State Budget 2025: Updates for companies expanding to Portugal

Approved at the beginning of 2025, the Portuguese State Budget introduces a range of measures to foster economic growth, attract foreign talent, and enhance the business environment. As a company looking to expand to Portugal––or in the country already––, it’s crucial to understand these changes to leverage potential tax benefits, update employees’ salaries (thanks to the meal allowance amount), and stay on top of all changes for 2025.

What you’ll learn:

• Portuguese State Budget 2025: Tax exemptions for younger people, corporate tax reduction, and the new IFICI status

  IRS Jovem: Attracting and retaining young talent
  IRC reduction: Less tax for companies
  Updated IRS rates: Tax bracket adjustments
  Meal allowance increase
  NHR status rebranded: Meet the new IFICI

• Why these updates matter for your business

Portuguese State Budget 2025: Tax exemptions for younger people, corporate tax reduction, and the new IFICI status

As usual, many things changed with the new State Budget for 2025. But let’s be honest: not everything interests you as a business owner. With so many little details in such massive documentation, we’ve decided to gather the (only) updates that interest you, mainly:

• IRS Jovem, personal tax exemption for up to 35 year-old

• IRC reduction for companies

• Meal allowance amount exempt from taxes up to €10.20

• NHR status is now called IFICI

It’s time to go over each update one by one.

IRS Jovem: Attracting and retaining young talent

The government has expanded the IRS Jovem program to combat youth emigration and incentivize young professionals to build their careers in Portugal. It already existed, but not for as many people as it does now. This measure is particularly interesting for your business if you want to attract top talent.

• Who it benefits: Employees between 18 and 35, earning up to €28,000 per year.

• Tax incentives:

  • In the first year of employment: Full exemption from Personal Income Tax (IRS).

  • From the second year on: Progressive tax reductions apply for up to 10 years, decreasing slightly over time.

• Why it matters to you as an employer: This tax relief increases the monthly net income of younger employees, enhancing your company’s attractiveness as an employer in Portugal.

IRC reduction: Less tax for companies

The Portuguese State Budget for 2025 introduced a new change: companies will pay less corporate tax. It lowers the Corporate Income Tax (IRC) rate from 21% to 20%, ensuring Portugal remains a top choice for businesses looking to expand into the country––a secure option compared to some low-cost European countries.

• The real impact:

  • A reduced tax burden for companies operating in Portugal.

  • Increased competitiveness for businesses, particularly in high-growth sectors.

• Additional benefits: Companies operating in the interior regions of Portugal may qualify for even lower tax rates through regional incentive programs.

Updated IRS rates: Tax bracket adjustments

The Portuguese State Budget for 2025 introduces a 4.6% update to IRS tax brackets, providing relief for employees across various income levels.

• What’s new:

  • Adjustments help mitigate the impact of inflation on household incomes.

  • Employees benefit from reduced withholding rates, increasing their salaries every month.

• Implications for businesses: Higher disposable incomes for employees may improve their satisfaction and purchasing power, which can benefit employers in the long run.

Meal allowance increase

Though not mandatory for private companies, many include them in employees’ salaries. This increase can make a difference for your employees at the end of the month.

The meal allowance can be subject to 2 taxes: IRS and Social Security (SS). This happens because employees must pay taxes on what they earn every month (though the criteria change a bit for those receiving the minimum wage).

So, when an employer adds the meal allowance as a “top-up” payment, the same logic applies. The Portuguese government lets companies decide how to pay the meal allowance. In short, employees don’t pay taxes on those amounts when:

• Paid along with their salary: up or equal to €6.00 per working day.

• Paid in meal card or voucher: up or equal to €10.20 per working day.

NHR status rebranded: Meet the new IFICI

The Non-Habitual Resident (NHR) regime, a cornerstone of Portugal’s strategy to attract foreign professionals and retirees, has been rebranded as the Incentive for Scientific Research and Innovation (IFICI).

• Key updates:

  • The benefits of the NHR regime remain essentially unchanged.

  • IFICI offers a flat tax rate of 20% on qualifying income for foreign professionals in high-value-added activities.

  • Pensions sourced from abroad continue to be taxed at 10%.

• Employer takeaways: Companies hiring international talent can reassure candidates that Portugal remains a tax-friendly jurisdiction for foreign workers.

Why these updates matter for your business

The Portuguese State Budget for 2025 reflects the country’s ongoing commitment to economic competitiveness and workforce retention. Businesses expanding to Portugal can use these changes to optimize hiring strategies, reduce costs, and position themselves as attractive employers in the European market.

At the same time, companies already established in the country can remain updated on all necessary changes.