Portugal’s new streamline tax reform comes into force

Changes aimed at simplifying and reducing Portugal’s notoriously complicated tax regime came into force on Tuesday, July 1.

The changes, which were published in the Republic’s circular, affect IRS, IRC, IMI and VAT.

This reform, integrated into the Agenda for Administrative and Fiscal Simplification approved in January by the Government, aims to reduce bureaucracy, make life easier for taxpayers and increase the efficiency of the Tax Authority (TA).

“The more than 20 measures now approved, at this early stage of the Simplification Agenda, are an important step towards a simpler and fairer tax system,” said the Secretary of State for Tax Affairs, Cláudia Reis Duarte.

The diploma establishes a wide range of practical measures to simplify procedures and eliminate redundant obligations. Here are the main changes:

IMI – Municipal Property Tax

The valuation of urban properties no longer depends on a formal request from the taxpayer and is automatically triggered by the head of finance, based on electronically transmitted elements.
This automation eliminates bureaucracy and aims to make the process faster and more transparent.

IMT – Municipal Tax on Onerous Transfers of Real Estate

For taxpayers with IMT exemption in the case of resale of real estate, the exemption certificate is now available on the Finance site, dispensing with requirements and travel to services.

VAT – Value Added Tax

Taxable persons without activity will receive an automatic request for a periodic VAT return, which can be validated or corrected.
This measure aims to make life easier for inactive taxpayers and avoid fines for not submitting blank returns.
Value Added Tax (VAT) is known as Imposto sobre o valor acrescentado (IVA). The Portuguese VAT system has a standard VAT rate of 23%, two reduced rates of 13% and 6%, as well as a 0% rate.

IRS – Personal Income Tax

A minimum limit for withholding taxes is introduced: amounts below €25 are no longer mandatory, exempting entities paying small amounts and simplifying monthly management.
The deadline for submitting the IRS declaration is harmonized with other tax obligations, facilitating planning and reducing the risk of non-compliance.

The taxable income brackets are updated by 4,62%, while the current progressive IRS general rates remain unchanged. The specific deduction for category A increases to 8.54 times the IAS, which corresponds to €4.462,15. The withholding tax rate on income from professional activities is reduced from 25% to 23%.

In 2025, an additional solidarity rate, which varies between 2.5% and 5%, applies to taxpayers with a taxable income exceeding EUR 80,000 and EUR 250,000, respectively.

IES – Simplified Company Information

Various annexes and redundant declarations have been eliminated, promoting greater integration between public entities and reducing the administrative burden on companies.

Customs

Sending goods worth less than €1000 to third party countries do not have to be declared to customs for export purposes, except when the expeditor intends to benefit from preferential tax regimes.

Certificates and deadlines

Tax and contributory status certificates now have harmonized validity periods, promoting greater predictability and consistency in relations with the State.

Corporate Income Tax (CIT)

Already in force since January 1, 2025 were the following:

(Expenses related to employee wellbeing)

The Portuguese State Budget Law for 2025 establishes that expenses incurred with health and wellness insurance contracts are accounted in 120% for tax purposes when determining the taxable income of a corporate taxpayer.

Nominal CIT rate

The nominal CIT rate is reduced from 21% to 20%. For taxable entities engaged primarily in economic activities of an agricultural, commercial or industrial nature, classified as small or medium-sized enterprises (SMEs) or small/medium capitalization companies (Small Mid Cap), as defined in the annex to Decree-Law no. 372/2007 of 6 November 2007, the applicable CIT rate for the first €50,000 of taxable income is 16% (previously 17%). Any taxable income exceeding this amount is subject to a CIT rate of 20%. For entities with headquarters or effective management in Portuguese territory that do not engage primarily in commercial, industrial or agricultural activities, the applicable CIT rate is 20% (previously 21%).

Capital gains reinvestment

The Portuguese State Budget Law for 2025 now requires that the reinvestment of the net sales value of property (i.e., after deduction of the amortization of the mortgage loan) into Pan-European Individual Savings Products shall occur within six months from the date of the sale of the property (previously this deadline was applicable to life insurance financial contracts, open pension funds and to the public capitalization regime).