Portugal's Parliament Approves Corporate Tax Reduction to 17% by 2028
The Portuguese Parliament gave its final approval on Friday to a government proposal that will gradually lower the country's corporate income tax (IRC) rate. The legislation establishes a multi-year plan to reduce the general rate from 20% to 17% by 2028, a move aimed at enhancing Portugal's economic competitiveness and attracting foreign investment. The policy is a central component of the AD-led government's economic strategy.
The policy's objective is to create a more favorable business environment and stimulate economic growth. The approved plan will be implemented in stages, with the IRC rate decreasing to 19% in 2026, 18% in 2027, and reaching the target of 17% in 2028. This structured reduction provides businesses with a clear and predictable fiscal horizon for investment planning.
The implementation strategy was a key part of the government's electoral platform and fulfills a commitment made in the Tripartite Agreement on wage valorization and economic growth. The measure passed with votes in favor from the AD, IL, and Chega parties, overcoming opposition from the PS, Livre, and PCP. The initiative had been approved by the Council of Ministers in July but awaited parliamentary debate and approval at the start of the new legislative session.
The reform also includes specific relief for Small and Medium-sized Enterprises (SMEs). The tax rate applied to the first €50,000 of taxable income for SMEs will be lowered from 16% to 15%, effective from 2026. This targeted support is designed to bolster the segment of the economy that accounts for a significant portion of employment and business activity in Portugal.
The Ministry of Finance has estimated the total budgetary impact of the tax cuts at approximately €300 million annually. Minister of Finance Joaquim Miranda Sarmento defended the policy in Parliament, stating that it is a “very relevant competitiveness measure” that will “make investment in Portugal more attractive, especially for foreign direct investment.” He noted that Portugal's effective corporate tax rate has been among the highest when compared to other EU cohesion countries, which are its direct competitors for investment.
Political support for the measure was secured through negotiations, particularly with the Chega party. While Chega's own platform called for a more aggressive reduction to 15%, the party ultimately voted in favor of the government's gradual plan. This support came after the Minister of Finance acknowledged the possibility of future reductions to the state surcharge (derrama estadual), a supplementary tax on corporate profits over €1.5 million, which was a key demand from the party.
Need Expert Guidance?
Get personalized insights from verified real estate professionals, lawyers, architects, and more.
The expected economic impact of the lower IRC rate is an increase in business investment, both domestic and foreign. A more competitive tax regime is anticipated to encourage companies to establish or expand their operations in Portugal, leading to job creation and broader economic benefits. This, in turn, is expected to have a positive effect on the real estate sector, driving demand for commercial properties and housing for an expanding workforce.
The government will monitor the fiscal and economic outcomes of the tax reform as it is implemented over the coming years. The framework for monitoring will assess the impact on investment flows, job creation, and overall economic growth against the policy's stated objectives.
International business organizations and economic analysts have previously pointed to Portugal's high corporate tax rate as a barrier to investment. This reform is seen as a direct response to those concerns and aligns Portugal more closely with the tax policies of other competitive European economies.
The political debate surrounding the reform highlighted differing views on fiscal policy, with opposition parties arguing that the cuts would disproportionately benefit large corporations and reduce state revenue needed for public services. However, the governing coalition maintained that the long-term economic growth spurred by the reform would ultimately generate greater overall tax revenue.
The legislative agenda for the coming year will likely include further discussions on fiscal policy, including the potential adjustments to the state surcharge as part of the negotiations for the 2026 State Budget.
Understand policy impacts on your Portugal property plans at realestate-lisbon.com.