2025 State Budget

The updates in the 2025 State Budget are primarily focused on easing direct taxation for young people and businesses.

A notable highlight in the document is the extension of the “Youth PIT” (“IRS Jovem”) scheme, which will apply to individuals up to the age of 35, without any requirements regarding their level of education. Additionally, there are adjustments in the Personal Income Tax (PIT) brackets, with a 4.6% update, which is above the projected inflation rate. For self-employed workers, the withholding tax rate has been reduced to 23%.

In terms of Corporate Income Tax (CIT), the good news includes a reduction in the nominal IRC rates by 1 percentage point, a decrease in autonomous taxation rates, and an enhancement of incentives for business capitalisation.

Indirect taxes have seen the least changes, which is not surprising given the aim to minimise fiscal alterations in the Budget. According to recent statements by the Honourable Secretary of Fiscal Affairs, Ms. Cláudia Reis Duarte, not all the fiscal changes anticipated by this Government are included in the presented document. An example of this is the intention expressed in social dialogue to encourage voluntary contributions to supplementary pension schemes, particularly through instruments provided under the Public Capitalisation Regime.
 

This decision is understandable as it increases the likelihood of the Budget's approval, which extends beyond fiscal policy. However, there is a downside: with the current political instability, ad hoc fiscal changes may become even more challenging or contrary to the Government's intentions, potentially jeopardising the projected budget surplus.

I also note the absence of any changes concerning Fiscal Justice, but there are high expectations for the near future based on the conclusions of the Commission established for the Review of Tax Procedure and Process and Taxpayer Guarantees.

We will closely monitor these and other anticipated changes, particularly regarding the transposition of the Pillar 2 Directive. It is expected that the years 2024 and 2025 will bring many challenges in the realm of taxation, so you can count on PwC's great team to assist you. With that, I look forward to our next update.

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Rosa Areias
^{Tax Lead Partner of PwC Portugal}