Portugal’s 2026 State Budget to Feature Minimal Tax Changes, Focusing on IRS and IMT Updates
The State Budget for 2026 (OE2026) will contain a limited number of fiscal amendments, according to an announcement made by Minister of Finance Joaquim Miranda Sarmento on Wednesday. The primary changes will include the previously promised reduction in personal income tax (IRS) and a significant update to the brackets of the Imposto Municipal sobre as Transmissões Onerosas de Imóveis (IMT), the municipal property transfer tax.
Speaking at a conference for the Administrative Arbitration Center (CAAD), Minister Sarmento stated that the government intends to move away from the practice of including substantial tax code alterations within the annual budget. “This year we will try to have the minimum possible fiscal changes, basically updating article 68 of the IRS Code, the brackets, and updating the IMT brackets,” he explained. This approach aims to treat the budget primarily as a document for setting expenditure ceilings and revenue forecasts.
The adjustment to the IRS code will formalize a new reduction in tax rates for the second through fifth income brackets, applicable to income earned in 2026. This follows a parliamentary approval of a proposal from the Chega party, which mandated an additional 0.3 percentage point cut for these brackets. Consequently, the new rates are expected to be 15.7% for the second bracket, 21.2% for the third, 24.1% for the fourth, and 31.1% for the fifth.
Minister Sarmento emphasized that the government prefers to handle significant fiscal legislation as standalone processes. “Fiscal changes that have to go to Parliament should follow their own legislative processes so that Parliament can discuss fiscal options and not mix them in the middle of the Budget,” he argued. He cited recent separate legislative actions for IRS and IRC (corporate income tax) reductions as examples of this preferred strategy.
This policy decision reflects a desire to streamline the budget process and allow for more thorough and dedicated debate on tax matters. The minister defended this separation, stating that the budget should simply reflect the financial translation of political decisions made by the Government and Parliament, rather than being the vehicle for them.
Looking ahead, Sarmento committed to a continued effort to lower marginal tax rates in the future. “We need to reduce the marginal rates of IRS and of IRC,” he stated, acknowledging that Portugal’s rates are comparatively high. “Economic agents make decisions at the marginal rate, and Portugal has, compared to cohesion countries, very high marginal IRS rates for the same IRS brackets and a very high marginal IRC rate.”
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The Finance Minister assured that this long-term effort to enhance Portugal’s competitiveness through tax reduction will persist. “We have already started to reduce the marginal rates, but we will continue this effort in the coming years,” he guaranteed.
The formal proposal for the OE2026 must be delivered to Parliament by the 10th of October. The general debate on the proposal is scheduled for the 27th and 28th of October, with the final global vote planned for the 27th of November.
The planned update to the IMT brackets is of particular importance to the real estate sector, as it directly affects the transaction costs associated with property purchases. While the specific details of the new brackets have not yet been released, the announcement confirms that this key tax is on the agenda for revision.
This focus on a few key tax adjustments, while deferring broader reforms, signals the government’s immediate priorities for the upcoming fiscal year. The outcome of the budget discussions will be closely watched by taxpayers and businesses alike for its impact on the economic landscape in 2026.
The government’s approach suggests a commitment to fiscal predictability, aiming to create a more stable environment for economic agents to make decisions. The forthcoming budget will provide a clearer picture of the country’s fiscal path for the next year.
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