Portugal Gazettes Corporate Income Tax Rate Reduction!
Chris Danes · Posted on: November 21st 2025 · read
On 7 November 2025, the Portuguese parliament gazetted Law No. 64/2025 approving a reduction of Corporate Income Tax (CIT) rates as follows:
- the general tax rate is reduced to 17% (currently 20%); and
- in the case of companies that carry out an economic activity of an agricultural, commercial or industrial nature, which are classified as small or medium-sized enterprises or small-mid cap companies, the CIT rate applicable to the first EUR 50,000 of taxable income is reduced to 15% (currently 16%), with the rate set out in the previous paragraph applying to the excess.
The CIT reduction will be gradual: the new CIT tax rate of 17% is applicable to tax periods beginning on or after 1 January 2028. For tax periods beginning during 2026, the CIT tax rate is 19% and for tax periods beginning during 2027, the CIT tax rate is 18%.
The new CIT tax rate of 15% for small or medium-sized enterprises or small-mid cap companies is applicable to tax periods beginning on or after 1 January 2026.
Autumn Budget 2025 Summary
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Quote from Tiago Almeida Veloso, Tax lead from Baker Tilly Portugal
“Regarding the Corporate Income Tax (CIT) rates in Portugal: small and medium-sized companies, including small and mid-cap entities, that are located in non-coastal regions benefit from a reduced CIT rate of 12.5%, applicable to taxable profits up to EUR 50,000.
For companies generating profits above EUR 1.5 million, a State Surcharge applies, starting at 3%, and depending on the municipality, businesses may also be subject to an additional Municipal Surcharge of up to 1.5%, on top of the standard CIT rate.
It is also worth noting that in Madeira, a special free trade zone exists where the tax rate can be as low as 5% for profits derived from operations with non-resident entities.
For 2025, the standard CIT rate is 20%, reduced from 21% in 2024. Furthermore, from 2026 onwards, the rate will decrease by 1% per year, reaching 17% in 2028.”
Comments from Professor Joe Nellis, MHA’s economic advisor:
Could the UK use regional Tax Incentives to boost growth?
Portugal’s approach to corporate taxation shows how targeted fiscal incentives can help balance regional development. In non-coastal regions, small and medium-sized businesses benefit from a 12.5% corporate income tax rate on profits up to €50,000, well below the standard rates. In addition, the Madeira Free Trade Zone offers a preferential 5% rate for profits generated through transactions with non-resident companies.
The UK, facing long-standing economic imbalances between London and other regions, could adapt a similar model to stimulate business growth beyond the South-East. Introducing a reduced regional corporation tax rate for firms operating in designated development zones could encourage new investment, attract skilled workers, and support emerging industries such as clean energy and advanced manufacturing.
Unlike grant-based schemes, a regionally adjusted tax rate provides a clear and predictable incentive for companies to expand where it is most needed. To safeguard fairness and transparency, eligibility could depend on tangible local contributions, such as job creation, innovation projects, or infrastructure investment.
Any such policy would need to align with OECD global minimum tax rules and include periodic review mechanisms to assess its impact on public finances. A limited pilot scheme could test its effectiveness before wider rollout.
"In essence: a well-designed regional corporate tax incentive could give the UK’s “levelling-up” strategy renewed credibility, turning ambition into measurable, place-based growth."
Quote from Chris Danes, Corporate and International Tax Partner at MHA:
"Intriguing to see Portugal focusing on long term tax strategies to encourage Foreign Direct Investment, which leads to growth and additional tax revenues. This long term corporate tax strategy is similar to the Irish model, which bring significant economic benefits. We hope to see some long term growth focused strategies in the upcoming UK Budget, rather than short-termism tax rises, that discourage growth and can even lead to reduced tax receipts."
The content in this article is in collaboration with the IBFD organisation. No part of this information may be reproduced or distributed without permission of IBFD. Disclaimer: IBFD will not be liable for any damages arising from the use of this information.
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