What to expect in 2025 – Madeira IBC tax regime extended and other tax topics

For those keeping an eye on the Portuguese tax landscape, the annual State Budget is always a significant event. Packed with hundreds of pages and countless amendments proposed by various political forces, it dominates headlines for weeks.

That said, this time around the State Budget brings fewer sweeping changes compared to recent years. However, it’s still worth taking a closer look at what lies ahead starting January 1, 2025.

To save you time during the busy festive season, we’ve distilled the key takeaways into five important measures to keep on your radar.

1. Extension of the Madeira International Business Center (IBC) regime

Portugal’s Parliament has approved a two-year extension for the licensing of new companies within the IBC. This allows new entities to be registered until December 31, 2026, with the preferential tax regime guaranteed to remain in place until at least December 31, 2028.

On a broader note, further extensions of the current regime remain possible under national and European regulations. Additionally, discussions are reportedly underway for a new framework to extend the regime through the late 2030s.

2. Reduction of the standard Corporate Income Tax (CIT) rate

The standard CIT rate in mainland Portugal will drop to 20% (down from the current 21%).

For Small and Medium Enterprises (SMEs) and Small-mid-cap companies, the CIT rate for the first €50,000 of taxable income will decrease to 16% (from the current 17%).

For now, there are no changes to the standard CIT rate applicable in Madeira: 14.7%, with 11.9% applying to the first 50,000 EUR of taxable income of the SSMEs and small-mid cap companies.

3. Extension of the “Youth Personal Income Tax” regime

An extended Personal Income Tax regime for young workers will grant exemptions on working income (from employment and self-employment) for individuals up to 35 years old, as well as an extension of the benefit duration to 10 years.

The income eligible for the exemption is capped at an amount equivalent to 55 times the Social Support Index (IAS) - currently €28,009.30, based on the IAS in effect.

4. Adjustment of Personal Income Tax Brackets

The Personal Income Tax brackets will be adjusted by 4.6%, aligning them with inflation to ease the tax burden on taxpayers.

5. Increase of the National Minimum Wage

The national minimum wage in Mainland Portugal will increase to 870 EUR (currently 820 EUR).

Portuguese tax - What to expect in 2025

The extension of the licensing period for new companies in Madeira’s IBC through 2026, along with reductions in standard CIT rates, will undoubtedly be welcomed by investors seeking stability and, ideally, tax savings in a time of economic and geopolitical uncertainty.

Meanwhile, the introduction of the NHR 2.0 is expected to become the primary tool for attracting talent in the coming years - once the associated regulations are finalized – but the Youth Personal Income Tax regime may prove to be a somewhat effective measure in addressing Portugal’s long-standing brain drain.

Finally, it’s important to note that this brief article only scratches the surface of the changes set to take effect in 2025.

If you’d like more information or a deeper dive into any specific provision of the State Budget, our team is ready and available to assist you.