In brief

What happened?

The proposed State Budget Law for 2025 was presented to Parliament on October 10. Parties with Parliamentary seats now will present proposals to amend it. After the general and specialized discussion, the final approved measures generally should become effective January 1, 2025.  

Why is it relevant?

These changes could significantly affect corporate tax liabilities and financial planning for businesses operating in Portugal. 

Actions to consider

Companies should evaluate the proposals and their impact, specifically they should: 

• Review and adjust financial strategies to align with the new tax rates and incentives. 
• Consider the implications of the new fiscal benefits on salary increases and capital investments. 

Tax benefits: 

IRC – Fiscal incentive for salary enhancement: 

• The fiscal incentive for salary enhancement would apply when there is an average annual base salary increase per worker of at least 4.7% (currently 5%). 
• The regime no longer would depend on the non-increase of the salary range. 
• It would be necessary to have an average increase of at least 4.7% in the annual base salary of workers earning an amount equal to, or less than, the company's average annual base salary. 
• Salary increase costs would increase by 200% (currently 150%), up to a largest annual amount per worker of five times the guaranteed minimum monthly wage (currently four times). Thus, the maximum deduction from taxable profit per worker would be set at €4,350 (currently €1,640). 

IRC – Fiscal incentive regime for business capitalization (ICE): 

• ICE would be calculated by applying the average 12-month Euribor rate plus a spread of 2 percentage points (currently 1.5 percentage points), regardless of the company's size. 
• For the 2025 tax period, the incentive rate is expected to be increased by 50%, instead of the previously planned 30%. 

Personal income tax (IRS) – Incentive for business recapitalization: 

• The budget proposes a reinforcement of the incentive for individual investment in business capitalization, allowing a deduction of 20% of capital contributions in cash from the gross amount of profits distributed by the company or, in the case of the sale of this participation, from the balance between capital gains and losses. 
• This deduction no longer would be conditioned by specific requirements related to the company's economic situation, thus applying to most companies. 
• However, it would not apply to contributions to entities supervised by the Bank of Portugal or the Insurance and Pension Funds Supervisory Authority, branches in Portugal of credit institutions, other financial institutions, or insurance companies.