Laws 32/2024, 33/2024, 34/2024 and 36/2024 of 7 August

On 7 August, four laws were published that make important changes to the IRS.

Teresa Alves de Sousa e Francisca Quaresma, lawyers from our Tax Law Department, summarise the most significant aspects of each of the laws:

Law no. 32/2024
Updating the value of the specific deductions for categories A (income from dependent work) and H (pensions) of the IRS

The specific deduction for both categories (whose value has been set at 4,104 euros for several years) will change in line with the update rate of the Social Support Index (IAS). This year, the IAS rose by 6 per cent, from 480.43 to 509.26 euros.

Law no. 33/2024
Updating of general personal income tax rates and change to the minimum existence formula

According to this law, the rates set out in article 68 of the CIRS for the 1st and 2nd brackets are lowered, respectively, from 13.25% to 13% and from 18% to 16.5%, while in the 3rd bracket there is a reduction from 23% to 22% and in the 4th bracket from 26% to 25%. In the 5th and 6th brackets, whose current rates are 32.75 per cent and 37 per cent, the rates drop to 32 per cent and 35.5 per cent respectively. There are no reductions in the rates of the last three IRS brackets, contrary to the government’s initial proposal.

Based on some of the simulations that have already been put forward, this drop in IRS rates will correspond to an annual tax reduction of between 10.08 euros and 402 euros for salaries of between 900 euros and 3000 euros gross, respectively. Although the law is already in force, taxpayers will only begin to feel its practical effect in September when they receive their salary or pension. The mechanism to be adopted by the government in order to apply the new withholdings retroactively until January has yet to be defined. From the outset, the Ministry of Finance will apply the solution in two stages: in September, to make it possible to recover the tax overpaid in the first eight months of the year, and in October, when the new tables are implemented.

Law no. 34/2024
Introduction of the formula that updates the limits of the IRS general rate brackets based on the rate of change of the gross domestic product deflator and the rate of change of the gross domestic product per worker

The limits of the brackets have changed, with the 7th bracket now covering taxable income of more than 39,791 to 43,000 euros, the 8th from 43,000 to 80,000 euros and the 9th covering income of more than 80,000 euros (compared to 81,199 euros previously). According to the law, these limits will be updated annually by applying the rate of change in the Gross Domestic Product [GDP] deflator and the rate of change in Gross Domestic Product per worker, calculated on the basis of data published by the National Statistics Institute (INE) in the 3rd quarter of the year prior to the entry into force of the State Budget Law.

As part of the review of legislative measures in the area of housing, the law also provides for the government to consider extending the deduction of interest charges on debts contracted under mortgage credit agreements.

Law no. 36/2024
Increases the IRS deduction for housing expenses, in the form of rent paid, up to a limit of 800 euros

For taxpayers with a taxable income equal to or less than the value of the first bracket (currently €7,703.00), the deduction limit will be €1100.

For taxpayers with a taxable income higher than the first bracket and equal to or less than €30,000, the limit will result from applying the following formula:

      800 € + [1100 € – 800 €) × [(30 000 € – taxable income) / (30 000 € – value of the first bracket)]

The increases provided for in this law will be implemented progressively as follows:

– 50 per cent in 2025;
– 75 per cent in 2026;
– 100 per cent in 2027.

Written by Teresa Alves de Sousa e Francisca Quaresma, lawyers from the Tax Law Department.