Key figures — as of 2026-10-01: IRC falls from 20% to 19% in 2026, 18% in 2027, 17% in 2028 under Law 64/2025 — the Finance Ministry attributes a €300 million revenue gap in the 2027 state budget directly to the 2026 rate cut — the Conselho das Finanças Públicas (CFP) projects the public accounts flipping from a 0.2%-of-GDP surplus in 2026 to a 0.2%-of-GDP deficit in 2027 — SMEs already pay just 15% on their first €50,000 of taxable profit.
A tax cut companies love, a bill the Treasury didn't expect to feel this soon
Foreign entrepreneurs setting up a Lda in Portugal over the past two years have had one genuinely good piece of tax news: the headline corporate rate has been falling every year since 2024. The standard rate is 19% with a reduction to 18% in 2027 and 17% in 2028 already approved by Parliament. It's a rare case of a European government cutting business tax on a fixed, legislated timetable rather than promising it and quietly shelving it.
The catch is showing up now, in the paperwork for next year's state budget. Because IRC is settled the year after profits are earned, the drop that companies enjoyed on their 2026 trading results doesn't actually hit the Treasury's books until 2027. The one-percentage-point IRC cut applied to 2026 profits is estimated by the government at minus €300 million in state revenue in 2027. That figure comes straight from the Quadro de Políticas Invariantes the Finance Ministry sent to Parliament — essentially the baseline cost of decisions already locked in before any new 2027 budget measures are even discussed.
Why this particular slice costs so much
It helps to understand the mechanics. The €300 million figure doesn't correspond to the move to 18%, which applies to tax periods starting in 2027 and will mainly hit tax settlement in 2028 — it results from the first step of the cut, from 20% to 19%, applied to profits companies earned in 2026 and settled the following year. In other words, the number finance minister Joaquim Miranda Sarmento inherits for OE2027 is just the first domino. The next one — the 19%-to-18% step — lands in the 2028 accounts, and the final 18%-to-17% step hits 2029. It's one of the so-called "heranças" (legacies) the finance minister is carrying into the next budget — lost revenue that stems from an earlier legislative decision and is already baked into the starting accounts.
The broader fiscal backdrop makes the timing uncomfortable. The Conselho das Finanças Públicas anticipates a 0.2%-of-GDP surplus this year, and a 0.2% deficit in 2027. For 2027 and 2028 the CFP projects accounts still close to balance but in deficit — negative balances of 0.2% and 0.5% of GDP respectively — reflecting the permanent effects of the IRS and IRC tax relief measures along with rising interest costs. IRC isn't the only pressure point — a parallel IRS (personal income tax) reduction and higher debt-servicing costs are pulling in the same direction — but it's the one directly tied to the corporate tax cut foreign investors keep asking about.
GrowIN's math: what the cut is actually worth to a business owner
Run the numbers on a mid-sized foreign-owned company with €200,000 of annual taxable profit. At 20% (the 2025 rate), that's €40,000 in IRC. At 19%, it drops to €38,000 — a saving of €2,000 a year, or roughly €167 a month. Scale that same one-point saving across the tens of thousands of companies filing IRC in Portugal, and you land close to the government's own €300 million estimate — which is exactly why a modest per-company saving becomes a structural budget problem at national level. If the pattern holds through the 18% and 17% steps, the cumulative drag on state revenue from this single reform could approach €900 million over three budget cycles, even before accounting for any offsetting growth in the tax base from new investment.
"A tax cut that genuinely saves business owners money and a state budget under genuine pressure are not contradictory — they're the same policy, viewed from two different ledgers," says GrowIN Portugal Editorial.
What this means if you run a company here
Nothing changes for your 2026 filing obligations — the 19% rate stands, and SMEs still benefit from the 15% reduced rate on the first €50,000 of taxable income. The practical risk is further out: a government facing a widening gap has, historically, looked at surtaxes, municipal derrama adjustments, or slower follow-through on the 2028 target rather than reversing a headline cut outright. Nothing in the current law suggests the 17% target is at risk, but budget negotiations for 2027 (expected in the usual autumn cycle) are the moment to watch for any compensating measures layered on top of IRC — state surtax thresholds and autonomous taxation rules are the usual pressure valves. For background on how the rate schedule, SME relief and surtaxes interact, see our guide hub at company setup.
What to watch next
The Orçamento do Estado para 2027 debate over the coming weeks will show whether the government offsets this gap with spending restraint, as it's signalled, or introduces new revenue measures that could touch businesses indirectly. Anyone incorporating in Portugal this year should budget on the current 19% rate holding, treat the 18% and 17% steps as scheduled but not guaranteed, and get professional confirmation of their specific IRC position before year-end filings — this is a fast-moving budget cycle, not a settled one.