BCA Group
BCA Group: Portugal
Portugal Corporate Tax 2025–2028: Rates, Cuts, and What's Next
TAXES IN PORTUGAL
Portugal is in the middle of a phased corporate tax reduction that will bring the standard rate from 21% to 17% by 2028. This article covers the schedule, who qualifies for the reduced SME rate, how the changes interact with Madeira and the Azores, and what the trajectory means for businesses choosing Portugal as an EU entry point now.
A tax system that is visibly moving in one direction
In November 2025, the Portuguese parliament passed Law No. 64/2025 — a commitment to reduce the standard corporate income tax rate (IRC) from its current 20% to 17% by 2028, in annual steps. This followed the 2024 budget, which had already cut the rate from 21% to 20%.
For a jurisdiction being evaluated as an EU entry point, this is not a minor footnote. It is a structural signal about where the tax environment is heading — and for businesses making incorporation decisions now, it is worth understanding both the schedule and the mechanics before the structure is designed.
For a jurisdiction being evaluated as an EU entry point, this is not a minor footnote. It is a structural signal about where the tax environment is heading — and for businesses making incorporation decisions now, it is worth understanding both the schedule and the mechanics before the structure is designed.
The rate schedule — what applies in each year
The reduction is phased across four tax periods:
Tax rate
Standard IRC rate
SME rate (first €50,000)
2025
20%
16%
2026
19%
15%
2027
18%
15%
2028
17%
15%
Source: Law No. 64/2025 of 7 November 2025.
The standard rate applies to all companies resident in mainland Portugal. The SME rate — currently 16%, dropping to 15% from 2026 — applies to the first €50,000 of taxable income for qualifying small and medium-sized enterprises and small mid-cap companies engaged in commercial, industrial, or agricultural activities.
A company with €50,000 of taxable profit in 2026 pays 15% on all of it. A company with €200,000 pays 15% on the first €50,000 and 19% on the remaining €150,000. The blended effective rate is considerably lower than the headline standard rate suggests — which is a relevant number for early-stage businesses where the first years of profitability involve modest taxable income.
A company with €50,000 of taxable profit in 2026 pays 15% on all of it. A company with €200,000 pays 15% on the first €50,000 and 19% on the remaining €150,000. The blended effective rate is considerably lower than the headline standard rate suggests — which is a relevant number for early-stage businesses where the first years of profitability involve modest taxable income.
The surcharges — what the headline rate doesn't include
The headline IRC rate is not the full picture. Two surcharges apply on top of the standard rate and affect the effective tax burden for companies above certain profit thresholds.
Municipal surcharge (derrama municipal): up to 1.5% on taxable profits, varying by municipality. Lisbon and Porto typically apply rates at or near the maximum. The municipal surcharge is deductible for IRC purposes.
State surcharge (derrama estadual): applies to companies with taxable profits above €1.5 million:
Municipal surcharge (derrama municipal): up to 1.5% on taxable profits, varying by municipality. Lisbon and Porto typically apply rates at or near the maximum. The municipal surcharge is deductible for IRC purposes.
State surcharge (derrama estadual): applies to companies with taxable profits above €1.5 million:
- 3% on profits between €1.5 million and €7.5 million
- 5% on profits between €7.5 million and €35 million
- 9% on profits above €35 million
For a company with €3 million in taxable profit in 2026, the effective combined rate is approximately 19% (IRC) + 1.5% (municipal) + 3% (state, on the €1.5–3M band) = an effective rate approaching 23.5% on the higher-profit portion. This is the number that matters for financial modelling — not the 19% headline.
For most early-stage international businesses entering through Portugal, the state surcharge is not immediately relevant. For businesses with significant qualifying income, it is a reason to examine the Madeira MIBC structure — where the 5% rate applies without municipal or state surcharges on qualifying income.
For most early-stage international businesses entering through Portugal, the state surcharge is not immediately relevant. For businesses with significant qualifying income, it is a reason to examine the Madeira MIBC structure — where the 5% rate applies without municipal or state surcharges on qualifying income.
The startup rate — a separate category worth knowing
Beyond the standard and SME rates, Portugal maintains a specific reduced rate for qualifying startups: 12.5% on the first €50,000 of taxable income, available to companies that meet the criteria under the Portuguese Startups Law (Law 21/2021).
This rate is classified as de minimis State Aid and is subject to EU de minimis thresholds. It is not available to all newly registered companies — the startup classification requires meeting specific criteria around age, size, and activity. But for businesses that qualify, it represents the lowest mainland Portugal IRC rate outside of the Madeira regime.
This rate is classified as de minimis State Aid and is subject to EU de minimis thresholds. It is not available to all newly registered companies — the startup classification requires meeting specific criteria around age, size, and activity. But for businesses that qualify, it represents the lowest mainland Portugal IRC rate outside of the Madeira regime.
The regional dimension — Madeira, Azores, and inland areas
The rate schedule above applies to mainland Portugal. The autonomous regions and certain inland areas operate under different regimes.
Madeira — MIBC regime: 5% on qualifying foreign-source income for licensed companies meeting substance requirements, available until end of 2033 for companies licensed before 31 December 2026. Municipal and state surcharges do not apply to qualifying MIBC income. This is the most significant rate differential available within the Portuguese tax system for internationally-oriented businesses.
Madeira — MIBC regime: 5% on qualifying foreign-source income for licensed companies meeting substance requirements, available until end of 2033 for companies licensed before 31 December 2026. Municipal and state surcharges do not apply to qualifying MIBC income. This is the most significant rate differential available within the Portuguese tax system for internationally-oriented businesses.
Azores: a regional IRC rate reduction applies, resulting in an effective standard rate lower than the mainland — currently approximately 14.7% for the standard rate. No special substance or licensing requirements beyond standard EU compliance.
Inland areas (territórios do interior): companies with effective management and operations in designated inland regions can benefit from a reduced rate of 12.5% on the first €50,000 of taxable income — the same as the startup rate, applied on a geographic basis rather than a company-age basis.
Inland areas (territórios do interior): companies with effective management and operations in designated inland regions can benefit from a reduced rate of 12.5% on the first €50,000 of taxable income — the same as the startup rate, applied on a geographic basis rather than a company-age basis.
What the trajectory means for businesses choosing Portugal now
The direction of travel is clear and confirmed by law: Portugal's corporate tax rate is declining on a fixed schedule through 2028, with no current indication that the schedule will be reversed. For a country positioning itself as an EU entry point for international business, this is a deliberate policy signal — one that the Portuguese Business Confederation (CIP) and others have described as welcome but insufficient, with a 15% headline target mentioned as a more competitive ambition.
For businesses making incorporation decisions now, the implications are practical:
A company incorporated in Portugal in 2025 or 2026 will operate under a rate schedule that improves annually through 2028. The structure designed today will be operating at 17% standard rate by the time it reaches meaningful profitability — if the timeline is typical for an early-stage EU market entry.
The SME rate is the operative rate for most early-stage companies. A newly incorporated Portuguese Lda. with one to two shareholders, modest initial capitalisation, and sub-€50,000 taxable profits in the first years pays 16% in 2025 and 15% from 2026. This is the effective tax burden for the most common type of non-EU founder entry structure — not the 20% headline rate that most comparisons use.
The Madeira MIBC at 5% remains structurally distinct. The mainland rate reductions are meaningful, but they do not close the gap between 17% and 5% — which remains the relevant comparison for businesses with significant qualifying cross-border income. The MIBC licensing deadline of 31 December 2026 continues to be the operative timing consideration for companies that structure qualifies for the regime.
For businesses making incorporation decisions now, the implications are practical:
A company incorporated in Portugal in 2025 or 2026 will operate under a rate schedule that improves annually through 2028. The structure designed today will be operating at 17% standard rate by the time it reaches meaningful profitability — if the timeline is typical for an early-stage EU market entry.
The SME rate is the operative rate for most early-stage companies. A newly incorporated Portuguese Lda. with one to two shareholders, modest initial capitalisation, and sub-€50,000 taxable profits in the first years pays 16% in 2025 and 15% from 2026. This is the effective tax burden for the most common type of non-EU founder entry structure — not the 20% headline rate that most comparisons use.
The Madeira MIBC at 5% remains structurally distinct. The mainland rate reductions are meaningful, but they do not close the gap between 17% and 5% — which remains the relevant comparison for businesses with significant qualifying cross-border income. The MIBC licensing deadline of 31 December 2026 continues to be the operative timing consideration for companies that structure qualifies for the regime.
Pillar Two — the international minimum tax
Portugal has transposed the EU's Pillar Two Directive, which establishes a global minimum effective tax rate of 15% for multinational groups with annual revenues exceeding €750 million.
For the overwhelming majority of non-EU founders considering a Portuguese structure, Pillar Two is not immediately relevant — the threshold is set at a scale that applies to large multinationals, not early-stage or mid-market international businesses. It is worth flagging, however, because it sets a floor on the competitive advantage available through low-rate regimes for companies that eventually reach that scale.
The practical takeaway
Portugal's corporate tax is declining on a confirmed legislative schedule: 20% in 2025, 19% in 2026, 18% in 2027, 17% in 2028. The SME rate drops to 15% from 2026. The Madeira MIBC at 5% remains available for qualifying structures licensed before end of 2026.
For businesses evaluating Portugal as an EU entry point, the tax environment is improving on a fixed timeline — which means a structure incorporated now will operate under progressively lower rates as it scales. For businesses with qualifying income above the threshold where the mainland SME rate applies, the Madeira comparison remains the more consequential decision.
The rate changes do not require existing structures to be amended. A company already registered in mainland Portugal automatically benefits from the annual rate reductions as they apply. For companies not yet incorporated, the schedule is a relevant input to the timing decision — though the commercial and operational considerations typically outweigh a one-percentage-point annual tax rate improvement as a reason to delay incorporation.
For businesses evaluating Portugal as an EU entry point, the tax environment is improving on a fixed timeline — which means a structure incorporated now will operate under progressively lower rates as it scales. For businesses with qualifying income above the threshold where the mainland SME rate applies, the Madeira comparison remains the more consequential decision.
The rate changes do not require existing structures to be amended. A company already registered in mainland Portugal automatically benefits from the annual rate reductions as they apply. For companies not yet incorporated, the schedule is a relevant input to the timing decision — though the commercial and operational considerations typically outweigh a one-percentage-point annual tax rate improvement as a reason to delay incorporation.