Portugal to Cut Corporate Tax to 17% by 2028 in Investor-Friendly Overhaul

Portugal’s corporate tax will be trimmed again next year, moving toward a historically low 17% in 2028. Supporters see the move as a magnet for foreign capital and a lifeline for cash-strapped smaller firms, while critics warn it could erode public revenue by roughly €300 million a year. The measure has cleared Parliament but still awaits presidential sign-off. The planned reduction touches only corporate income tax (IRC); other major levies such as personal income tax (IRS) and value-added tax (IVA) stay as they are for now.

What changes and when?

The headline measure is a phased cut to the corporate income tax: 19% next year, 18% in 2027, and 17% in 2028. Approved as part of the budget bill, the plan relies on gradual one-point cuts already under way. For SMEs, the first €50,000 in taxable profit will face a 15% small-business bracket from 2026. Derramas—municipal and state surtaxes on profits—remain unchanged, yet the aggregate burden will still mark the largest reduction since 1989.

How much will it cost—and pay off?

The Treasury puts the price tag at a €300 million annual hit, echoing the Ministry of Finance estimate that revenue will see a 2% slide in 2026. In exchange, officials tout higher investment, job creation, and wage growth. Finance Minister Miranda Sarmento argues the cut respects a broader fiscal-discipline pledge, citing OE2026 numbers that bake the loss into medium-term projections. The counter-argument from opposition parties: social spending may suffer if growth fails to materialise.

SMEs take center stage

Portugal’s PME backbone stands to gain the most. Lower rates translate into a liquidity boost for everyday businesses in retail, manufacturing, and services. Firms operating in the interior regions or in startup clusters can layer the new bracket atop tools like SIFIDE (Portugal’s R&D tax credit) and RFAI (regional investment tax relief). Tax consultancy KPMG notes that combining these breaks could shave the effective rate to the low-teens for innovative outfits.

Portugal versus Europe: a tax map

Even at 17%, the levy will remain above outliers such as Hungary 9% or Ireland 12.5%—but it will fall well below the EU average 21.3%. High-rate jurisdictions like Malta 35% underscore the diversity in the bloc. Analysts warn the comparison must factor in effective-rate complications such as the derrama estadual (an additional state surtax of up to 9%). The forthcoming OECD 15% minimum also looms, yet Lisbon sees the cut as part of a broader competitive repositioning aimed at capturing more foreign direct investment inflow.

Political path and remaining hurdles

The tax package sailed through on 17 Oct with the backing of PSD, CDS-PP, and Chega, while PS voted against. Presidential promulgation and subsequent Diário da República publication remain the last formalities. A lively budget debate pitted the business lobby CIP—which calls for a 15% target—against the Left Bloc critique that public coffers are being undercut on the eve of municipal elections.

What analysts are watching next

Attention now shifts to the implementation calendar for secondary legislation that will bake in the promised tax-compliance simplification and the new IVA group regime. Adjustments to the salary-valorisation incentive tweak kick in simultaneously. Macroeconomic clouds—from a possible economic-slowdown risk to the timing of ECB rate cuts—could complicate uptake. Add looming global Pillar Two rules and an unpredictable investment pipeline, and the measure’s impact on the medium-term fiscal framework remains anything but settled.