Recent State Budgets have established a clear, predictable path towards lower corporate income tax (IRC) rates. For those running an SME, this is more than a technical detail: it is a structural factor to include in tax planning for the years ahead.
Starting point: 2023 and 2025
The 2023 State Budget set the standard IRC rate at 21%. SMEs and small mid-cap companies benefited from a reduced 17% rate on the first €50,000 of taxable profit, with the standard rate applying to the remainder.
In 2025, the standard rate fell to 20% and the SME rate on the same first band to 16%.
Structural reform: Law No. 64/2025
Law No. 64/2025 of 7 November amended Article 87 of the IRC Code, establishing a phased reduction rather than a one-off change.
From 2028, the standard rate will be 17%, while the SME rate on the first €50,000 will be 15%. A transitional provision sets intermediate rates: 19% standard and 15% SME in 2026, followed by an 18% standard rate in 2027.
The rates at a glance
The standard IRC rate moves from 21% in 2023 to 20% in 2025, 19% in 2026, 18% in 2027 and 17% from 2028. For SMEs, the rate on the first €50,000 of taxable profit falls from 17% in 2023 to 16% in 2025 and 15% from 2026.
Eligibility as an SME or small mid-cap company follows the criteria in the annex to Decree-Law No. 372/2007 of 6 November and continues to determine access to the reduced rate.
What this means in practice
The rate on the first €50,000 falls from 17% to 15% in 2026 and remains at that level. On profit above that threshold, the reduction is more gradual, from 21% to 17% only in 2028.
This has direct implications for SMEs’ multiyear planning:
• Timing investments and profit distributions, including whether to defer taxable income to years with a lower rate, subject to economic substance and anti-abuse rules.
• Managing the €50,000 threshold. The four-percentage-point gap between the reduced and standard rates in 2026 and 2027 remains relevant to corporate structures and the allocation of profits among group companies.
• Updating financial forecasts and cash-flow models with the rates set through 2028, without assuming the final rate applies earlier.
• Revising tax-burden estimates in business plans and investor proposals to reflect the known timetable for reductions.
A note of caution
The rates for 2026, 2027 and 2028 are set by law, not merely announced as budgetary intentions. IRC rates have nevertheless changed frequently. Plans should therefore be reviewed with each new State Budget rather than assuming that today’s statutory rates will remain unchanged.
Conclusion
The reductions in the standard and SME rates are among the most significant tax cuts for Portuguese SMEs in recent years. This multiyear path, with defined dates and rates, should inform financial forecasts, investment timing and profit-distribution policies.
