IRS descent also reaches Madeira with a tax differential of 30%

“ We'll settle in, as usual. We have done so”, said Miguel Albuquerque, in statements to journalists on the margins of a visit to a school in Funchal.

Luís Montenegro announced on Tuesday, in the debate on the motion of censure tabled by the Aquida, that the reduction of the rates that the Government will propose to the Assembly of the Republic will cover the first six income steps and will be reflected in wages and pensions in November, through a decrease in the retention rates at source.

Madeira currently applies the tax differential of 30% compared to the continent in the nine IRS classes, the maximum allowed by the Regional Finance Act.

If the descent is approved by the Assembly of the Republic, in the first six stages, the Regional Government (PSD/CDS-PP) will accommodate this decline in the region, maintaining the application of the differential.

Miguel Albuquerque said that there was an expectation of “that there might be some fall in tax collection,” but what has been happening is that “what people don’t pay the State to introduce into the economy and that creates greater economic dynamics.”.

The reduction now announced by the Prime Minister will be reflected in the retention tables when, in November, companies, public services and other payers of wages and pensions process salaries and reforms relating to the penultimate month of the year, through an adjustment of retention rates – in the percentage that each month surrenders to the State to advance the tax due.

There will be “a reduction in the retention of the source in November, in the salary and in the Christmas allowance,” said Luís Montenegro during the plenary debate.

If it is approved in parliament, this will be the third time that the governments of Montenegro have proposed and managed to ‘green light’ to apply additional reductions of IRS in the middle of the year, after it took place in 2024 and 2025. The other two coincided with the beginning of the year with the entry into force of the State budget.

Although workers and pensioners deliver IRS to the State every month through retentions, the real tax is calculated only the following year by looking at the total income earned from January 1 to December 31, depending on the IRS rates that are in force on the last day of the fiscal year.

In practice, instead of income gained over 2026 being taxed according to the rates currently in force, they will be in accordance with the rates which are approved in the meantime and which are in force on 31 December 2026.

Although there is only a drop in the rates of the first six steps of income, relief “covers in practice all taxpayers” who pay IRS, Montenegro said.

This is due to the fact that the annual IRS is calculated progressively.

The taxpayers of the 7th, 8th and 9th steps will also benefit, thanks to the cut made in the rates of the lower levels.

In order to calculate the IRS, the fiscal slices the annual income according to the levels provided in the scale of the scales and applies the respective rate to each. For example, whoever is in the last step will be taxed from the 1st to the 6th step with the new rates and then from the 7th to the 9th with the already planned rates (which remain unchanged).

Montenegro has indicated that the decline will cover two million households and will have an impact of around EUR 400 million.