Portugal Cuts Corporate Tax to 17% by 2028, Targeting Pay and Jobs

Government insists lower corporate tax is an economic catalyst, not a hand-out

Portugal’s Minister for Economy and Territorial Cohesion, Castro Almeida, has reiterated that the forthcoming reduction in Corporation Tax (IRC) should be read as a lever for investment and job creation rather than a political favour to company owners.

Why the rate is being trimmed

Almeida argues that leaving “a little more cash inside firms” will speed up modernisation, help finance pay rises and enlarge budgets for research and development. The minister stresses that any profits taken out of a company will still pay Personal Income Tax (IRS) when distributed as dividends, ensuring the State does not lose revenue on money that ultimately reaches shareholders. If earnings stay inside the firm, they reinforce equity and strengthen balance sheets—something policymakers hope will raise productivity and, in turn, wages.

The timeline: four annual steps

Budget legislation already approved for 2025–2028 maps out a gradual slide in the headline rate:

| Tax year | Standard IRC rate | First €50,000 of taxable profit for SMEs & Small Mid-Caps ||----------|------------------|----------------------------------------------------------|| 2025 | 20% (from 21%) | 16% (from 17%) || 2026 | 19% | 15% || 2027 | 18% | unchanged (15%)* || 2028 | 17% | unchanged (15%)* |

*Further adjustments for smaller companies may still be negotiated during the annual budget rounds.

An additional change broadens the list of low-emission vehicles that enjoy lighter autonomous taxation, aiming to nudge company fleets towards plug-in hybrids that comply with the latest ‘Euro 6e-bis’ standard.

Support and criticism at home

• Business groups– The Portuguese Business Confederation (CIP) and the Portuguese Industrial Association (AIP) welcome the measure but think the cut is too modest. Both suggest 15 percent as a more competitive headline target.– Retail and services lobby CCP would also like faster progress, coupled with lower autonomous taxes on company cars.

• Trade unions– The CGTP and UGT say the priority should be easing the tax burden on labour and boosting take-home pay. The unions argue that any relief for companies must be linked to higher salaries and stronger collective bargaining.

• Opposition parties– The Communist Party (PCP) calls the one-point cut in 2025 “symbolic” and claims it mostly benefits large conglomerates.– The Socialists (PS) backed the 2025 reduction after securing conditions that link future benefits to reinvested profits and wage growth, but voted against deeper cuts in committee stages for 2026.– Chega pushes for an across-the-board “fiscal shock”, siding with government MPs in favour of the 2026 step-down.

Where Portugal sits in the EU league table

The statutory rate of 20 percent for 2025 is already a shade below the EU average of 21.5 percent. Yet when local surcharges (derrama municipal and estadual) are included, the top marginal burden in Portugal can exceed 30 percent, placing the country near the upper end of the European scale. By 2028 the basic rate will fall to 17 percent, but unless municipal add-ons shrink, the combined levy may still look uncompetitive against jurisdictions such as Ireland (12.5 percent) or the Netherlands (19 percent).

Lessons from abroad

Evidence on the economic payoff of corporate tax cuts is mixed, but several case studies offer clues:

• Germany approved a €46 billion package to shave its federal corporate rate from 15 percent to 10 percent over seven years, citing stagnating private investment.

• Portugal’s own 2015 cut, from 23 percent to 21 percent, coincided with higher business start-ups and greater survival rates in inland regions, although analysts caution that other factors were also at play.

• A 2024 modelling exercise for Portugal suggested that trimming the effective rate by 7.5 points would boost GDP and wages at every time horizon, but the authors warned that the fiscal cost must be balanced against spending priorities in health and education.

The road ahead

The Finance Ministry estimates the phased reform will shave roughly €300 million a year off tax receipts once fully implemented—a sum officials believe can be offset by stronger growth and widening tax bases. Almeida maintains that predictability is itself an economic asset: “If companies know the tax rulebook won’t change overnight, they’ll be more inclined to bet on Portugal.”

Whether the strategy delivers that confidence—and translates into higher salaries and productivity—will depend on how firms deploy the extra capital and how vigilantly the government monitors wage and investment commitments. The debate looks set to intensify when the 2026 budget reaches parliament early next year.