The State Budget for 2023 introduced the Tax Incentive for Salary Increases (IFVS) scheme, a tax benefit designed to encourage companies to increase their employees’ salaries.
This scheme allows taxpayers subject to corporate income tax (and self-employed workers, for personal income tax purposes, with organized accounting) to consider 200% of the costs of salary increases as a tax cost for the purposes of determining taxable income.
In the previous wording of the scheme, taxpayers who had increased their employees’ salary range in relation to the previous year were excluded from this incentive.
This condition has now been revoked by Law No. 65/2025 of November 7, so the requirements for applying this scheme are as follows:
- Increase in the average annual base salary in the company ≥ 4.7%
- Increase in the annual base salary of employees with a salary ≤ the company average also ≥ 4.7%
This incentive applies only to workers with permanent employment contracts who are covered by collective bargaining agreements entered into or updated less than three years ago.
On the other hand, we note that workers who are part of the employer’s household, are partners or hold 50% or more of the share capital or voting rights, and their respective households, are excluded from this incentive.
The maximum annual limit per employee for the increased charges is five times the minimum monthly wage (€870 in 2025, which implies a maximum deduction of €4,350).
The update to this measure applies to tax periods beginning on or after January 1, 2025. This means that employers who, in 2025, have increased the salary of employees whose salary had already been increased in 2024, can benefit from this 200% increase (provided they meet the other applicability requirements).
We remind you that this incentive is currently scheduled to end on December 31, 2026, as determined at the time of its creation in the State Budget Law for 2023.
The Tax Department of Belzuz Advogados, S.L.P., Branch in Portugal, is available to advise you on the analysis of the various tax benefits available to optimize your tax burden. We are therefore prepared to clarify any questions that may arise regarding the correct application of the Tax Incentive for Salary Increases, as well as to assist in the practical implementation of the aforementioned measures, ensuring full compliance with legal obligations and maximizing the opportunities provided by the current tax regulatory framework.