Portugal’s recently approved 2025 State Budget introduces a series of significant tax reforms aimed at boosting the country’s economic growth and attracting both residents and businesses. With measures targeting reduced corporate and personal income taxes, alongside new incentives for investment and innovation, the government’s strategy is focused on creating a more competitive and attractive fiscal environment.

Among these changes, the introduction of the new IFICI+ tax regime stands out as a key opportunity for individuals seeking to relocate to Portugal while contributing to its thriving industries. In this article, we’ll explore the most impactful updates, including tax cuts, investment incentives, and how these policies can benefit both individuals and businesses.

Key Tax Changes for Businesses

The 2025 State Budget introduces several measures aimed at reducing the tax burden on businesses, fostering growth, and encouraging investment. Among the most impactful updates are:

• Corporate Income Tax Reduction:
  • The standard corporate income tax rate has been lowered from 21% to 20%, with the government aiming to reduce it further to 15% by 2027.
  • For Small and Medium Enterprises (SMEs), the rate on the first €50,000 of taxable income has been reduced from 17% to 16%, with a goal to reach 12.5% by 2026.
• Incentives for Business Capitalization:
  • Individual shareholders can now deduct 20% of capital contributions in cash to businesses they own, offering a significant incentive to support the capitalization and growth of companies.
• VAT Reduction on Residential Construction and Rehabilitation:
  • The government is authorized to reduce the VAT rate for construction or rehabilitation of residential properties in 2025, aiming to stimulate activity in the housing sector.

These measures reflect a strategic effort to create a more competitive business environment, ensuring that companies of all sizes have access to resources and tax advantages that promote sustainable growth.

Key Updates to Personal Income Tax

The 2025 Budget also brings significant changes to personal income tax (IRS), aimed at supporting younger professionals, incentivizing performance-based rewards, and fostering economic participation. Below are the key highlights:

• Tax Exemption for Young Professionals:
  • Individuals aged up to 35 years old will benefit from a partial income tax exemption on earnings up to €28,000 per year, applicable for the first 10 years of taxable income. This initiative aims to attract and retain young talent in Portugal by offering considerable tax savings early in their careers.
• Tax-Free Performance Bonuses:
  • Productivity bonuses, profit-sharing rewards, and other voluntary, non-regular incentives paid by employers will now be exempt from personal income tax, up to a limit of 6% of the employee’s annual basic salary. This exemption incentivizes companies to reward high-performing employees while reducing their tax liabilities.

By reducing the tax burden on young earners and incentivizing productivity through tax-free bonuses, the government seeks to empower individuals and enhance economic growth through increased disposable income and workplace motivation.

Introducing the New IFICI+ Tax Regime

One of the most significant additions in Portugal’s 2025 Budget is the introduction of the IFICI+ tax regime. This program is designed to attract highly skilled professionals and entrepreneurs by offering substantial tax benefits to those who relocate to Portugal. Below are the key details:

• Who is Eligible?
  To qualify for the IFICI+ regime, individuals must:
  • Have been non-residents in Portugal for tax purposes during the last five years.
  • Earn employment or self-employment income from eligible activities, which include:
    • Higher education and scientific research positions.
    • Qualified roles in investment or technology centers.
    • R&D and innovation roles with eligible costs.
    • Positions in recognized export-focused companies or startups.
    • Specific roles in entities deemed of economic relevance by the Portuguese government.
    • Certain positions in the Azores or Madeira, as defined by their regional governments.
• Key Tax Benefits:
  • A flat 20% tax rate on employment and self-employment income from eligible activities.
  • Tax exemptions on foreign income, including dividends, rental income, and capital gains.
  • The regime cannot be combined with the former Non-Habitual Resident (NHR) tax regime.
• Duration and Conditions:
  • The IFICI+ regime is valid for a 10-year period and requires maintaining tax residency in Portugal throughout.
  • Eligible activities may be expanded in the future, as the government seeks to increase its attractiveness to global talent.

This regime demonstrates Portugal’s commitment to fostering innovation and attracting top-tier professionals, making it a cornerstone of the 2025 Budget’s strategy to stimulate economic growth.

Seizing Opportunities in Portugal’s Evolving Tax Landscape

The 2025 Portuguese State Budget introduces transformative measures aimed at strengthening the country’s economic appeal to residents, businesses, and international talent. With reduced corporate taxes, innovative incentives for individuals and companies, and the introduction of the IFICI+ tax regime, Portugal continues to position itself as a prime destination for investment, innovation, and quality living.

These reforms reflect a government committed to fostering growth, attracting global professionals, and creating a competitive fiscal environment. Whether you’re a business owner, an entrepreneur, or an individual considering relocation, this is an opportune time to explore how these changes can benefit you.

At The Blue Portugal, we work closely with some of the most reputable taxation and accountancy firms to guide you through these changes and ensure you make the most of the opportunities available. If you have questions or need tailored advice, don’t hesitate to contact us. Let’s navigate this exciting fiscal landscape together.