What will taxes in Portugal look like in 2025? As 2025 nears, expats in Portugal feel more unsure about the country’s tax rules. The government wants to make changes to taxes, like lowering business taxes and tweaking the Non-Habitual Resident 2.0 (NHR 2.0) program. These changes could help or hurt expats and business owners. But shaky politics and step-by-step rollouts cast doubt on whether these new plans will last.
This article blends insights from recent political shifts with a focus on taxes in Portugal in 2025. It looks at how these changes might affect expats when it comes to lower business taxes and what’s next for the NHR program.
Portugal’s Tax Scene: A Good Place to Begin
Portugal has always been a magnet for expats and businesses. This appeal stems from the Non-Habitual Resident (NHR) program, which is winding down, and its competitive corporate tax rates. The NHR program gave a 20% flat tax on certain Portuguese income for a decade. It also exempted foreign-sourced income. This offered major relief to skilled expats and retirees. Likewise, the corporate income tax (IRC) now at 14,7% in Madeira Island, has pulled in foreign investors and firms. They see it as a tax-friendly hub within the European Union.
But recent talks about the 2025 national budget (Orçamento do Estado 2025) will change these policies. With plans to cut corporate taxes in stages and make even more changes to the NHR program, expats now see both chances and possible risks.
Planned Corporate Tax (IRC) Cuts: A Gradual but Good Move
The government plans to cut corporate tax (IRC) over time aiming to reach 15% by 2027. In 2025, the mainland rate will drop to 19% marking progress for companies wanting to grow or move to Portugal. This change fits with broader aims to boost the Portuguese economy and draw in foreign money. If the rate does hit 19%, the Autonomous Region of Madeira will make more tax cuts bringing the corporate tax in Madeira down to 13.3%
Still, the step-by-step plan has its detractors. reducing the tax rate over many years might water down the quick economic gains. The chance of political shifts makes things trickier, as future governments could change or undo these plans due to political pressure. For foreign business owners, the unclear timeline of tax cuts could limit quick benefits and force them to plan their finances more .
Why a Quick Tax Cut Might Work Better
A sharper, quicker cut to 15% could turn Portugal into a top European tax spot. Business owners would have a clearer reason to invest and grow their companies if they knew low taxes were here to stay. Take the Madeira area, for example. Its business tax rate might fall to 10.5% making it one of the best places in the EU for companies looking for a tax-friendly home.
On the flip side, while a gradual tax cut still has its perks, the current political unrest in Portugal might slow it down. Opposition groups seem more interested in blocking changes than working together to make them happen. This could result in policy changes or hold-ups in putting plans into action leaving expats and investors unsure about what’s next.
What’s Next for the Non-Habitual Resident (NHR) Program?
The NHR program has played a key role in attracting expats to Portugal, but its future remains unclear. The possible return of the NHR program in 2025 (a likely change to the upcoming NHR 2.0) will keep the 20% tax rate on Portuguese income from high-value activities. Yet, it might not include foreign-sourced income in its perks, which could make it much less attractive.
This change would have a major impact on expats retirees and remote workers who depend on income from abroad. If Portugal no longer exempts international earnings from taxes, it might lose its appeal as a top choice for professionals who work . This development could lead expats to look for places that give better tax breaks on foreign income, like Spain or Italy, which have also started offering competitive tax deals to expats.
Political Instability: A Threat to Long-Term Tax Reforms
The political unrest in Portugal is a key issue that creates uncertainty about the 2025 fiscal reforms. Talks about the national budget have led to clashes between the government and opposition groups over plans to cut corporate tax (IRC) and the fate of IRS Jovem, a tax benefit for young workers.
The Socialist Party (PS), which plays a key role in these talks, doubts how deep the corporate tax cuts should go and wants a careful money approach. Right-wing parties push for bigger tax cuts, while left-wing parties don’t want any cuts. This political fight makes it more likely that these tax changes will weaken or change back soon.
The shaky state of tax rules adds more doubt for expats. As political groups argue about balancing careful spending and growing the economy, tax changes that matter to expats—like the NHR program and IRC cuts—might change based on what politicians want at the time.
What’s on the Line in the 2025 Budget?
The Portuguese Socialist Party (PS) and the government are now talking about important steps for the national budget such as a plan to lower corporate tax (IRC). They want the budget to boost the economy and be responsible at the same time. These changes might help or hurt certain groups expats and young workers.
The ongoing debates shed light on the possible danger of diminished tax advantages for expatriates if the government changes its focus to higher taxes to meet budget requirements. An economic forecast of 2% growth and a budget surplus for 2025 shows that the government plans to keep a tight grip on finances, which might not leave much space for the broad tax cuts we’ve seen in recent years.
Talks Between the Government and PS: What’s on the Horizon
The Portuguese government and Socialist Party are in the middle of talks about the 2025 budget. Both sides want to keep talking, but the mood has changed. The PS has asked for more time to review the government’s macroeconomic data. How they stand on key tax issues, like IRC, will depend on these ongoing discussions. PS parliamentary leader Alexandra Leitão says balancing the budget is still very important to her party.
The government faces huge pressure to keep fiscal discipline while boosting growth. Right-wing parties push for bigger cuts, and left-wing parties want careful spending. This creates a tense political situation where expats and business owners wait for decisions that could change their tax bills.
How Expats Can Navigate Taxes in Portugal in 2025
Expats living in Portugal or considering moving there need to understand the changing tax scene. The NHR program might offer good tax breaks, but its possible limits on income from foreign sources mean expats should think hard about how these changes could affect their money plans for the future.
Likewise, companies—those led by foreigners—should stay alert. The step-by-step lowering of business taxes gives hope of saving money down the road. Yet, the slow rollout of these cuts and political uncertainties mean firms should hold off on big investments just because they expect to pay less tax.
Wrapping Up: Promising Changes, but Stay Careful
To wrap up, Portugal’s 2025 fiscal reforms have potential but political and economic risks. The planned cuts in corporate tax and the “revival” of the NHR program might make Portugal more attractive to expats and companies, but this depends on proper implementation without political meddling.
Expats should stay up-to-date and prepare for possible changes to tax perks on foreign-sourced income and corporate tax rates. This is the best way forward. While Portugal still appeals to many, expats should be wary and watch political shifts that could change the country’s tax scene.
FAQs
- What will taxes in Portugal in 2025 be like? The government intends to cut the corporate tax to 19% in 2025, and then lower it to 15% by 2027.
- Will the Non-Habitual Resident (NHR) program still include foreign-sourced income in 2025? The “revamped” NHR program might not cover foreign-sourced income, which could limit its tax perks for expats who make money.
- How will political instability affect Portugal’s tax reforms? Political turmoil could slow down or undo planned tax changes, the corporate tax reduction, and the NHR program.
- What should expats do in light of these potential tax changes? Expats should monitor current political events and consider how reduced benefits for foreign-sourced income might affect them.
The information in this article on “Taxes in Portugal in 2025” is for general informational purposes only and is not intended to constitute legal advice. While every effort has been made to ensure the accuracy of the content, laws and legal procedures can change, and the specifics of each case can vary widely. Therefore, readers are advised to consult a qualified professional or attorney in Portugal for advice tailored to their circumstances before taking action. This article does not create an attorney-client relationship between the reader, the authors, or the publishers. The authors and publishers are not liable for any actions taken or not taken based on the content of this article.
Miguel Pinto-Correia holds a Master Degree in International Economics and European Studies from ISEG – Lisbon School of Economics & Management and a Bachelor Degree in Economics from Nova School of Business and Economics. He is a permanent member of the Order of the Economists (Ordem dos Economistas)… Read more
