Navigating Portugal's Tax Changes: What's New in 2024?

21 Mar 2024

Introduction

In 2024, businesses and individuals in Portugal will encounter significant tax changes that are likely to impact financial planning and obligations. From adjustments in municipal surcharge rates to alterations in corporate and personal income tax, staying informed about these updates is crucial for maintaining compliance and optimising financial strategy. In this comprehensive article, we will uncover the key tax changes affecting Portugal in 2024 and provide insights to help you navigate through the complexities of the changing tax landscape.

Minimum Wage and Guaranteed Minimum Monthly Wage

The minimum wage in Portugal is a legally established baseline income that employers must pay their employees. The guaranteed minimum monthly wage sets a minimum income threshold for full-time workers, ensuring that they receive fair compensation for work completed.

In January 2024, the Portuguese Government implemented a significant increase in the National Minimum Wage, from 760 euros to 820 euros. This historic rise marks a transformative shift in Portugal's fiscal landscape, demonstrating a strong commitment to enhancing the standard of living for workers across the country. The substantial increase reflects the government's acknowledgment that a well-compensated workforce is essential for a thriving economy.

New Municipal Surcharges

Municipal surcharges play a pivotal role in local taxation, allowing municipalities to impose additional taxes on top of national tax rates to fund local services and infrastructure. The Portuguese Tax Authority has recently unveiled the municipal surcharge rates set to be implemented for the upcoming financial year. These local surcharges will impact both businesses and individuals operating within specific local areas. For up to date information regarding current surcharges in your locality, it is advisable to visit the Portuguese Tax Authorities website.

IRC Taxable Income and Corporate Income Tax Rate

For businesses operating in Portugal, understanding the corporate income tax (IRC) rates and taxable income thresholds is essential for efficient tax planning and compliance. The corporate income tax rate directly influences the financial performance of a business, affecting profitability and investment decisions. Furthermore, the IRC taxable income thresholds can determine the eligibility for certain tax benefits, incentives and exemptions, making it essential that businesses remain informed. Currently, a flat corporate income tax rate of 21% is imposed on the total taxable income generated by all companies based in mainland Portugal.

New Personal Income Tax (IRS) Rates

Individual taxpayers in Portugal must stay up to date with changes to personal income tax rates and thresholds. These adjustments impact the amount of tax payable by individuals, influencing disposable income and financial planning strategies. For 2024, in direct response to the minimum wage increase, the Portuguese Government is reducing income tax. To achieve this, income tax brackets have been adjusted to keep pace with inflation, meaning that residents can now enjoy increased thresholds before entering the higher tax brackets. This extends to the rates for the initial five income bands, offering significant financial relief for those with lower and middle incomes.

By lessening the tax load on individuals, the government aims to increase disposable income, enhancing quality of life and encouraging spending and investment. By familiarising yourself with the new IRS rates and thresholds, you can proactively manage your tax liabilities and optimise the new tax-saving opportunities available in 2024.

IRS Withholding Tax

The IRS withholding tax regime plays a crucial role in collecting taxes on various types of income, including salaries, dividends, and royalties. As of 2024, the scheme has been updated, with significant gains for workers and pensioners. The changes ensure that a rise in gross salary directly translates to an increase in net household income. For example, an unmarried taxpayer earning around €1,300 monthly could experience a withholding tax reduction of 16%, resulting in a net monthly gain of approximately €28 (€392 annually).

These changes in withholding tax rates will have significant implications for both employers and employees, improving cash flows and tax liabilities. It's essential that both businesses and individuals understand these changes to improve their financial efficiency.

VAT Exemption

The VAT exemption, allowing for zero rate on specific goods and services, has been extended until 31st of December 2024. The exemption has also been broadened to include the sale of glass bottles typically used in agricultural production activities. There will also be a reduced VAT rate for electricity supplies and an intermediate rate for select food and beverage services. These revisions in VAT exemption criteria may impact businesses' eligibility for VAT relief on certain goods and services, meaning that a thorough review of all relevant transactions is essential to guarantee compliance and efficiency.

Simplified Accounting Systems

In addition to changes in income tax rates and minimum wage, individuals and businesses in Portugal must navigate alterations in accounting standards. The Portuguese Government have introduced an app containing all essential ID papers and documents in a digital format. This transition aims to reduce the environmental footprint of excessive paperwork and simplify the accounting processes involved in filing taxes, enhancing accessibility for all. This change will also reduce administrative burdens and enhance operational efficiency.

Conclusion

In conclusion, navigating the tax changes in Portugal in 2024 requires a comprehensive understanding of the adjustments in municipal surcharge rates, corporate and personal income tax rates, accounting standards, and VAT regulations. By staying informed and adopting a proactive approach, businesses and individuals can effectively manage their tax obligations and optimise their financial strategies. Keeping up to date with these changes and seeking professional advice when needed is key to adapting to the evolving tax landscape and achieving long-term financial success.

Portutax offers assistance in navigating the intricate landscape of tax changes in Portugal. With expert guidance and comprehensive insights, we aim to equip individuals and businesses with the knowledge and tools necessary to understand and adapt to evolving tax regulations. You can get in touch via email at accounts@portutax.com or phone at +351 289 463271.

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