IRS reduction approved in the AR in a final global vote

The Assembly of the Republic (AR) approved this Wednesday the proposal to reduce IRS in 2025 and the commitment to a new reduction next year, to be included in the State Budget for 2026 (OE2026).

In the final overall plenary vote, the initiative received votes in favor from the PSD, CDS-PP, Chega, IL, and PAN parties. The PS and JPP abstained, while Livre, PCP, and BE voted against.

For the reduction to come into effect, the decree of the Assembly of the Republic will still have to be assessed and promulgated by the President of the Republic, Marcelo Rebelo de Sousa, and be published in the Official Gazette.

Only then will the Government change the withholding tax tables to reflect the change in rates now approved on income from 2025, from the 1st to the 8th bracket.

The tax relief, estimated by the government at €500 million in 2025, will be felt by taxpayers across all tax brackets. Although the legislation only reduces the rates for the 1st through 8th tax brackets, taxpayers in the 9th tax bracket will also benefit, as the IRS is calculated progressively, thanks to the rate cuts at the lower brackets.

The approved diploma includes a second rule, added to the Government's initial proposal at the initiative of the PSD and CDS-PP benches, so that, "in the context of the State Budget for 2026", the Government proposes to parliament "to reduce, additionally, by 0.3 percentage points the marginal rates of the 2nd to 5th brackets".

With this initiative, the Government is bound by the Assembly of the Republic to put forward a new proposal to reformulate the IRS table, to enshrine a further reduction in the rates from the 2nd to the 5th bracket, to be applied to income earned by taxpayers throughout 2026.