Everything You Need to Know About Income Tax (IRS) in Portugal

The Individual Income Tax (IRS) is the equivalent of income tax in Portugal and focusses on income obtained by people residing in the country or by those who obtain income from Portuguese sources. Taxation follows the principle of progressivity, that is, rates increase according to annual income.

Who Should Declare the IRS?

All taxpayers who obtain income in Portugal are required to declare the IRS, including:

• Income from dependent labour;

• Business and professional income;

• Capital income;

• Property income;

• Capital increases;

• Pensions.

There are some exceptions for very low incomes or specific situations that may be exempt from declaration.

How and Where to Declare the IRS

The IRS declaration must be made annually between April and June, referring to the income obtained in the previous year. The process is carried out online, through the Finance Portal, a digital system that centralises tax services in Portugal. To declare the IRS, the taxpayer must:

1. Access the Finance Portal (https://www.portaldasfinancas.gov.pt) with the Tax Identification Number (NIF) and the access password;

2. Choose the "Deliver Declaration" option;

3. Fill in the fields related to the applicable income, expenses and tax deductions;

4. Submit the declaration and keep the proof.

What is Needed to Declare

To properly fill out the IRS declaration, it is important to gather the following documents and information:

• Income receipts: Including pay slips, proof of pensions or business and professional income statements;

• Proof of expenses: Health expenses, education, housing, health insurance, among others;

• Tax Identification Number (NIF): Of oneself and of the dependants or members of the household;

• Bank details: To receive any refund;

• Proof of income obtained abroad (if applicable);

• Other specific documents related to private tax situations.

Retention Tables and News for 2025

Trabalho dependente - Casado, único titular

Trabalho dependente - Não casado com um ou mais dependentes

Trabalho dependente - Não casado sem dependentes ou casado dois titulares

Pensões - Não casado ou casado dois titulares

Pensões - Casado único titular

On January 6, 2025, the new withholding tax tables were published by the Government to be in force throughout the year. These tables define the amount of IRS that is discounted directly from the monthly income of workers and pensioners, functioning as an advance of the tax due at the end of the year.

Among the main changes are:

• Update of tax brackets by 4.6%: Those who have salary increases up to this percentage will not suffer a worsening of the tax.

• Minimum of existence: It was updated to 12,180 euros per year, ensuring greater protection for the lowest incomes.

• Exemption from minimum wage: With the increase in the guaranteed minimum monthly remuneration from 820 euros to 870 euros, workers with salaries at this level remain exempt from discounts for the IRS.

Young IRS

Another highlight is the expansion of the Youth IRS, a benefit that applies to the first 10 years of labour income of young people up to 35 years old, regardless of their academic qualifications. This measure allows a significant reduction in the tax due, applicable to annual incomes of up to 28,000 euros.

Progressive Retention Model

The IRS progressive retention model is based on the application of increasing marginal rates to earned income. This means that income is divided into different levels, and each step is taxed at a specific rate.

For example:

1. The first euros of income up to the limit of the lowest step are taxed at a reduced rate;

2. The amount that exceeds the limit of the first step but remains within the second is taxed at a higher rate, and so on.

With this system, only the part of the income that exceeds the limit of one step is subject to the corresponding rate, preventing wage increases from leading to a disproportionate increase in tax. This model also aligns the monthly withholding with the amount actually due at the end of the year, reducing the risk of significant returns or additional payments.

Annual IRS Statement

The annual IRS declaration is made between April and June of the year following which the income was obtained. Taxpayers can submit their information through the Finance Portal, using the Automatic IRS service when applicable.

Tax Benefits and Deductions

Portugal offers a series of tax deductions and benefits that can reduce the tax due, such as:

• Health and education expenses;

• Interest on loans for own housing;

• Housing rents;

• Charges with dependants.

To consult the complete list of tax deductions and benefits, visit the Finance Portal (https://www.portaldasfinancas.gov.pt).

With the 2025 updates, the IRS in Portugal becomes more adjusted to the economic and social reality, with measures that promote equity and favour lower incomes and young workers. Understanding the rules and news is essential to enjoy benefits and avoid surprises when declaring income.