Tax system in Portugal

In 2025, taxes and social security contributions accounted for 37.3% of Portugal’s GDP. In the previous year, 39% of the State’s total revenue came from taxes on consumption (such as VAT/IVA), 27.5% from taxes on income and wealth (such as personal income tax – IRS, and corporate income tax - IRC), and 33.5% from social security contributions.

Who pays taxes in Portugal, and how much revenue do they generate for the State? Who benefits from tax incentives, and what impact is the energy transition having on tax revenue? And to what extent is the tax administration able to meet the system’s needs?

«Tax system in Portugal» launches the project «Taxation and the Future», which further comprises four policy papers addressing key issues in Portuguese taxation.

This initial volume provides an overview of the different taxes applied in Portugal, as well as the country’s tax administration. Authored by Sérgio Vasques (Catholic University of Portugal), Susana Peralta (ISEG – University of Lisbon), and José Pedro Sousa (Nova SBE), it covers seven critical areas of the tax system. The main findings in each area are summarised below:

• Households: Personal income tax (IRS) is highly progressive, with more than half of the revenue (56%) paid by the 7.6% of households with the highest incomes. The study also shows that deductions for healthcare and education tend to be used more extensively by higher-income households, associated with greater tax literacy.
• Businesses: In 2024, the average corporate income tax paid in Portugal was 18.6%, but the rate varied according to company size. Data for the following year shows that companies with annual turnover exceeding €250 million faced effective tax rates of up to 24%. These companies accounted for 28% of total corporate income tax collected.
• Consumption: Excise taxes, designed to discourage behaviours that are harmful to society, have regressive effects in the case of tobacco and alcoholic beverages, as consumption of these products is higher among lower-income households.
• Energy transition: Vehicle taxes (IA) and the tax on petroleum and energy products (ISP) accounted for just 6.3% of tax revenue in 2025, down from 14% in 2004. These taxes weigh most heavily on middle-income households, suggesting that lower-income households rely primarily on public transport.
• Property: Municipal property tax (IMI) and municipal property transfer tax (IMT) accounted for €3.229 billion of the €4.052 billion in direct tax revenue collected by Portuguese municipalities in 2024.
• Tax administration: In 2024, half (50.8%) of the employees of the Portuguese tax and customs authority (AT) were over the age of 55, raising challenges related to workforce renewal and talent retention.
• Tax justice: Lengthy proceedings in the administrative and tax courts (TCA) have hindered the resolution of disputes, with significant regional disparities. For example, the southern central administrative court (TCA-Sul) would need more than five years to clear all outstanding tax cases pending at the end of 2025.