Portugal Aims to Trim Income Tax for Low and Middle Earners

Income-Tax Relief Edges Closer for Workers in Portugal

Portugal’s centre-right coalition has set the stage for its first major fiscal move: a proposal to shave personal income-tax rates for salaries that fall within the first eight brackets of the Imposto sobre o Rendimento das Pessoas Singulares (IRS). Prime Minister Luís Montenegro confirmed during last week’s programme debate in the Assembly of the Republic that the measure will reach parliament within days and could lighten the overall tax bill by €500 million in 2025, marking the opening step in a broader plan to deliver €2 billion in reductions by 2029.

What’s on the table

According to details later released in a televised interview, the draft law trims IRS rates by roughly 0.5 percentage points in the first three brackets, 0.6 points in brackets four to six, and 0.4 points in brackets seven and eight. The ninth and highest band—which currently covers annual income above €81,200—is left untouched. By concentrating the cut on the lower and middle tiers, the government argues it is rewarding working families and boosting disposable income without jeopardising fiscal discipline.

Why it matters to foreign residents

Many foreigners who relocate to Portugal take salaried positions rather than relying solely on investment income. Those earnings are taxed under the same progressive IRS scale as local workers. A modest adjustment of half a percentage point can translate into several hundred euros a year for a household with two earners, given that social-security contributions and municipal surcharges already squeeze paycheques. The measure is especially relevant for newcomers who no longer fall under the sunsetted Non-Habitual Resident regime and therefore pay standard IRS from their first year of residency.

Timeline and next steps

Finance officials are expected to deposit the draft in parliament before the summer recess. If lawmakers approve the text by early autumn, the new tables would appear in withholding calculations starting January 2025. The coalition between the Social Democratic Party (PSD) and the CDS–People’s Party has enough seats to pass ordinary legislation, but opposition parties on the left have signalled they may attempt amendments to direct even larger savings to lower wages.

Infographic tax cuts

Balancing tax relief and fiscal targets

Portugal exited the European Union’s excessive-deficit procedure in 2017 and has posted primary-budget surpluses in recent years, aided in part by record tourism receipts. Montenegro insists the country can afford to give back revenue because stronger growth will keep overall collections healthy. The government forecasts GDP expansion of 2.2 per cent next year, helped by business investment linked to EU recovery funds. Ratings agencies will be watching carefully: in the past, sudden tax cuts have unnerved bond investors concerned about debt levels that still hover near 100 per cent of output.

What expatriates should watch

If you are employed in Portugal and your taxable pay falls below about €81,000 a year, your payslip is likely to show a small but noticeable increase after the new tables take effect—provided the bill clears parliament as currently drafted. Freelancers and entrepreneurs taxed under the simplified system will benefit once the annual return for 2025 is filed in early 2026. High-income professionals should not expect relief this round, although the prime minister has not ruled out future tweaks once the headline €2 billion target is met.

Looking ahead

Montenegro framed the initiative as both a recognition of workers’ efforts and a signal that Portugal wants to remain competitive in attracting talent. For foreign residents weighing a move to Lisbon, Porto, or the country’s growing tech hubs, lower payroll taxes add another positive element to a cost-of-living equation that already includes comparatively affordable healthcare and education, despite rising housing costs. The coming parliamentary debate will reveal whether the promised tax break survives intact—and how quickly the extra euros will land in wage earners’ pockets.