Portugal's 2024 Tax Reform: New Withholding Tax Rates for Personal Income Tax

Starting in September 2024, a new withholding tax regime will be introduced with the goal of easing the tax burden on Portuguese citizens. While the adjustments will officially take effect in September, they will be applied retroactively to income earned earlier in the year (since January). Personal Income Tax (IRS – Imposto sobre o Rendimento das Pessoas Singulares) continues to be a central focus in the Portuguese Government's policy agenda.

The new withholding tax structure introduces the following adjustments:

• 1st Tax Bracket: The rate will be reduced from 13.25% to 13% for taxable income up to €7,703 per year.
• 2nd Tax Bracket: The rate will be reduced from 18% to 16.5% for taxable income ranging from €7,703 to €11,623 per year.
• 3rd Tax Bracket: The rate will be reduced from 23% to 22% for taxable income ranging from €11,623 to €16,472 per year.
• 4th Tax Bracket: The rate will be reduced from 26% to 25% for taxable income ranging from €16,472 to €21,321 per year.
• 5th Tax Bracket: The rate will be reduced from 32.75% to 32% for taxable income ranging from €21,321 to €27,146 per year.
• 6th Tax Bracket: The rate will be reduced from 37% to 35.5% for taxable income ranging from €27,146 to €39,791 per year.

The new tax rates reflect a reduction across the 1st to 6th income brackets, with decreases ranging from 0.25% to 1.5%. In practical terms, this equates to monthly tax savings of between €24 and €336. While the 7th, 8th, and 9th brackets will not see direct rate reductions, the progressive nature of the tax system ensures that all income levels will benefit from the overall decrease.

While these changes apply to the general tax regime, it's important to consider how they interact with other tax programs in Portugal. One such program is the Non-Habitual Resident (NHR) tax regime, which has been a significant factor in Portugal's tax landscape for foreign residents.

It's worth noting that the NHR tax regime will continue to offer its flat tax rate to those who currently benefit from it. Although the NHR regime itself has already ended for new applicants, those who are eligible can still submit applications until the end of 2024. This provides a transitional period for individuals who may have been planning to take advantage of this programme.

In line with Portugal's commitment to attracting foreign investment and talent, the government has introduced a new tax benefit regime called IFICI+. This regime offers a flat income tax rate of 20%, similar to the NHR regime, but it applies exclusively to salaries and professional incomes. IFICI+ is designed to attract highly qualified foreign talent, focusing on sectors such as scientific research, innovation, and human capital.

At Belion Partners, our tax advisory and accountancy experts work seamlessly together to offer a full range of solutions, from tax advice and support with securing the new tax benefits to comprehensive tax representation, accounting, and compliance services for both individuals and businesses. Reach out to us to learn how we can tailor our services to meet your specific needs.