Key Changes Introduced by the 2026 State Budget

The 2026 State Budget introduces a set of measures with a direct impact on employment conditions, remuneration policies and taxation in Portugal, particularly in the areas of income tax, wage incentives and corporate deductions.

One of the main updates concerns the national minimum wage (SMN), which will increase to €920 as of January 2026. The minimum wage remains exempt from IRS, and the minimum subsistence level is set at €12,880, ensuring continued tax relief for lower-income earners.

The Youth IRS (IRS Jovem) regime will remain in force in 2026. This scheme provides a partial and progressive exemption from IRS for young taxpayers up to the age of 35, applicable during their first ten years of professional activity, under the conditions already established in law.

With regard to remuneration policies, the Budget maintains the IRS and Social Security exemption applicable to productivity, performance, profit-sharing and year-end bonuses, provided these do not exceed 6% of the employee’s base salary and that the employer complies with the requirements of the Tax Incentive for Wage Enhancement.

This incentive, set out in Article 19-B of the Tax Benefits Statute (EBF), will continue to apply in 2026. It requires an average annual increase of at least 4.6% in base remuneration and applies to employees under open-ended contracts covered by collective bargaining agreements updated within the last three years. Eligible employees must already earn above the national minimum wage in the previous year. Under this regime, employers may benefit from 200% deductibility of salary increases and related Social Security contributions, subject to a maximum deductible cost equivalent to five minimum wages per employee.

In terms of personal income taxation, the IRS tax brackets will be automatically updated by 3.51%, and rate reductions will apply to the middle brackets, specifically from the second to the fifth brackets, with the aim of increasing net disposable income.

Finally, the 2026 State Budget reinforces incentives related to flexible work arrangements. Additional expenses associated with remote work will remain deductible at 110% for corporate tax purposes, in accordance with Article 43 of the Corporate Income Tax Code (CIRC).

Overall, the measures introduced by the 2026 State Budget seek to balance wage growth, tax relief and business competitiveness, while maintaining targeted incentives for employment stability and income progression.