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- Tax, Live in Portugal
Progressive vs Special Rates in Portuguese IRS: Which Income Gets Which Rate?
📈 Progressive Rates
The general rates (Article 68) apply to taxable income in nine brackets, from 12.5% to 48% in 2026, plus the solidarity surcharge (2.5% or 5%) on very high incomes.
Income always taxed at progressive rates (residents):
- Employment income (category A)
- Pensions (category H)
- Business and professional income (category B)
- Capital gains on real estate (50% of the gain, category G)
These are mostly “active” income — from work or pensions — plus property gains.
📌 Special Flat Rates
Some income is taxed by default at special rates (Articles 71 and 72), separate from your other income:
- 28% — capital income (interest, dividends) and gains on financial assets
- 25% — net rental income (with reductions for long leases and moderate rents)
- 35% — capital income from tax havens
- 20% — alimony received
These are mostly “passive” income — from savings and assets.
⚖️ The Option to Aggregate
For income taxed at special rates, residents can choose to aggregate (englobar) it with their other income and pay at progressive rates instead:
- Capital income (category E) — including dividends, with only 50% taxed for Portuguese and EU companies
- Rental income (category F)
- Gains on financial assets (category G)
It’s worth it when your marginal rate is below the special rate. If you opt in, you generally have to aggregate all income of the same type in that year.
Mandatory aggregation: gains on financial assets held less than 365 days must be aggregated when your taxable income reaches the top bracket.
🌍 Non-Residents
- Taxed mainly at flat rates: 25% on employment, business, pensions and rents; 28% on capital income
- Real estate gains: 50% at progressive rates (considering worldwide income to set the rate)
- EU/EEA residents can opt to be taxed as residents in some situations
🧮 Example
A resident with a €40,000 salary and €5,000 in dividends from a Portuguese company:
- Without aggregation: salary at progressive rates + dividends at 28% (€1,400)
- With aggregation: €2,500 (50%) added to income, taxed at the marginal rate (around 35%) ≈ €875
💡 Practical Tips
- Simulate both options on the Portal das Finanças.
- Low income year? Aggregation can be cheaper.
- Remember the trade-off: aggregating can increase the rate on other income and remove some benefits.
🚀 Final Considerations
Active income (work and pensions) and property gains are always taxed at progressive rates. Passive income (capital, rents and financial gains) gets a flat rate by default — with the option to aggregate when it pays off.
📢 Expert Advice: Review the aggregation option every year. Changes in your income can make it worthwhile one year and costly the next.
Want to know which option is best for you? Step Inside Portugal’s tax team can simulate your IRS — find out more about our tax services here. ✨
This article is for general information only and doesn’t constitute tax advice. Rates as of 2026.
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- Blog Post
- Tax, Live in Portugal
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- Tax, Live in Portugal
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- Tax, Live in Portugal
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