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Portugal has revised its tax regime for 2026 with some really good news for workers. The government focused primarily on putting more money back in your pocket this year. Lower tax rates, and higher wage thresholds, mean you keep more of what you earn now.

So what exactly changed? The 2026 Portugal State Budget brought three big updates for salaried employees. Tax brackets shifted up by 3.51% to match inflation and then some extra on top. Rates for middle income earners dropped by 0.3 percentage points across four brackets total. The minimum amount you can earn tax free also went up quite a bit this year.

Key Changes to Portugal Income Tax 2026

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The Portugal personal income tax system got friendlier for workers at every income level now. Your first €8,342 of income now faces just a 12.50% tax rate this year. Middle brackets between €12,587 and €29,397 saw the biggest rate cuts for employees working here.

The minimum wage Portugal 2026 jumped to €920 per month starting in January this year. Workers earning this amount now pay zero income tax on their full salary each month. This protects lower paid workers from any tax bite on their hard earned wages overall.

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Updated Portugal Tax Brackets 2026

Here is what the new IRS tax brackets Portugal look like for this year:

IFICI Tax Regime Portugal: The New Expat Tax Benefit

Portugal also offers something special for new tax residents moving to the country now. The IFICI regime replaced the old NHR program that closed at the end of 2023. This gives qualifying people a flat 20% tax rate on their Portuguese income for 10 years.

The regime also exempts most foreign dividends, interest, rental income, and capital gains from tax. Workers in tech, research, startups, and certain skilled jobs can qualify for this benefit. Foreign pensions do not qualify for exemption under this new program unlike the old one.

If you became a tax resident in Portugal in 2026, you must apply before January 15, 2027. Missing this deadline means losing the benefit for your 2026 income earned here in Portugal. The application goes through the Portuguese tax office once you have your NIF number ready.

Madeira Tax Rates: Even Lower Than Mainland Portugal

Workers living in Madeira enjoy even better tax rates than mainland Portugal offers today. The top rate in Madeira sits at just 33.60% compared to 48% on the mainland here. The lowest bracket starts at only 8.75% instead of 12.50% for the same income levels.

The Madeira International Business Centre offers a 5% corporate tax rate for qualifying businesses too. This program just got extended until 2033, making it one of the best in the EU. Business owners and investors can benefit from these reduced rates while enjoying island life daily.

Portugal Corporate Tax 2026 Changes for Business Owners

The corporate tax rate Portugal dropped again to 19% for the 2026 tax year this time. The government plans to keep lowering this rate until it reaches 17% by the year 2028. Small businesses pay just 17% on their first €25,000 of taxable income earned here overall.

VAT in Portugal stays at 23% for most goods and services sold in the country today. Essential items like basic food and books face only a 6% VAT rate for buyers here. Wine and some other goods fall into the middle 13% VAT bracket for sellers and buyers.

FAQs

Does Portugal tax my cryptocurrency gains?

You must pay tax on gains from crypto held for under one year. Profits on assets held longer are tax free for most people now.

How much do I pay for social security on top of income tax?

Employees usually pay about 11% from their monthly gross salary now. Self employed workers face different rates based on their total yearly income.

What happens if I am still on the old NHR program?

You keep your old benefits until your ten year period ends fully. The new rules do not change your existing tax status today.