Balance-sheet bonuses: when a Portuguese bonus is free of income tax

Four names, one provision

A balance-sheet gratuity is the amount a company distributes to its workers by reference to the results of the financial year, usually once the accounts are approved. A productivity bonus and a performance bonus are decided on other criteria, and profit sharing has a name that says what it is. For tax purposes, though, all four sit in the same sentence.

Article 96 of Law 73-A/2025 of 30 December, which enacted the Portuguese State Budget for 2026, exempts from income tax, «up to a limit of 6% of the worker's annual base remuneration, the amounts paid or made available to the worker or to members of statutory bodies in 2026, borne by the employer, voluntarily and without regular character, as productivity bonuses, performance bonuses, profit sharing and balance-sheet gratuities»¹.

Reading that sentence carefully settles almost every question people have about it. There is a limit, which is a percentage of a base the sentence does not define. There is a year, because the regime is annual and needs renewing. And there are two qualities the payment must have, «voluntary» and «without regular character», which turn out to be far more demanding than they look.

The base for the 6% is fourteen months, not twelve

The phrase «annual base remuneration» is not defined in the article, and that is where most published calculations part company with reality. It is not annual gross income, it is not salary with all its supplements, and it is not base salary multiplied by twelve.

The Portuguese tax authority was asked and answered in binding information: annualised base remuneration counts «the base pay earned by the worker over 12 months, plus the 13th and 14th months (Christmas and holiday subsidies) paid compulsorily», excluding «any other salary supplements of a fixed or variable nature, since only base pay and the compulsory subsidies form the concept relevant to the calculation of the 6% limit»⁴.

So it is fourteen months of base pay, and nothing else:

One honest note about the source: the paragraph in the binding information contradicts itself. It opens by saying annual base pay should be worked out «including salary supplements of a fixed nature» and closes by excluding them. The concluding sentence is the one that says what «only» forms the concept, and it is the one this article and the calculator follow. Anyone whose case turns on that difference has a good reason to request their own binding ruling.

Both conditions sit with the employer

This is probably the strangest relief in Portuguese income tax, because the worker controls neither of the conditions it depends on.

The first is the form of the award, which the provision describes as «voluntary and without regular character» and which the next section covers in detail.

The second is in article 96(2): the exemption «depends on the employer paying the amounts referred to in the previous paragraph having made, in 2026, a salary increase qualifying for the purposes of article 19-B of the Tax Benefits Statute»¹. That article, in the wording given by the same budget law, requires a rise of at least 4.6% on two fronts at once: in the company's average annual base pay measured against the end of the previous year, and in the annual base pay of workers earning at or below that average².

The figure changed, and it is why nearly everything written about this regime is out of date on one point:

The practical consequence is blunt and worth stating plainly: if the employer did not make the rise, there is no exemption at all, however small the bonus and however discretionary the decision to pay it. Paragraph 3 adds that the employer must state expressly, in the annual income statement required by article 119(1)(b) of the income tax code, that the condition was met¹. That document is what evidences the entitlement, and it is worth checking in January.

What «voluntary» means here

This is the filter that, in practice, excludes most real bonuses, and it is not our reading. The tax authority answered in binding terms a company that asked precisely whether a bonus defined in an internal regulation and subject to meeting objectives fell within the regime⁴.

The answer starts from the definition of regularity in article 47 of the Contributory Regimes Code and concludes that a bonus previously defined in an internal regulation, even one conditioned on meeting objectives or metrics, «cannot be considered as awarded voluntarily». The reasoning is set out clearly: if the bonus is pre-established by objective and general criteria, even ones dependent on hitting targets, «the worker can foresee payment of the bonus on meeting those objectives and this right becomes vested and loses its occasional and discretionary character, becoming an obligation of the employer».

The same ruling closes the other door: «the annual award of bonuses on a recurring basis, even where that right is not contractually provided for, excludes its eligibility», this time for failing the requirement of having no regular character.

What survives is a narrower universe than the naive reading suggests:

• Qualifies: the extraordinary bonus decided by management in that year, not promised, not set out in a contract, collective agreement or internal policy, and not repeated year after year.
• Does not qualify: the bonus written into the employment contract; the bonus with a formula published in the internal policy; the target-based bonus a person knows they will receive on hitting the numbers; and the bonus the company pays every year out of habit.

Why income tax shows up on the payslip anyway

This is the part that causes the most confusion, and it has a simple explanation the tax authority set out in Circular 20282/2025, published to adapt the monthly remuneration return to this regime³.

The problem is one of timing. At the moment the company pays the bonus, it does «not yet know whether it will in fact meet the requirements relating to the qualifying salary increase», because that is only established once the financial year closes. It therefore cannot apply an exemption it does not yet know exists.

What the tax authority ruled is a two-stage process:

1. In the month of payment. The bonus is withheld «separately from other employment income», at the rate applying to the monthly remuneration for the month in which it is paid, and reported under code A, that is as income subject to tax. This is what article 96(4) requires¹.
2. After the year closes. Once compliance with article 19-B is verified, the company files replacement monthly remuneration returns «now itemising the exempt income» under code A41, created specifically for this regime, «by subtraction from the respective income reported under code A». The part exceeding the 6% stays as taxable income, and the withholdings remain reported where they were. The circular adds expressly that «no fine or penalty applies to the replacement of the returns in this situation»³.

The effect for the recipient is this: the bonus reaches the account with tax already deducted, as though it were ordinary income, and the tax advantage materialises months later, as a larger refund or a smaller balance to pay at the following year's settlement.

A worked example

Take a base salary of 1500 EUR a month and a productivity bonus of 1500 EUR, awarded in 2026 by a company that raised salaries by 5% that year and decided the bonus at its discretion.

The figure that gives this table its meaning is the counterfactual. The same 1500 EUR paid as ordinary salary would be taxed in full and would also give up 11% to social security, leaving 1166.85 EUR in hand. As an exempt bonus under the conditions above, the worker ends up with 1473.10 EUR. The difference, 306.25 EUR, is what this regime is worth in a real case.

The regime is annual, and it has already changed once

It is worth not treating this as a permanent rule of the income tax code, because it is not. Article 96 is written for amounts paid «in 2026» and lives only inside that year's budget law. It was created for 2025 by article 115 of Law 45-A/2024, with the same structure and a 4.7% threshold, and renewed for 2026 with the threshold at 4.6%.

That has two practical consequences. The first is that the required salary-rise percentage has to be confirmed every year, because it has already moved once. The second is that the existence of the regime itself is not guaranteed: if a future budget does not renew it, productivity bonuses and balance-sheet gratuities go back to being taxed in full, without anything needing to be repealed.