Personal Income Tax (PIT)

General rates

The caps of each bracket of the PIT table of general rates have been updated by 3%. The rates applicable up to the fifth bracket were also updated. Hence, the general PIT rates are now the following: 

Deduction of expenses with unions

There is an increase to 100% (formerly, 50%) of the markup of expenses with unions allowed as deductions for Categories A (employment work) and H (pensions).

Former residents (“Ex-residentes”)

The 50% relief from taxation of employment and business income under the former resident’s regime shall apply to taxpayers that become residents in the years 2024 to 2026, if they were not resident in the Portuguese territory in one of the previous five years. In addition, those taxpayers are required to have been resident in the Portuguese territory in any period preceding said five year period.

The relief is capped at EUR 250,000 and applies for five years. This cap applies only to taxpayers who become residents in 2024 or following years.

Tax incentives for research and innovation or special tax regime for scientific research and innovation

A tax incentive for research and innovation is created. It will apply to taxpayers that become tax resident in Portugal and that were not resident in the Portuguese territory in any of the five previous years. Eligible income includes the one deriving from:

• Higher education and scientific research teaching staff as well as employees and board members of entities recognized as technology and innovation centres, in accordance with the specific regime applicable.

• Employees and board members within the scope of contractual benefits for productive investment, in accordance with specific legislation.

• Highly qualified professions, to be defined by decree from members of the Government, developed in companies for which certain conditions are met.

• Employees and board members of entities that carry out economic activities recognized by  the Agency for Investment and Foreign Trade (AICEP) or by the Agency for Competitiveness and Innovation (IAPMEI) as being relevant to the national economy.

• Research and development by staff whose costs are eligible for the purposes of the R&D tax incentive (SIFIDE), in accordance with the applicable legislation.

• Employees and board members of certified startups, in accordance with the applicable legislation; or

• Employment or other activities carried out by taxpayers that are tax residents in the Autonomous Regions of the Azores and Madeira, in accordance with the terms to be defined by regional decree-law.

The regime provides for:

• A special 20% rate on net employment income (category A) and business and professional income (category B) from the above activities, applicable for ten consecutive years.;

• An exemption on foreign sourced employment income, business and professional income, investment income, real estate income and capital gains.

The regime shall not apply to taxpayers covered or that have been covered by the non habitual residents or by the former residents’ regimes.

Profit share

Profit share distributions in benefit of employees are exempt from PIT. The exemption equals the amount of one monthly fixed remuneration and is capped at five times the amount of the monthly minimum wage proposed.

This will depend on the employer implementing a nominal increase in 2024, by at least 5% of the fixed remunerations of the employees.

Such income must however be included for the purpose of assessing the rate applicable to the remainder income earned.

Gains from share plans

The new tax regime applicable to share plans shall be amended as follows:

• It shall be extended to apply to gains derived from plans implemented by entities recognised as start-up that meet all the respective requirements and that have created the share plan in the year of incorporation/first year of activity.
• Removal of the limitations currently applicable in the case of board members in respect of the benefits of the regime.
• One-off partial PIT exemption applicable to the income assessed at the moment of ceasing to be a tax resident in the Portuguese territory (exit tax). This shall be capped at 20 times the amount of the IAS. Such income must however be included for the purpose of assessing the rate applicable to the remainder income earned.
• It is further clarified that the regime shall apply to plans in respect of shares or other rights with an equivalent nature created by other entities with whom the employer is in a domain, group, or ownership relation.

There will be specific rules for employees holding shares that have already benefited from a PIT exemption under the previous tax regime applicable to the acquisition of shares. These rules are:

• Those employees shall be allowed to maintain the exemption provided that they hold said shares for a minimum two-year period, computed as from the exercise of the option or subscription of the plan.
• Gains derived from the sale for a consideration of securities covered by the above-mentioned regime are taxed under Category G for its full amount. The gain assessed corresponds to the positive balance between the sales proceeds and the market value with reference to the date of the acquisition of the option or right.

Business income – Young farmers

First settlement awards granted to young farmers now benefit from a 0.1 coefficient under the simplified tax regime. They shall be considered only by 50% of the respective amount in the case of organized accounting.

Tax exemption applicable to gains arising from the disposal of real estate to the State

A PIT (and CIT) exemption applies to gains arising from the disposal for a consideration of building land, in favour of the State, of the Autonomous Regions, of corporate public entities based in the area of the property or local municipalities. Formerly, the exemption applied only to real estate for housing purposes.

Tax deductions – Education and training expenses

It is clarified that the expenses incurred with professional training shall be included in the tax deduction applicable to education and training expenses. There will not be any amendment to the overall cap applicable.

Regarding the deductible amounts related to rents borne with displaced student's residence, the maximum deduction increases to EUR 400. The overall  cap for education and training expenses of EUR 800 can be increased by EUR 300 when the difference arises from said expenses.

Tax deductions – Expenses borne with the remuneration of domestic workers

It is established that 5% of the annual expenses borne with the remuneration of domestic workers can be deducted, with a maximum cap of EUR 200. These expenses are also subject to the general cap applicable to the remaining tax deductions.

Tax deductions – Disabled individuals 

A tax deduction ranging from 2 to 0.5 times the amount of the IAS shall apply during the four years following the review or reassessment of a disability. This applies to taxpayers that:

• Benefit for at least five years of the tax deduction foreseen in Article 87, no. 1, of the PIT Code.

• Following the review or reassessment of a disability, cease to have a degree of permanent disability of 60% or higher, though maintaining a disability of 20% or more.

Annual PIT Declaration 

The annual PIT return shall mandatorily include information on all sources of income earned in the previous year. This includes income subject to final withholding tax rates not aggregated with other income not subject to PIT exceeding EUR 500, as well as assets held in jurisdictions subject to a clearly more favourable tax regime.