Proposed State Budget Law for 2026
Indirect Taxes
Check PwC’s analysis of the 2025 State Budget regarding Indirect Taxes (VAT, IEC, IUC, and ISV). Stay informed about all the changes. Have questions? PwC has the answers!
Value Added Tax (VAT)
Reduced rate
Operations to transform olives into olive oil will benefit from the reduced rate.
Excise Duties (IEC)
Excise duty on alcoholic beverages and on non-alcoholic beverages with added sugar (IABA)
The reduced IABA rate (applying only 25% of the tax) applicable to liqueurs and “crème de”, to distilled spirits and fruit spirits (in certain categories and with specific characteristics), is extended until 31 December 2026, provided they are manufactured exclusively from strawberry tree fruit and produced and distilled in the municipalities already provided for in the legislation in force.
Tobacco tax
“Nicotine pouches” will be taxed under the tobacco tax at a rate of €0.065/g.
Tax on petroleum and energy products
An update is proposed to the minimum and maximum limits of ISP unit rates to be applied in the Autonomous Region of the Azores, with reductions for products such as petrol and diesel.
The level of taxation on natural gas used in Mainland Portugal to produce electricity, cogeneration or town gas, as a principal use, remains at 50% of the ISP rate and 50% of the surcharge on CO2 emissions.
Circulation Tax (IUC)
The additional to the single vehicle tax (Adicional ao IUC – Imposto Único de Circulação) will remain in force.
Vehicle Tax (ISV)
Passenger cars equipped with plug‑in hybrid engines, whose battery can be charged from the electricity grid and that have a minimum electric‑mode range of 50 km, will no longer be taxed under the standard regime and will instead be taxed at an intermediate rate of 25%, provided they have official emissions below 80 gCO2/km when type‑approved under the “Euro 6e‑bis” emissions standard.
Beyond the State Budget, what other measures are on the horizon?
Alongside the 2026 State Budget Law, several initiatives are underway that include tax measures impacting both individuals and businesses. At PwC, we summarise what is already known to help you stay informed.
VAT
VAT group
The Government has approved, in the Council of Ministers, a Draft Law to implement a VAT Group regime in Portugal. If approved by the Assembly of the Republic, this measure will enter into force on 1 July 2026.
This initiative represents a significant step forward in the tax management of corporate groups, by allowing the consolidation of VAT balances between companies with a financial link, contributing to greater administrative efficiency and improved liquidity.
In summary, the VAT Group regime that will apply in Portugal will have the following characteristics:
- companies that have a financial link may form a VAT group. Such a link is considered to exist when the parent company holds, directly or indirectly, at least 75% of the capital of other entities, provided that this holding grants it more than 50% of the voting rights;
- the controlling relationship must have existed for at least one year;
- each member of the VAT group must calculate the tax individually and submit its own VAT return;
- the VAT payable by or refundable to the group is calculated by the parent company based on the sum of the amounts credited or owed in each of the VAT returns submitted by the group members. These amounts must be included by the parent company in a consolidated tax return to be submitted monthly;
- participation in the regime is optional but requires remaining within it for a minimum period of three years.
Housing
Within the scope of initiatives aimed at improving access to housing, the Government has proposed applying the reduced VAT rate to the construction of homes for sale up to € 648.000, or for letting with rents up to € 2.300.
Despite the official announcement, the Bill has not yet been published and, at this stage, it is not possible to determine precisely the terms and conditions of its implementation.
PwC Newsletter: Proposed State Budget Law for 2026
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State Budget 2026 – Everything You Need to Know About the Tax Changes
Follow the tax changes introduced by the Draft State Budget Law for 2026. Have questions? PwC has the answers!
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