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Tax Benefit for Performance and Profit-sharing Bonuses, and the Incentive for Salary Increases in 2025
General framework
With the aim of encouraging companies to reward performance and promote wage increases, the National Budget for 2025 (Law no. 45-A/2024) consolidated and expanded the regime for performance and profit-sharing bonuses, as well as the incentive for salary increases. The new, broader rules now include not only employees but also members of statutory bodies, thereby strengthening the scope of the measure.
Benefit applicable to performance and profit-sharing bonuses
Amounts voluntarily paid by companies, on a non-regular basis, in the form of productivity or performance bonuses, profit-sharing, or bonus out of distributable profits authorised by shareholders (“gratificações de balanço”), will in 2025 benefit from more favorable tax and social security treatment. These amounts are now exempt from Personal Income Tax (IRS) up to 6% of each worker’s annual base salary and are not subject to Social Security contributions.
Eligibility conditions
Granting this benefit depends on compliance with the requirements set out in Article 19-B of the Tax Benefits Statute. Namely, the obligation for the company’s average annual base salary to increase by at least 4.7% compared to 2024; in addition, all employees earning at or below the company’s average must receive at least the same minimum increase (4,7%). Finaly, there is also a requirement that the wage gap — defined as the difference between the highest and lowest salaries within the organization — must not widen.
These conditions aim to ensure that gains are not concentrated in a minority, but instead translate into effective, broad, and balanced salary improvements. The law also introduces two relevant changes compared with the 2024 regime: the inclusion of statutory body members and the adoption of the concept of base salary (“Retribuição base”) from the Labour Code, which corresponds to the fixed, contractual component of remuneration, excluding allowances and supplementary payments.
Formal procedures
To benefit, the company must declare, at the beginning of 2026 when submitting its annual employees income information (Modelo 10), that it has met the legal requirements. In the specific case of bonus out of distributable profits authorised by shareholders (“gratificações de balanço”), their allocation must also be recorded in the minutes of the general meeting, reflecting the decision to allocate part of the profits to rewarding employees or members of governing bodies.
Corporate Income Tax (IRC) incentive for salary increases
In parallel, provided that the requirements of Article 19-B are met, an incentive is available against Corporate Income Tax of the year. This consists of the possibility of deducting 200% of the costs related to the increases in base salary, including the corresponding Social Security contributions.
However, the benefit is subject to specific limits. It only applies to workers with permanent employment contracts who are covered by a collective bargaining agreement concluded or updated in the last three years. Furthermore, it only applies up to a maximum of five times the mandatory minimum monthly wage per worker, which in 2025 corresponds to €4,350 per year, excluding increases resulting solely from updates to the minimum wage. Finally, increases for employees who are members of the employer’s household, employees who directly or indirectly hold 50% or more of the company’s share capital or voting rights, and members of their households, are excluded.
Impacts and challenges
The regime creates a significant opportunity for both companies and employees. The former can substantially reduce their Corporate Income Tax liability, while the latter benefit from higher net bonuses and wage increases that foster greater internal equity. However, the advantages do not materialize automatically: they depend on careful wage planning, strict compliance with legal criteria, and a balanced approach to financial sustainability and income enhancement.
Conclusion
The new framework represents the legislator’s commitment to aligning tax policy with the enhancement of labor, seeking to combine business competitiveness with social justice. However, it is also a demanding regime, requiring companies to adopt a genuine compensation management strategy. More than a one-off tax benefit, this incentive can serve as a catalyst for structural change, prompting organizations to rethink their compensation policies in a sustainable, fair, and forward-looking way.
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