Portugal Keeps Tax Burden Below EU, Shifts Cost to Spending in 2024

Portugal closed 2024 with taxes and social contributions representing 37.1% of its gross domestic product (GDP), according to the latest data from Eurostat. While this figure is a slight increase from 2023, it remains noticeably below the European Union average of 40.4% and the euro-area average of 40.9%.

A Slight Rise, but Still Middle-of-the-Pack

The 2024 figure of 37.1% is a modest rise from the revised 36.9% recorded in 2023. This ratio places Portugal roughly in the middle among the 27 EU member states. Sweden and France continue to post the highest tax burdens, while Ireland and Romania remain at the lower end. The slight increase in Portugal's numbers reflects that tax receipts grew faster than the nominal economy, even as the headline GDP expanded by approximately 6.4% in current prices.

What Drove the 2024 Jump?

The 2024 State Budget introduced a combination of targeted relief for some and broader revenue-raising measures elsewhere.

For Personal Income Tax (IRS), lower rates for the first five brackets and a larger minimum-existence allowance provided households with some breathing room. Young workers also benefited from an expanded IRS Jovem partial exemption. However, new registrations under the popular Non-Habitual Resident (NHR) regime were ended on January 1st.

Regarding Corporate Income Tax (IRC), reforms aimed to support new and growing businesses. Start-ups now pay a reduced rate of 12.5% on their first €50,000 of profit. Additionally, companies that increased wages by at least 5% gained an additional deduction. Conversely, autonomous taxation on company vehicles rose, with an exception for fully electric models.

Changes to the Value-Added Tax (VAT) also had a significant impact. The zero-rate on a basket of staple foods expired in January, which immediately lifted VAT revenue. Juices and sparkling waters were moved into the 13% band. In a relief measure, private tutoring in groups became VAT-exempt, and existing VAT waivers on farm inputs and electricity were prolonged until the end of the year.

Finally, Excise and Other Levies saw broad increases. Taxes on alcohol and sugared drinks rose by 37%, tobacco by 15%, fuel by 13%, and motor-vehicle circulation taxes by 20%. A new €0.04 charge on lightweight plastic bags was also introduced in the retail sector.

Together, these measures lifted total tax and contribution receipts by an estimated 6.7%, outpacing nominal GDP growth and nudging the overall tax-to-GDP ratio upward.

Where the Money Comes From

Provisional tables from the Finance Ministry suggest a clear breakdown of 2024 receipts. Social contributions were the largest source, making up about 35% of the total after a massive 11.7% jump from 2023. VAT and other indirect taxes followed at around 31% of receipts (a 5.5% increase). Personal income tax (IRS) accounted for approximately 22% (a 4.0% rise), and corporate tax (IRC) made up about 9% (a strong 13.9% increase). Other taxes comprised the remaining 3%.

Social security inflows hit a record, driven by rising employment and a higher minimum wage, which was set at €820. VAT also had a bumper year; the end of the zero-rate on food alone added an estimated €400 million, with the total VAT take rising by €2.2 billion. In contrast, the share of IRS taken from workers’ pay slipped to 8.8%, reflecting the bracket updates and targeted cuts. This highlights a broader shift toward indirect taxation and payroll charges, a pattern some economists warn can weigh more heavily on lower-income households.

Competitiveness Concerns Persist

Despite having a below-average tax-to-GDP ratio, Portugal continues to be flagged in international surveys for the complexity of its tax system. The Tax Foundation / OECD Index 2025 ranks Portugal 33rd out of 38 for overall tax competitiveness. The ranking is dragged down by a high effective corporate rate of 31.5% once local surcharges are factored in. Similarly, the IMD World Competitiveness Ranking saw the country slip one place to 37th out of 69, with executives citing tax pressure and judicial delays as key weaknesses.

Looking to 2025

The draft 2025 budget projects the tax ratio will hover around 37.5%. This forecast assumes that incremental cuts in the headline corporate rate (from 21% to 20%) will be balanced by new green levies and continued strength in payroll and VAT revenue. Economic growth forecasts remain moderate. The Portuguese Government projects 2.1% GDP growth and a +0.5% budget balance. The IMF is slightly more optimistic on growth at 2.3% with the same +0.5% balance. The European Commission is more cautious, forecasting 1.8% growth and a +0.1% balance, while the OECD predicts 1.9% growth. All forecasters point to resilient domestic demand but caution that weaker external trade and higher interest rates could slow momentum.

What Economists Say

Several analysts argue that the headline ratio is less important than the system's design. They see high compliance costs, overlapping surcharges, and unpredictable rule changes as bigger deterrents to investment than the sheer amount raised. Think-tanks like Católica-Lisbon’s Policy Lab suggest shifting the burden from labour to property and consumption, perhaps by phasing in a broader municipal property tax to fund pressures on health and pensions. The Forum for Competitiveness warns that frequent tweaks—noting 160 tax code alterations in the last decade—undermine the certainty that entrepreneurs need.

Bottom Line

Portugal’s tax burden edged higher in 2024 but still sits comfortably below the European average. Whether this relative advantage can translate into stronger growth depends less on the headline number and more on tackling complexity, broadening the base, and delivering predictable, transparent rules that encourage both domestic and foreign investment.