When a company reports positive results, it may choose to grant additional remuneration to its employees through so-called balance bonuses, a legal mechanism allowing employees to participate in the company’s profits, subject to a specific tax framework.
What are balance bonuses?
Balance bonuses correspond to amounts granted to employees, shareholders or members of corporate bodies, based on the results of the financial year, and always require a resolution of the General Meeting within the context of the approval of the annual accounts.
From a tax perspective, these amounts qualify as employment income (Category A) and are taxed at the moment they are paid or made available to the beneficiaries.
Balance bonuses and Corporate Income Tax (IRC): are they deductible?
Yes, provided that the legal requirements are met.
Pursuant to Article 23 of the Portuguese Corporate Income Tax Code, balance bonuses may be considered tax-deductible expenses, provided that:
- They relate to the financial year in which the profits were generated;
- They are effectively paid or made available by the end of the following financial year;
- They are indispensable for obtaining or maintaining income subject to IRC.
If payment is not made by the end of 2026, the Portuguese Tax Authorities may deny the tax deductibility of the expense.
Distinction between employees and managing shareholders
The tax regime is not identical for all beneficiaries.
In the case of managing shareholders, tax deductibility is only accepted if:
- The beneficiary holds, directly or indirectly, at least 1% of the share capital; and
- The amount granted does not exceed twice the monthly remuneration earned during the tax year.
For employees, however, the tax legislation in force in 2026 maintains a particularly favourable regime, allowing an IRS exemption for amounts granted as participation in the company’s profits.
IRS exemption in 2026: what are the limits?
Under Law no. 82/2023, of 29 December (State Budget for 2024), amounts granted to employees as participation in the company’s profits are exempt from IRS up to the limit of five times the Statutory Monthly Minimum Wage (as set by Decree-Law no. 139/2025, of 29 December, which increased the statutory minimum monthly wage to €920).
In 2026, this limit corresponds to €4,600 per employee.
However, this exemption is subject to a cumulative essential requirement:
- The company must have implemented a nominal average increase of fixed remuneration per employee of at least 5%.
If this requirement is not met, the entire amount paid will be subject to IRS under the general Category A rules.
Aggregation and withholding tax
Despite the exemption, these amounts:
- Remain classified as employment income;
- May be relevant for aggregation purposes, potentially influencing the tax rate applicable to the household’s remaining income;
- Must be correctly reflected in payroll records and in the annual income statement.
Balance bonuses vs. dividends
It is important to clearly distinguish between:
- Balance bonuses, granted to employees and taxed as Category A income; and
- Dividends, which may only be distributed to shareholders, correspond to net profits after taxes, and are taxed as Category E income.
The tax framework, timing of taxation and applicable rates are substantially different.
Final considerations
The granting of balance bonuses may constitute an effective tool for salary enhancement and tax optimisation, provided it is properly structured and framed in light of the applicable legislation.
Given the complexity of the regime and the formal requirements imposed by the Portuguese Tax Authorities, a prior and tailored analysis is advisable in order to mitigate tax risks and ensure full use of the legal benefits. Granting balance bonuses may have very positive impacts for your company; however, it is always important to assess both the advantages and disadvantages from a tax perspective. You may rely on the experience of the Tax Law Department of Belzuz Abogados, S.L.P. – Branch in Portugal, which is fully available to support and advise you on this matter.