Workers earning €970 in Portugal could be exempt from income tax in 2027

Under the Government's proposed State Budget for 2027 (OE2027), those earning up to €970 a month could be exempt from personal income tax in Portugal next year.

As reported by Notícias ao Minuto, the proposal submitted to Parliament by the Government led by Luís Montenegro raises the minimum subsistence threshold that determines the income level exempt from IRS.

The €970 monthly figure is also the proposed minimum wage for 2027, and people earning up to this amount would not pay IRS next year.

Minimum threshold

The minimum subsistence allowance is a tax rule designed to protect lower-income earners by ensuring they keep a minimum level of income after tax.

Depending on their earnings, taxpayers may benefit from a full or partial exemption.

Under the proposed legislation, the Government wants to set the threshold at the higher of €13,580 a year or 1.5 times the Social Support Index (IAS), multiplied by 14.

Tax brackets

The proposed budget also increases the income limits for all nine IRS tax brackets by 3.88 percent, raising the thresholds at which taxpayers move into higher tax bands.

Under the proposal, the first tax bracket would cover annual taxable income up to €8,666, while the second would cover income between €8,666 and €13,075. The third bracket covers earnings between €13,075 and €18,530, followed by the fourth, which applies to income between €18,530 and €23,985.

The fifth bracket covers annual taxable income between €23,985 and €30,538, while the sixth applies to income between €30,538 and €44,762. The seventh bracket would span €44,762 to €48,373, and the eighth would cover income between €48,373 and €89,995. The highest, ninth bracket, would apply to annual taxable income above €89,995.

IRS rates

The Government has also proposed IRS rates of 12.20 percent for the first bracket, 15.20 percent for the second, 20.70 percent for the third, 23.60 percent for the fourth and 30.60 percent for the fifth.

The sixth bracket would have a rate of 34.60 percent, rising to 43.10 percent for the seventh and 44.60 percent for the eighth, while the highest bracket would carry a rate of 48 percent.

Although the proposed rates for the first six brackets differ from those currently in force, they match the rates included in the Government’s recent proposal for an additional IRS reduction on income earned in 2026.

The measures remain part of the proposed 2027 State Budget and are subject to the legislative process in Parliament.