The Portuguese government wants to change the income tax levels for next year, according to the preliminary version of the 2020 state budget, the final version of which will be delivered to the Portuguese parliament on Monday. The IRS tax rates do not change, but the brackets are updated taking into account inflation at 0.3%. Last year the rates had not changed, unlike 2018 which saw the emergence of new income tax levels. This proposal from the Portuguese government has yet to be definitively approved in the framework of the 2020 State Budget. What are the changes in the income tax levels in Portugal? What are the new Portuguese IRS tax rates? Lisbob, the expatriate assistant to Portugal, tells you all about the new income tax rates.

New 2020 IRS tax rates and brackets in Portugal

An increase below inflation

The social partners had already indicated that the levels of the IRS would maintain the same rates. In contrast, the Portuguese executive will update the seven levels of IRS, below expected inflation with an update of 0.3%, against forecasts of 1.2% and 1.4% for 2020. This will not prevent an increase in taxation due to the rising price level in the country, thus penalizing some taxpayers.

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Without modifying the tax rates, the government has therefore chosen to update the levels of the IRS which are used to calculate income tax, according to a preliminary version of the 2020 State Budget which will be submitted to Parliament Monday December 16.

The 0.3% increase in IRS tranches used by the executive is the same rate as that presented in negotiations with the public service for 2020 salary increases.

Tax exemption up to 7.112 euros income

According to the Portuguese state budget proposal, the income threshold from which the IRS applies amounts to 7,112 euros, compared to 7,091 euros currently. Also, the maximum tax rate of 48% applies from a taxable income of 80,882 euros compared to the current 80,640 euros.

The tax brackets had not been updated in 2019 in terms of inflation, the impact on taxpayers' finances was around 60 million euros.

For the 2019 state budget, the opposition and leftist parties criticized the proposal not to update the upper echelons, which means that the Portuguese lost purchasing power due to the rise prices. A situation that harms taxpayers who have incomes close to the limits of each bracket and who, with salary increases, move to the upper bracket, seeing their taxation increase, but not their purchasing power.

The 2020 State Budget proposal was presented to the Assembly of the Portuguese Republic on Monday. It will be debated in plenary on January 9 and 10. The overall final vote on the first draft budget for this legislature is scheduled for February 6, 2020.

Here's what the new tax levels look like :

The first level (to which the rate of 14.5% applies) concerns up to 7,112 euros of annual taxable income (not to be confused with annual gross income) instead of the current 7,091 euros ;
The second level (23%) concerns income between 7,112 euros and 10,732 euros ;
The third bracket (28%) concerns income of 10,732 euros up to 20,322 ;
The fourth level (35%) concerns income between 20,322 and 25,075 euros ;
The fifth bracket (37%) applies to income above 25,075 euros and up to 36,967 euros ;
The penultimate bracket (45% rate) relates to income above these 36,967 euros and up to 80,882 euros ;