The State Budget for 2025 was approved by Law 45-A/2024 of December 31 (“2025 State Budget”) with small changes compared to the proposal presented by the Portuguese Government. In this newsletter we summarise the additional tax changes approved by the Portuguese Parliament.

PERSONAL INCOME TAX

Income eligible for the Youth PIT program will be exempt from withholding tax, corresponding to the portion of income exempt from taxation.

VAT

The following changes stand out:

• Clarification has been issued that the restrictions on VAT deductions do not apply to bicycles, whether motorized or non-motorized;
• Reduction of VAT rate applicable to bullfighting shows (item 2.32 of list I annexed to the VAT Code); and
• The reduced VAT rate will apply to food products designed for infants and young children, including transitional formulas, as well as medical-purpose foods and complete dietary substitutes for weight management (item 1.14 of list I annexed to the VAT Code).

REAL ESTATE TRANSFER TAX AND STAMP DUTY

The 2025 State Budget includes the following additional changes:

• An exemption is granted for registration fees and other associated costs for all acts and contracts required to facilitate land consolidation involving contiguous or adjoining rustic properties owned by the same individual, regardless of their economic use. This exemption also applies to the registration of rights and encumbrances associated with the consolidated rustic properties; and
• Exemption from RETT and Stamp Duty on transfers of rustic property required for the implementation of the above-mentioned land consolidation transactions.

TAX BENEFITS

Entities that are licensed to operate in the Madeira Free Trade Zone in the years 2025 and 2026 will benefit from the reduced Corporate Income Tax rate of 5% until 31 December 2028.

A summary of all tax measures approved by the 2025 State Budget can be found here .