Portugal Is Quietly Getting Cheaper for Companies: What the Corporate Tax Cut Really Changes

There are not many headlines in 2025 that say “taxes are going down.”

Most of the world has either frozen corporate tax rates or gently pushed them up. When the OECD looked at 145 jurisdictions this year, it found that Portugal was one of only three where corporate tax actually fell between 2024 and 2025, alongside Iceland and Luxembourg.

Portugal cut its statutory corporate income tax rate from 21% to 20% in 2025 and has now approved a path to 17% by 2028, with a lower rate on the first slice of profit for small and medium-sized companies.

So, on paper, Portugal is entering a new phase: still not a tax haven, but no longer in the high-20s club either.

For founders and investors looking at Portugal as a base for operations, this is a meaningful change. The question is what it really alters in practice, especially when you add in the reality of surtaxes, bureaucracy and the way space-based ventures actually operate here.

This article is a translation layer. It turns a dry corporate tax headline into something a foreign entrepreneur can use when deciding where, and how, to set up a company in Portugal.

Tax reduction is coming

What actually changed in Portugal’s corporate tax

Let us start with the mechanics.

Portugal’s corporate income tax is called IRC. For years, the standard mainland rate sat at 21%. On top of that, there is a state surtax on higher profits and a municipal surtax (derrama), which can push the effective rate over 30% for larger companies in some locations.

In the last two budget cycles, three important things have happened:

• 2025 State Budget: Parliament reduced the standard corporate rate from 21% to 20%. For small and medium-sized enterprises (SMEs), the rate on the first €50,000 of taxable profit was capped at 16%.

• OECD 2025 statistics: Against this backdrop, the OECD noted that corporate tax rates were basically stable on average (21.7% in 2019 vs 21.2% in 2025), and Portugal was one of the few jurisdictions that had actually cut its rate this year.

• Law 64/2025 and the 2026–2028 plan: In November 2025, Parliament approved a staged reduction of IRC from 20% to 17%:

  • 19% for tax periods starting in 2026

  • 18% for 2027

  • 17% from 2028 onwards .For SMEs and small-mid-cap companies doing agricultural, commercial or industrial activities, the rate on the first €50,000 of profit drops from 16% to 15%, with the general rate applying to the rest.

So if you incorporate a company in Portugal today, you are looking at:

• A standard national rate of 20% in 2025, scheduled to fall to 19% in 2026 and then to 17%.

• A 15–16% rate on the first €50,000 of profit if you qualify as an SME under the rules.

• Plus state and municipal surtaxes depending on profit level and municipality.

One more nuance: the OECD’s tax reform reports also note that Portugal is among the countries with the strongest R&D incentives for companies, particularly SMEs, alongside France and Poland.

The big picture is simple. Portugal used to be in the “mid-high” corporate tax group in Europe; it is now sliding down towards the “solid mid-range, incentive-rich” group.

Where Portugal now sits in the European tax map

If you zoom out, the average combined corporate tax rate across OECD countries is just above 21%. France, Malta and Colombia sit at the high end of the 2025 table, with rates around 35–36%, and a number of Central and Eastern European countries sit in the mid-teens or high-teens.

Portugal’s mainland headline rate of 20% in 2025 and planned 17% in 2028 puts it:

• Below big economies like France, Germany and Italy on the nominal rate.

• Above the ultra-low jurisdictions and zero-tax territories listed in the OECD report.

• Roughly aligned with countries like Austria or Luxembourg after their own recent cuts.

The story The Portugal News picked up – “Portugal 1 of 3 countries to cut corporate tax” – comes directly from this positioning. From 2024 to 2025, only Iceland, Luxembourg and Portugal moved their rates down, while four jurisdictions increased them.

That does not make Portugal tax-free. It does make Portugal an outlier in direction of travel. While many peers are gently tightening, Portugal is saying “we want to be a bit more attractive each year for the next few years.”

For a founder or investor with a long-term horizon, the direction of travel matters almost as much as the absolute number.

Why the government can afford to cut – and what it wants from you

Tax cuts usually come with either a deficit or a political headache. Portugal’s current government is cutting in a different context.

Portugal has been running budget surpluses for several years in a row. Debt as a percentage of GDP has been falling steadily from a COVID peak above 134% towards the high-80s. In the 2026 budget bill, the government forecasts growth of about 2.3% for 2026, after 2.0% in 2025, and still expects a small surplus.

At the same time, there is a quieter shift happening in the real economy. Exports grew by 14.3% in September, and Portugal now has more than 5,000 startups, responsible for around 28,000 jobs and nearly €3 billion in turnover, with roughly seventy percent of them created in the last five years.

When the Prime Minister talks about the tax cut “opening a new cycle of tax attractiveness” and boosting investment, it is not just a slogan. The government is essentially saying:

• Public finances are stable.

• The entrepreneurial base is broader and more export-oriented.

• Now is the time to trade one or two percentage points of corporate tax for more investment and better jobs.

From an overseas founder’s point of view, this is a useful combination: a boring, fiscally disciplined country that is also making a concrete effort to be more attractive to companies.

How foreign founders often misread this

It is easy to see “20% going to 17%” and stop thinking. That is usually where mistakes start.

The first common error is to treat the headline corporate tax rate as the full story. For a real company operating in Portugal, total obligations include municipal surtaxes, state surtax on higher profits, social security, and sometimes sector-specific levies. The effective rate for profitable, larger companies can still be notably above 20% once everything is added up.

The second is to assume that a moderate tax rate automatically compensates for bureaucratic friction. Incorporating a company in Portugal is not especially difficult. Running it, updating CAE codes, navigating Finanças, dealing with banks, hiring, and handling cross-border issues is where time and energy get drained. That is why the Burtucala playbook puts so much emphasis on structure and cadence, not just one-off decisions.

The third is to frame Portugal as a “tax play” rather than a business and location play. Most of the value of being here comes from a blend of factors: access to European markets, brand and lifestyle pulling power, a growing base of skilled founders and operators, and a still-relatively-moderate cost base in many regions.

The corporate tax cut is a tailwind. It is rarely the main reason a good project works.

When foreign entrepreneurs arrive with only the tax headline in mind, they tend to under-invest in understanding how the Portuguese operating system actually feels day-to-day.

How Burtucala builds ventures with this new tax reality in mind

Burtucala is not a tax advisory firm. We work where real estate, venture design and operations meet, and we bring in specialist tax partners when needed.

Practically, here is how we integrate the new tax environment into the work.

We start with fit, not form. In a Strategy meeting, we look at what you are actually trying to build: a boutique hotel, a guesthouse, a coliving space, an F&B concept, a mixed-use building with work and wellness, or a combination of these. We then map whether Portugal – and which part of Portugal – makes sense as the home for that venture, given licensing, staffing, cost levels and demand.

If the answer is yes, we move into venture architecture. In our Venture-Build sprints, corporate structure and tax are handled alongside site, permits, layout, capex, staffing and brand. The tax cut changes the numbers in the model, but it does not change the order of operations. We still design capacity, pricing and P&L first, then see how tax interacts with that, not the other way round.

We then orchestrate the right stack of partners: local accountants and tax lawyers who live and breathe IRC, R&D incentives and municipal surtaxes, plus the architects, engineers and operators who turn the building and business model into something that can open on time. Our role is to make sure everyone is looking at the same reality and that the plan is joined up.

If you are already operating in Portugal, the tax cut also affects you. In those cases, our Advisory Board work focuses on using the new headroom to strengthen the business – better margins, better people, better systems – instead of just letting higher profits drift away into complexity and chaos.

The corporate tax cut makes Portugal more interesting on paper. The way you design and run your venture determines whether you actually experience that advantage in practice.

Is Portugal the right corporate base for you? A few grounding questions

Before you decide to set up or move a company to Portugal, it helps to sit with a few simple questions:

1. What is the real centre of gravity of your venture? Are your clients, operations and team going to be primarily in Portugal, or are you trying to bolt a Portuguese entity onto a business that lives somewhere else?

2. How much does the 3-percentage-point tax cut matter to your economics? On your realistic profit scenarios, is the move from 20% to 17% a nice-to-have, or is it crucial to viability?

3. Have you factored in the full cost stack? Beyond the national rate, have you modelled municipal and state surtaxes, social security, and the cost in time and advisors of staying compliant?

4. How will setting up in Portugal affect your team and partners? Does the country help you attract the people you need? Are there local founders, operators or service providers you can plug into, in a landscape that now includes more than 5,000 startups and a growing export base?

5. What happens if politics or the cycle change? The current plan takes corporate tax down to 17% by 2028, but governments and cycles change. Would your business still make sense here if the rate stayed at 19% or if other costs rose faster than expected?

If your answers are clear and coherent, the tax cut becomes a genuine bonus. If they are fuzzy, it may be worth slowing down, tightening the logic of your move, or using a Strategy meeting to pressure-test your assumptions before you commit.