# 2027 Budget Delivered: Portugal's Sixth Income Tax Cut in 2.5 Years

> Portugal's OE2027 reaches parliament with a sixth IRS cut since 2023 — what the bracket 1–6 rate trims mean for foreign payroll employees.

- Source: https://www.growinportugal.com/news/2027-budget-delivered-to-parliament-portugal-s-sixth-straigh-2026-10-08
- Publisher: GrowIN Portugal (https://www.growinportugal.com)
- Published: 2026-10-08
- Last reviewed: 2026-10-08
- Language: en

> **Key figures — as of 2026-10-08:** OE2027 delivered to parliament 8 October 2026, two days ahead of the legal deadline — the sixth IRS tax relief in two and a half years under the PSD/CDS-PP government — rates on brackets 1–6 cut 0.3–1 percentage points, retroactive to January 2026 (1st bracket 12.50%→12.20%; 2nd 15.70%→15.20%; 3rd 21.20%→20.20%; 4th 24.10%→23.60%) — 2027 brackets, the specific deduction and the minimum subsistence threshold to be updated by roughly 3.88%, booked at €401 million in forecast revenue loss — non-residents remain on a flat 25% rate, unaffected by the cut.

## A budget delivered early, and a number the government wanted on the record

Finance Minister Joaquim Miranda Sarmento delivered the draft State Budget for 2027 to parliament two days before the deadline, handing the document to Assembly of the Republic Speaker José Pedro Aguiar-Branco. Buried in the procedural moment was a political talking point the government has been building for months: with OE2027, there will be the sixth tax relief since the PSD and CDS-PP have been in government, over the last two and a half years.

That framing matters more than the budget's other headline numbers for one simple reason — Portugal's governing coalition has turned successive, incremental IRS cuts into its core economic pitch, and this is the sixth instalment since taking office.

## What's actually changing on payslips

The mechanics split into two layers. First, an already-approved rate cut: the government decided to lower IRS rates from the 1st to the 6th bracket, by between 0.3 and 0.5 points, a measure that will already be reflected in 2026 in withholding tax, at a cost of €400 million. The concrete numbers: the 1st bracket rate goes from 12.50% to 12.20%; the 2nd drops from 15.70% to 15.20%; the 3rd falls from 21.20% to 20.20%; the 4th eases from 24.10% to 23.60%. The measure has retroactive effect to January 2026 and will be felt in November and December salaries, as well as the Christmas bonus, through new withholding tax tables. Because IRS is progressive, the relief effectively reaches every IRS taxpayer, since those in the 7th, 8th and 9th brackets also benefit from the lower rates applied to the brackets below them.

Second, OE2027 itself layers on the statutory adjustment: the proposal updates the IRS brackets by 3.88%, alongside the specific deduction and the minimum subsistence threshold, which must be adjusted by law. That indexing already carries a price tag: the €401 million revenue loss is booked in the invariant policy framework sent to parliament, resulting from updating the IRS brackets and the specific deduction applied to income earned in 2026.

Prime Minister Luís Montenegro has pitched the package as targeted relief, saying the cut is meant to "support the middle class".

## The foreign payroll employee angle

Here's the distinction most coverage glosses over, and it's the one that actually matters if you're on a Portuguese company's payroll as a foreigner. These cuts apply to the **progressive resident scale** — brackets 1 through 9. If you're a tax resident (183+ days, or habitual residence — see our [tax and NIF guide](/tax-and-nif/)), you ride the same ladder as Portuguese colleagues and the lower rates on brackets 1–6 flow straight into your withholding tax from November's payslip onward.

If you're still a non-resident for tax purposes — commuting cross-border, or newly arrived and not yet resident — none of this touches you: non-residents are taxed at a flat rate of 25% on Portuguese-source employment, self-employment, and pension income, a rate the budget leaves untouched. The same logic applies to anyone drawing income under the IFICI ("NHR 2.0") flat 20% regime, and to earners above €80,000, who still face the separate solidarity surcharge layered on top of the ordinary scale.

## GrowIN's read: the relief is real but thin

Government simulations for the 2026 slice of the cut show a single worker on €1,500 gross a month saving about 65 euros in 2026, with the 2027 bracket indexing adding roughly 57 euros more the following year, for a combined two-year relief of approximately 122 euros. Spread that over 24 months and it works out to barely €5 extra take-home pay per month — a figure that undercuts the "sixth tax cut" headline more than it supports it.

There's also a catch worth flagging for anyone expecting a pay rise. Because the bracket update is fixed at roughly 3.88%, a salary increase above that threshold can still push a taxpayer into a higher bracket, meaning part or all of the raise effectively disappears into extra tax — classic fiscal drag, dressed up as relief.

**GrowIN Portugal Editorial: "Six tax cuts in two and a half years sounds dramatic until you measure it in euros per payslip — for most salaried foreigners, it's lunch money, not a lifestyle shift."**

## What to watch next

The budget now heads into committee debate, with a general-terms vote expected later in October; the Socialist Party is set to abstain, which should clear the measure's path. Final withholding tables for 2027 typically follow in December via a Finanças ordinance — worth checking against your own payslip once published, and a good moment to review your residency status if you're close to the 183-day threshold. For help reading your own tax position as a foreign employee or freelancer in Portugal, see our [/services/](/services/) page.

The headline is six cuts. The payslip impact, for most foreign employees, is closer to a rounding error — welcome, but not life-changing.

## Sources

- [RTP](https://www.rtp.pt/noticias/politica/proposta-de-orcamento-do-estado-para-2027-aprovada-em-conselho-de-ministros_e1770215)
- [Renascença (RR)](https://rr.pt/noticia/politica/2026/10/07/governo-garante-nova-reducao-de-irs-com-atualizacao-de-escaloes-e-outros-ajustes/488201/)
- [Jornal Económico](https://jornaleconomico.sapo.pt/noticias/oficial-governo-atualiza-escaloes-de-irs-em-388/)
- [Autoridade Tributária / Portal das Finanças](https://www.portaldasfinancas.gov.pt)

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© GrowIN Portugal. Cite as: GrowIN Portugal, "2027 Budget Delivered: Portugal's Sixth Income Tax Cut in 2.5 Years", https://www.growinportugal.com/news/2027-budget-delivered-to-parliament-portugal-s-sixth-straigh-2026-10-08