Article written by Luísa Carriço (lcarriç[email protected])
In the field of accounting, accounting and the consultancy that encompasses them, it is undeniably important to update knowledge based on the new information that comes from legislation. In fact, the biggest changes in terms of number and content usually come when State Budgets are discussed and then approved. As well as containing a detailed forecast of the state’s income and expenditure, this management instrument contains a set of measures that dictate much of our work as professionals.
The debate on the 2025 State Budget began on November 22, 2024 and culminated in the approval of 243 amendments. Some of these changes will be covered here, with a specific focus on those that, by sense, are considered most relevant to our area as accounting professionals.
These areas are: Personal Income Tax (IRS), Corporate Income Tax (IRC), Value Added Tax (VAT) and the Tax Benefits Statute (EBF).
1. Changes to the CIRS
1.1 Young IRS
Provided for in Art.12-B – Exemption for income from categories A and B
The first major change, which has raised questions since 2020 – when it was created – is the one relating to the IRS Jovem (Young IRS).
The changes inherent in this regime relate to:
- The schooling criterion no longer applies
- There is an extension to the age limit to benefit from it, since it can now be earned by taxable persons who are up to 35 years old
- Income from the first 10 years of receiving it is now included in the IRS Jovem spectrum
- The exemption rates have changed to: 100% 1st year
75% from 2nd to 4th grade 50% from 5th to 7th grade 25% from 8th to 10th grade
(years of earning income)
- Paragraph 9 of this article is added, which indicates when the SP, even within the limits mentioned above, cannot benefit from the Exemption:The SP that benefits or has benefited from the non-habitual resident regimeThe SP that benefits or has benefited from the fiscal incentive for scientific research and innovation of Art.58-A of the EBF
- The SP that has opted for taxation under the terms of Article 12-A of the CIRS (tax regime applicable to former residents)
- SPs whose tax situation is not regularised (no debts with the AT or SS)
Although the option was already provided for in consecutive or interpolated years – it is now defined that in the years in which no Category A or B income is earned, the regime ceases to apply and resumes when income is earned until the 10 years of the exemption have elapsed without exceeding the 35-year age limit of the Taxable Person.
1.2 Legal Limit for Exemption from Meal Allowance paid by Meal Card
Provided for in Art.2 no.2 – Category A income
The amendment stipulates that the food allowance, when paid on a meal card, is taxed on the part that exceeds 70 per cent of the legal limit (€6), i.e. €10.20.
There is an increase in the applicable rate of 10%, since in 2024 the percentage taken into account to establish the limit was 60 per cent.
1.3 Specific IRS Deduction
Provided for in Article 25(1)(a) – Income from employment: Deductions
The specific deduction for Category A changes from €4,044 to 8.54 times the IAS applicable in 2025.
With the update of the IAS for 2025, dictated by Ministerial Order no. 6-B/2025/1, to the amount of €522.50, the value of the deduction will now be €462.15.
The same amount of specific deduction is also applicable to pension income (Category H).
1.4 IRS brackets
Provided for in Art. 68 – General Fees
The IRS brackets have been updated, but the income rates have not changed. The first line for taxable income will start at €8059 (as opposed to the previous €7703) and all the lines for the other brackets will also be updated. Note that when the taxable income is higher than 8059€ (1st line), it is divided into 2 parts – one, equal to the limit of the highest bracket it falls into, to which the rate in column B corresponding to that bracket applies, and the other, equal to the excess, to which the rate in column A relating to the immediately higher bracket applies
1.5 Minimum Existence
Provided for in Art. 70 – Minimum of Existence
The reference value of the minimum subsistence amount has been updated to be equal to the greater of €12180 and 1.5 x 14 x IAS = €10972.50, i.e. €12180.
1.6 Liberating Fees
As provided for in Article 71 – Liberatory Taxes
There will be an increase from 50 to 100 hours of overtime work covered by the non-application of the 25% RF tax on income obtained by non-residents who work or provide services for only one entity
1.7 Application of Withholding Tax to Category A
Provided for in Art.99-C – Application of Withholding Tax to Category A
Whereas previously, when remuneration for overtime work was paid, the rate of withholding to be applied was that applicable to the monthly remuneration for that month in which it was paid or made available, which was halved from the 101st hour (inclusive) – now, only 50% of the rate will apply, regardless of the hour to which that overtime payment relates.
1.8 Application of Withholding Tax to Income from Other Categories
Provided for in Art. 101 – Withholding on Income from Other Categories
The withholding tax rate applicable to category B income from professional activities set out in the table referred to in Article 151 of the CIRS is now 23%.
1.9 Payments on Account Category B
1.9 Payments on Account Category B
There is a reduction in the calculation rate for Category B payments on account
to 65% (applicable to the proportion of the penultimate year’s collection).
1.10 Autonomous taxation rates
Provided for in Art.73 – Autonomous Tax Rates
There is an increase in the acquisition value of light passenger or mixed-use vehicles, which determines the rate of TA to be applied, from €20000 to €30000. However, contrary to what we’ll see in the changes to the autonomous taxation rates for IRC, the TA rates for IRS remain the same.
It should be noted that expenses incurred with shows offered at home or abroad to clients, suppliers or other taxable persons are no longer subject to the 10% autonomous tax.
1.11 Capital gains
Provided for in Art.10 nº7 al.c) – Capital gains
Last year it was considered that the reinvestment of the value of the sale of an Own Permanent Dwelling (HPP), in life financial insurance contracts, individual subscriptions to an open pension fund or contributions to a public capitalization scheme that was made within 6 months of the date of sale of the HPP property allowed the SP to benefit from exclusions from Category B capital gains taxation. It is now considered that in addition to these cases, the reinvestment in the acquisition of Pan-European Individual Savings Products, within the same time limits mentioned above, also allows the SP to benefit from the same exclusion from Category G capital gains taxation.
1.12 Productivity and Performance Bonuses, Profit Sharing and Balance Sheet Gratuities
This amendment relates to the Tax Benefit for the Incentive to Wage Valorization in Article 19-B of the EBF.
In effect, it is stated that there is an exemption from IRS on amounts paid or made available to the employee or members of statutory bodies in 2025, by the employer on a voluntary basis, without regularity, as productivity bonuses, performance bonuses, profit-sharing and balance-sheet bonuses, with a limit of 6% of the employee’s annual basic salary, this exemption being dependent on the employer having carried out a salary increase in 2025, which is required for the purposes of Article 19-B of the EBF.
Please note that the rate of withholding to be applied to these sums is the same as that applicable to the employee’s monthly remuneration for the month in which it is paid or made available.
These amounts are also excluded from the Social Security contribution base.
2. Changes to the CIRC
2.1 Increase in health insurance costs for workers
Provided for in Art.43 – Achievements of Social Utility
An increase of 20% is introduced for expenses incurred with workers’ health insurance, which are deductible for the purposes of determining taxable profit.
2.2 Corporate income tax rates
Provided for in Art.87 – Fees
If we are dealing with an entity with its registered office or effective management in Portuguese territory, which primarily carries out a commercial, industrial or agricultural activity:
- The rate applicable to the first €50000 of taxable income is now 16% if you are a Taxable Person under the previous terms and you qualify as an SME or Small Mid Cap company.
- The rate applicable to the rest of the taxable amount is now 20%.
If we are dealing with an entity with its registered office or effective management in Portuguese territory but which does not carry out a commercial, industrial or agricultural activity as its main activity:
- The rate applicable to the entire taxable amount is now 20%.
2.3 Autonomous taxation rates
Provided for in Art.88 – Autonomous taxation rates
There is a reduction in TA rates for light passenger vehicles and class N1 vehicles, and an increase in the purchase values considered for the purposes of applying the rates.
They then become:
| Acquisition Cost/Type of Vehicle | Plug-In Hybrids | GNV | Others |
| < 37.500€ | 2.5% | 2.5% | 8% |
| ≥ 37.500€ and <45.000€ | 7.5% | 7.5% | 25% |
| ≥45.000 | 15% | 15% | 32% |
It should be noted that the forecast of a 10 percentage point increase in autonomous taxation rates in the event of a tax loss, as provided for in Article 88(14) of the CIRC, is still not applicable in the 2025 tax period:
- The taxable person has obtained taxable profit in one of the three previous tax periods, -in this case: 2022, 2023 and 2024,- and the declarative obligations of submitting Modelo 22 and IES, relating to the two previous tax periods (2023 and 2024), have been fulfilled within the legal deadline.
- This year corresponds to the tax period in which you started your activity or to one of the two following periods.
2.4 Extraordinary Support Scheme for Agricultural Production Costs
The extraordinary support scheme for costs incurred in agricultural production has also been extended until 31/12/2025. It should be noted that this scheme provides for a benefit that determines the 40% increase in expenses incurred in the acquisition of goods related to agricultural production activities, in the calculation of taxable profit for that same year.
3. Changes to CIVA
3.1 Exclusions from the Right to Deduction
Provided for in Article 21(1)(a) – Exclusions from the right to deduct
The amendment to this article has provided clarification on an issue that has frequently raised doubts regarding the possibility of deducting the VAT on expenses incurred for the acquisition, manufacture, rental, use, transformation, and repair of bicycles, with or without a motor. In effect, the article clarifies, on the contrary, that bicycles, with or without a motor, do not fall within any of the vehicle categories mentioned in Article 21, paragraph 1, subparagraph (a), and consequently, it is possible to deduct the VAT incurred on the acquisition, manufacture, rental, use, transformation, and repair of bicycles, with or without a motor.
3.2 Amendment of List I annexed to CIVA – regarding reduced rates
The amendment in clause 2.10 of List I annexed to the CIVA provides that entities such as the Regional Civil Protection Service, IP-RAM, the Regional Civil Protection and Firefighters Service of the Azores, municipalities, and inter-municipal entities are now covered by the reduced rate.
Also thanks to the amendment to paragraph 2.32 of the same list, bullfighting shows are now covered by the reduced rate.
Heading 1.14 of list I is also amended, resulting in the possibility of applying the reduced rate to food products intended for infants and young children and
young children, including follow-on formulas, as well as foods for specific medical purposes and whole diet substitutes for weight control, in accordance with Regulation (EU) No 609/2013 of the European Parliament and of the Council of June 12, 2013.
3.3 Art.4 of Law 10-A/2022, of April 28 – Taxation of goods for agricultural production and pets
The VAT exemption provided for in Article 4 of Law 10-A/2022 of April 28 has been extended until December 31, 2025.
3.4 DL no. 84/2017
In 2017, this decree simplified the procedures for refunding VAT to private social solidarity institutions, the Armed Forces, security forces and services and firefighters. With the State Budget for 2025, entities that own forestry sappers and are part of the Integrated Rural Fire Management System, as well as IP-RAM and the Regional Civil Protection and Firefighters Service of the Azores, will be included when they cannot exercise their right to deduct VAT.
4. Changes to the EBF
4.1 Incentives to increase salaries
Provided for in Art.19-B – Incentive to Salary Valorization
This benefit was created in 2023 and, although it is still required that the eligible costs relate to workers covered by a dynamic collective labor regulation instrument (IRCT) signed or updated less than three years ago, there are several changes to the other conditions for accessing it.
- The increase in the tax deduction goes from 150% to 200% when:
Wage increases of at least 4.7% at company level:
- average annual basic salary per employee
Average wage increases of at least 4.7% at company level:
- employees’ annual base salary – in cases where they earned an amount less than or equal to the company’s average annual base salary at the end of the previous year
- There is no longer a requirement to maintain or reduce the salary range
- For the purposes of determining charges, the concept of fixed remuneration is changed to the concept of basic remuneration
- All the costs thus defined are now eligible, and not just the part that exceeds the RMMG, although the limit is changed to 5 times the RMMG, and those resulting from updating this value are not considered costs
4.2 Encouraging the Recapitalization of Companies
Provided for in Art.43-B – Incentives for the Recapitalization of Companies
The change made to this statute aims to broaden the possibility of applying this tax benefit, in the sense that it now applies to capital contributions in cash to a company in which it holds a stake, and is not dependent on the company losing half of its share capital – as provided for in Article 35 of the CSC.
Therefore, a deduction of 20% in personal income tax (IRS) can be made from the gross amount of profits made available by the company or, in the case of the sale of a shareholding, from the balance calculated between the capital gains and losses made under the terms of Article 10(1)(b) of the CIRS.
This benefit is also excluded for entities in the banking sector and insurance companies subject to supervision by the competent authorities (Bank of Portugal, Insurance and Pension Funds Supervisory Authority).
4.3 Tax Regime to Encourage the Capitalization of Companies
Provided for in Art.43-D – Tax Regime for the Capitalization of Companies
This incentive tells us that in the process of determining taxable profit there is a possibility of deducting an amount resulting from the amount of eligible increases in Equity, corresponding to the 12-month Euribor rate (corresponding to the average for the tax period – calculated based on the last day of each month), plus a certain % spread. In fact, this spread now increases in 2025 to 2% as opposed to the previous 1.5%.
It should be noted that this spread will now apply to all entities eligible for this fiscal regime and not just SMEs or Small Mid Cap.
The deduction for this incentive will also be increased by 50% for 2025 (30% in 2024), always subject to the limit corresponding to the greater of €4,000,000.00 or 30% of EBITDA.
