Portugal State Budget 2027 – The Draft Bill

The Government’s State Budget Proposal for 2027 (Bill No. 110/XVII/2.ª) sets out an essentially incremental tax package, providing for the inflation-linked indexation of the Personal Income Tax (PIT) and Municipal Property Transfer Tax (IMT) brackets, an increase in the minimum subsistence level and the extension of a broad range of temporary regimes and tax benefits, without proposing any structural reform of the tax system.

The Proposal is based on an estimated inflation rate of 2.3% for 2027 and a projected guaranteed monthly minimum wage of €970. The measures outlined below remain subject to parliamentary debate and may be amended prior to final approval.

Personal Income Tax (PIT)

Brackets and Rates

The Proposal provides for the indexation of all PIT brackets by 3.88%, above the 2.3% inflation estimate, which amounts to a real reduction in the tax burden rather than a mere neutralisation of fiscal drag, and further proposes a reduction of certain marginal rates, as shown below.

Bracket	Upper limit 2026 (€)	Proposed upper limit 2027 (€)	Rate 2026 (current law)	Proposed rate 2027
1st	8,342	8,666	12.50%	12.20%
2nd	12,587	13,075	15.70%	15.20%
3rd	17,838	18,530	21.20%	20.70%
4th	23,089	23,985	24.10%	23.60%
5th	29,397	30,538	31.10%	30.60%
6th	43,090	44,762	34.90%	34.60%
7th	46,566	48,373	43.10%	43.10%
8th	86,634	89,995	44.60%	44.60%
9th	Above 86,634	Above 89,995	48.00%	48.00%

Additional Solidarity Rate

The entry threshold of the 2.5% additional solidarity rate is raised from €80,000 to €89,995 of taxable income, aligning it with the threshold of the top PIT bracket. The €250,000 threshold triggering the 5% rate remains unchanged.

Minimum Subsistence Level

It is proposed that the reference value of the minimum subsistence level be increased by 5.43%, from €12,880 to €13,580 (or 1.5 × 14 × the Social Support Index (IAS), if higher).

Programa Regressar

The regime set out in Article 12-A of the PIT Code, which excludes from taxation 50% of employment and self-employment income for five years, is extended for a further year to former residents who become tax resident in Portugal in 2027.

Employment Incentives

Tax-Free Productivity Bonuses and Profit-Sharing

The Proposal maintains, on the same terms as in 2026, the PIT exemption for productivity and performance bonuses, profit-sharing and balance-sheet bonuses paid or made available in 2027. Its main features are as follows:

• Cap: exemption up to 6% of the employee’s annual base remuneration.
• Nature: payments must be voluntary, non-recurring and borne by the employer.
• Condition: the employer must, in 2027, implement a salary increase that qualifies under Article 19-B of the Tax Benefits Statute (EBF).
• Reporting: the employer’s annual statement of income paid and tax withheld must expressly confirm that the condition was met.
• Withholding: the rate applicable to the employee’s monthly base remuneration for the month of payment.
• Social security: qualifying amounts are excluded from the contribution base.

Salary Increase Incentive

The qualifying salary increase is lowered from 4.6% to 4.5%, applicable both to the company’s average annual base remuneration and to employees earning at or below that average. The incentive is set to expire on 31 December 2027.

The 0.1 percentage point reduction is marginal. With inflation projected at 2.3%, a 4.5% increase still represents a real wage rise of approximately 2.2%, a demanding benchmark for many SMEs. As the bonus exemption is subject to the same threshold, the practical reach of both measures is likely to remain concentrated among larger, higher-margin employers.

Employer-Provided Housing

A new exemption from PIT and social security contributions is envisaged for the benefit in kind arising from the use of permanent housing located in Portugal and provided by the employer between 1 January and 31 December 2027.

• Limit: the exemption applies up to the rent ceilings of the Affordable Rental Programme (Decree-Law No. 68/2019), even where the property is not within the scope of that programme.
• Employer side: for CIT purposes, properties held, built, acquired or converted to house employees may be depreciated at twice the rate set out in Regulatory Decree No. 25/2009.
• Exclusion: employees holding, directly or indirectly, 10% or more of the employer’s share capital or voting rights.

The measure addresses a real labour-market constraint. However, a one-year exemption sits uneasily with investment in building or converting housing, which typically pays back over many years.

Corporate Income Tax (CIT) and Tax Benefits

Autonomous Taxation

For 2027, the Proposal again disapplies the 10 percentage point increase in autonomous taxation rates ordinarily applicable to taxpayers reporting a tax loss. As in prior years, the relief applies where either:

• the taxpayer reported taxable profit in one of the three preceding tax periods and complied with its reporting obligations under Articles 120 and 121 of the CIT Code for the two preceding periods; or
• the tax period is the first period of activity or one of the two subsequent periods.

The repeated suspension suggests that the surcharge no longer reflects legislative intent. Its repeal, or the permanent adoption of the relief, would be the more coherent course.

SIFIDE II

The Tax Incentive System for Business Research and Development (SIFIDE II) is extended by one more tax period, covering eligible expenditure incurred in tax periods beginning up to 31 December 2027. Continuity is welcome. Yet R&D projects typically span several years, and annual extensions give companies limited visibility when committing to multi-year research budgets.

Tax Benefits Statute (EBF)

Several benefits are extended, over two different horizons:

Extended to 31 December 2027	Extended to 31 December 2031
Art. 28: external loans and lease rents for imported equipment	Art. 45: urban properties under rehabilitation
Art. 31: deposits of non-resident credit institutions	Art. 58: intellectual property
Art. 32-C: repo transactions with non-resident financial institutions	Art. 59: common land (baldios)
Art. 53: entities managing specific waste-stream systems	Arts. 61–66: tax regime for patronage (mecenato)
Art. 54: sports, cultural and recreational associations
Art. 55: associations and confederations
Art. 70: support for road passenger and freight transport

The four-year extension for urban rehabilitation, intellectual property and patronage provides welcome stability for long-term investment and philanthropic planning.

Rural Land Consolidation

As in 2026, the Proposal renews the IMT and Stamp Duty exemptions for transfers of rural properties required to carry out land consolidation (emparcelamento).

Municipal Property Transfer Tax (IMT) and VAT

IMT Brackets

The Proposal envisages the indexation of the IMT brackets by 2.3%, in line with projected inflation, across the tables applicable to own and permanent residence, the young buyers’ regime (IMT Jovem) and other residential property. The applicable rates remain unchanged.

Own and permanent residence	2026 (€)	Proposed 2027 (€)
0% band (upper limit)	106,346	108,792
8% band (upper limit)	660,982	676,185
7.5% flat rate (above)	1,150,853	1,177,323
IMT Jovem exemption (upper limit)	330,539	338,141

VAT on Agricultural Inputs

The VAT exemption for the following goods, when normally used in agricultural production, is extended to 31 December 2027:

• fertilisers and soil correctives;
• flours, cereals, seeds and other animal feed products referenced in the Codex Alimentarius, including feed for farmed fish intended for human consumption;
• glass bottles;
• pet food supplied to legally constituted animal protection associations.

Legislative Process and Timeline

The Proposal will be debated in general terms on 27 and 28 October, followed by the detailed consideration stage, during which amendments are tabled and voted, and by the final overall vote on 24 November. Once promulgated and published, the State Budget Law is expected to enter into force on 1 January 2027. As the measures may still be amended, GFDL will monitor the process and report on the final text.

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