next year, confirmed the minister, fulfilling an electoral and governmental program goal.
These measures require an amendment to the Corporate Tax Code, necessitating a parliamentary vote, prompting the government to submit a legislative proposal.
With the legislative session approaching its end, the proposal is expected to be reviewed in September when parliamentary work resumes.
The measure was approved by the Council of Ministers a day after the Prime Minister’s parliamentary announcement during the state of the nation debate.
During the debate, Montenegro deemed the measure “essential” for promoting “company investment” and enhancing competitiveness, notably by encouraging businesses to reinvest tax savings in capitalization and hiring more “human resources.”
In subsequent statements to Lusa, Armindo Monteiro, president of the CIP – Confederação Empresarial de Portugal, welcomed the announced tax cut but argued that a new tax regime tailored for small businesses should accompany the reduction for SMEs.
“Beyond the corporate tax reduction, it’s crucial to effectively review the framework regime [for SMEs], i.e., establish a tax regime for businesses below a certain turnover threshold,” Armindo Monteiro told Lusa.
“The verification burden, administrative load, and accounting requirements for these small businesses are so penalizing” that compliance costs are substantial,” explained the CIP leader, referring to “small businesses, small restaurants, small cafes, small supermarkets, workshops, and various individual entrepreneur services.”
When asked about the creation of a specific tax code, the CIP president suggested that a “specific regime—the micro and small businesses regime—which would simplify tax payment calculations,” should be considered by the confederation.
