The index, led by Estonia, is subdivided into five areas: Taxes on property (Portugal appears in 20th position), on consumption (22nd), on private income (26th), on international taxation (31st) and on companies (37th), in which Portugal has the worst classification.

André Pinção Lucas, Executive Director of Instituto +Liberdade, tells ECO that “the lack of fiscal competitiveness has been one of the main obstacles to Portuguese economic development, which becomes more evident when we compare it with other similar economies”. And the situation is not expected to change in 2025. “The State Budget for 2025 does not present structuring measures that significantly improve our fiscal competitiveness, so Portugal's relative position is not expected to change much in the coming years, therefore being a lost opportunity for create a very tax system”.

In global terms, Portugal maintained the same position as last year in the 2024 edition of the Tax Competitiveness Index, 35th among the 38 OECD countries. According to a statement from Mais Liberdade, to which ECO had access, in the 2023 report, Portugal appeared in 34th position, but the ranking methodology was updated in this edition and, therefore, the Portuguese position remains unchanged. In the overall score, the Portuguese tax system fell 0.2 points, having gone from 53.9 to 53.7 out of 100 points.

What is the Tax Competitiveness Index?

This index measures the degree of adherence of a country's tax system to two aspects of tax policy: Competitiveness and neutrality. A competitive tax code has lower marginal tax rates when compared to other states. On the other hand, a neutral tax code must produce a minimum of economic distortions, that is, it does not favour consumption to the detriment of savings, as happens with taxes on investment and taxes on wealth.

According to this year's report, the worst performance of the Portuguese tax system continues to be that relating to companies (Portugal remains in the penultimate position), “especially due to the high tax burden on companies and complexity”. Portugal has the second highest statutory maximum IRC rate in the OECD, at 31.5%, which includes 21% of the tax, to which are added the municipal surcharge of up to 1.5% and the state surcharge which can reach 9%. And only Colombia surpasses Portugal with a maximum rate of 35%. Even so, the Tax Foundation also cites, in the report, some positive points of the Portuguese tax system. Businesses can deduct property taxes from their taxable income and there is a limitation on the bias of debt-based taxation. On the other hand, Portugal exempts foreign dividends and capital gains for most countries and offers above-average capital cost amortizations for investments in machinery.

Portuguese tax incentives also distort economic decision-making. An example of this is R&D tax benefits, which apply an implicit 35% subsidy to eligible expenses (the second highest in the OECD, more than double the organization average), representing a reduction in the tax burden independent of the marginal tax rate. Also in terms of tax complexity, Portugal scores poorly, being the country with the most separate IRC rates (6).

In the case of private income, Portugal improved some positions compared to the 2023 edition and is now 26th. However, according to the conclusions of the Tax Foundation, one of the weaknesses of the Portuguese tax system is the fact that it has a maximum IRS rate of 53%, including the additional solidarity tax, and there is no maximum limit for social contributions.