Personal Income Tax (IRS) in 2026: Tax Benefits, Mobility and New Reporting Requirements

Law No. 73-A/2025 of 30 December, which approved the State Budget for 2026, did not alter the fundamentals of the personal income tax (IRS) system, but continued a trend that has become established in recent years: tax relief on certain forms of employment income, the maintenance of tax schemes aimed at young people and skilled professionals, and a tightening of transparency and compliance requirements.

The measures in force in 2026 have a direct impact on employees, self-employed individuals, employers, investors and taxpayers with income or assets abroad. Rather than merely technical changes to the calculation of tax, they reflect a tax policy that combines incentives targeted at certain taxpayers and activities with increasingly sophisticated reporting obligations and audit mechanisms. For taxpayers and businesses, the challenge is no longer merely to calculate the tax correctly, but also to understand the conditions governing the available benefits, to comply with the applicable reporting obligations and to retain sufficient documentation to support the tax treatment adopted.

Among the most noticeable changes introduced for 2026 are the updating of the income tax (IRS) bracket thresholds and a reduction of 0.3 percentage points in the standard rates applicable to the second to fifth brackets. The reference value for the minimum subsistence level has also been set at 12,880 euros. The actual impact of these measures depends, however, on each taxpayer's specific circumstances, namely their taxable income, the composition of their household, the specific deductions and the applicable tax credits, and not solely on their gross income.

At the same time, the rules on tax at source remain particularly relevant. Although it is often perceived as the tax actually due, tax at source is, as a rule, an advance payment of the personal income tax (IRS) to be calculated in the annual tax assessment. The alignment between the withholding tables and the final tax seeks to reduce significant discrepancies in the annual adjustments, but does not eliminate the need to analyse each tax situation individually.

For employers, this reality has implications that go beyond mere payroll processing. The correct application of the withholding tables requires up-to-date systems, the proper collection of relevant information from employees, and monitoring of legislative and regulatory changes. Furthermore, tax at source remains one of the main points of contact between taxation and labour relations, influencing employees' perception of their net pay and requiring particular care in internal communication.

Against a backdrop of professional mobility and the demand for skilled labour, the correct use of schemes such as **IRS Jovem**, the incentive applicable to former residents and the Tax Incentive for Scientific Research and Innovation can have an impact on the definition of companies' recruitment, remuneration and mobility policies.

Among the schemes with the greatest practical impact, **IRS Jovem**, provided for in Article 12-B of the Income Tax Code, continues to stand out. The scheme allows for a partial exemption on income in categories A and B earned by taxpayers up to the age of 35 who are not considered dependants. By opting into the scheme on the annual tax return, the exemption may be claimed for a maximum of ten years during which income is earned, provided the taxpayer does not exceed the age limit: 100 per cent in the first year, 75 per cent from the second to the fourth year, 50 per cent from the fifth to the seventh year, and 25 per cent from the eighth to the tenth year, always subject to the annual limit of 55 times the value of the Social Support Index.

However, the application of **IRS Jovem** requires the correct determination of the years in which income has already been earned and the years in which the taxpayer was considered a dependant. Years in which no income is earned from categories A or B do not count towards the benefit, which may be resumed in the remaining years, provided that the maximum age has not been exceeded. The scheme cannot be combined, amongst others, with the non-habitual resident scheme, the Tax Incentive for Scientific Research and Innovation, or the tax regime applicable to former residents provided for in Article 12-A of the Personal Income Tax Code.

There are also relevant special schemes in the area of international mobility. Although the non-habitual resident scheme has been repealed for new applicants, situations that have already arisen and those covered by the legally established transitional provisions continue to apply.

The Tax Incentive for Scientific Research and Innovation, provided for in Article 58-A of the Tax Benefits Statute, may apply to persons who become tax residents in Portugal, have not been resident in Portuguese territory in any of the preceding five years, and carry out one of the legally eligible activities. Provided the relevant conditions are met, net income from categories A and B derived from such activities may benefit from a special rate of 20 per cent for ten consecutive years, without prejudice to the option to opt for the lump-sum scheme. The application of the scheme depends not only on the taxpayer's eligibility and the nature of the activity, but also, as the case may be, on the entity within which the functions are carried out and on compliance with the applicable registration procedure.

In turn, the tax regime applicable to former residents, as set out in Article 12-A of the Personal Income Tax Code, remains available to anyone who becomes a tax resident in Portugal by 31 December 2026, provided that, amongst other requirements, they have not been resident in Portuguese territory in the preceding five years and have previously been resident in Portugal. The regime exempts 50 per cent of income from employment and business and professional income, within the statutory limit, from taxation for a period of five years.

The challenges associated with mobility are particularly evident in international corporate groups, shared service centres, technology companies and organisations with multinational talent management structures. Hybrid working and the temporary secondment of employees between jurisdictions can raise issues relating to tax residence, withholding tax, the application of double taxation agreements, social security arrangements, the provision of cross-border remuneration benefits and the possible existence of a permanent establishment. These matters require a comprehensive analysis of tax, employment and social security aspects, preferably before mobility solutions are implemented.

Compliance with reporting obligations regarding income and assets held abroad also warrants attention. Tax residents in Portugal are, as a general rule, liable for personal income tax (IRS) on their total income, including that earned outside Portuguese territory, which must be declared in accordance with the applicable legal provisions.

Furthermore, individuals liable for personal income tax must identify in their annual tax return any deposit or securities accounts held with non-resident financial institutions, or with branches of resident financial institutions located outside Portugal, of which they are the account holders, beneficiaries or authorised to operate. This obligation applies even if the accounts have not generated any income.

This is distinct from the obligation, set out in Article 57(7) of the Personal Income Tax Code, to disclose certain assets held in countries, territories or regions subject to a clearly more favourable tax regime. This obligation covers, in particular, rights to immovable property, vehicles, balances in deposit or securities accounts, shares, units in investment funds, transferable securities, loans, insurance contracts and assets held through certain trust structures in the jurisdictions in question. There is therefore no general obligation to declare the mere holding of any and all assets situated abroad: the scope of the obligation depends on the nature of the asset, its location and the specific rule applicable.

In 2026, the framework for tax transparency was further strengthened by Law No. 26/2026 of 3 June, which transposed European rules on administrative cooperation in tax matters and established mechanisms for the automatic exchange of information on crypto-assets. The new regime imposes obligations regarding reporting, due diligence and the retention of information on the crypto-asset service providers concerned in relation to users subject to reporting. These obligations fall, first and foremost, on the service providers, without prejudice to any reporting duties that may rest with the taxpayers themselves when they derive income or carry out tax-relevant transactions involving crypto-assets.

The strengthening of international mechanisms for the automatic exchange of information and the Tax Authority's growing capacity to cross-check data make it more likely that omissions and discrepancies will be detected without recourse to traditional audit procedures. The information reported by financial institutions, foreign tax authorities, platform operators and service providers subject to reporting obligations is therefore of increasing importance.

Consequently, audit procedures, ex officio corrections, additional assessments and tax disputes relating to international income or assets tend to become more significant. Proactive review of reporting obligations and supporting documentation remains one of the most effective ways of mitigating tax risk.

Self-employed individuals, for their part, remain subject to the specific rules applicable to Category B income under the Personal Income Tax Code. Although the 2026 State Budget did not introduce any structural changes in this area, the correct classification of income, the distinction between the simplified scheme and organised accounting, and compliance with invoicing and reporting obligations remain fully relevant in the context of tax audits.

Companies' remuneration policies constitute another area requiring close monitoring. In 2026, sums paid or made available to employees or members of statutory bodies, on a voluntary and non-recurring basis, by way of productivity or performance bonuses, profit-sharing and year-end bonuses, may qualify for personal income tax exemption up to a limit of 6 per cent of the employee's annual basic remuneration. The application of the exemption depends, amongst other requirements, on the employer having implemented a salary increase that is eligible for the purposes of Article 19-B of the Tax Benefits Statute.

Article 19-B does not directly regulate the exemption of bonuses. Rather, it establishes a tax incentive for salary increases, allowing certain costs relating to salary increases for employees on permanent contracts to be considered at 200 per cent of their respective amount when determining taxable profit, provided that the legal requirements are met, including the 4.6 per cent salary increase thresholds set for 2026 and the conditions relating to collective bargaining agreements. The distinction between the two schemes is essential to prevent the improper application of the benefit.

The tax landscape for 2026 thus combines relief measures on certain forms of employment income and incentives targeted at specific categories of taxpayers with an increasing level of reporting and documentation requirements. For individuals and businesses, the main takeaway lies not merely in tax rates or tax brackets: it lies in the importance of proactive tax compliance.

The correct classification of income, the appropriate use of available benefits, compliance with reporting obligations and the maintenance of consistent documentation are essential tools for mitigating tax risk. In a context where tax audits increasingly rely on the automatic cross-referencing of information, the difference between a legitimate tax opportunity and a future liability often depends on the quality of the legal and documentary framework adopted.

LEGALWORKS regularly monitors developments in tax legislation, providing support to private individuals, self-employed professionals, investors and employers in interpreting and applying current tax regimes, reviewing reporting obligations, structuring remuneration policies, in the prevention of tax liabilities and in representing taxpayers in administrative and judicial proceedings before the Tax Authority and the courts.

Margarida Silva Nunes