Tax Authority rules out requirement for collective agreement to grant IRS exemption on productivity bonuses

Ultimately, for workers to benefit from IRS-exempt productivity bonuses, they do not need to be covered by a collective bargaining instrument (IRCT). This new interpretation by the Tax Authority, contained in a binding ruling published this Wednesday on the Finance Portal, will broaden the pool of workers potentially covered by the measure, according to lawyers consulted by ECO.

It should be noted that, in addition to the IRS exemption, the regime also provides that these amounts “are excluded from the contribution base” for Social Security, meaning they are not subject to the 11% Social Security deductions, the tax authority recalls.

Thus, it is enough for companies to comply with the requirements regarding salary increases provided for by law, the exceptional and one-off nature of the bonus, and the corresponding withholding at source in order to grant this tax-free benefit to their employees. The requirement for collective bargaining instruments only applies for the purposes of increasing Corporate Income Tax (IRC) benefits for employers—that is, for the employer’s tax deduction of remuneration-related costs.

The Tax and Customs Authority (AT) has therefore clarified important doubts regarding the tax regime applicable to productivity, performance, and profit-sharing bonuses, stating that the IRS exemption of up to 6% of annual base pay is not dependent on the existence of a collective bargaining agreement (IRCT).

The position follows a request for clarification from a company in the renewable energy sector, which questioned the scope of the reference made by Article 115 of the State Budget for 2025 (OE2025) to Article 19-B of the Tax Benefits Statute (EBF).

At issue was whether, in addition to salary increase criteria, the existence of collective bargaining would also be required. The AT responds unequivocally: “The reference […] is limited to compliance with the requirements of an ‘eligible salary increase’”, explicitly concluding that “the existence of an IRCT is not a criterion for the application of this regime”.

“This is a new interpretation by the AT, quite positive, because it will expand the number of workers potentially covered by the measure,” concludes Madalena Caldeira, from the law firm Gómez-Acebo & Pombo. The labour law specialist explains that “the requirement related to collective bargaining only applies to the Corporate Income Tax (IRC) uplift on salary increases.”

“In other words, if a company wants to benefit from that incentive, then its workers must be covered by a collective bargaining instrument that has been concluded or updated within the last three years,” she adds, citing Article 19-B of the Tax Benefits Statute regarding the salary enhancement incentive.

Similarly, Eduardo Castro Marques, from Dower Law Firm, notes that the “reference made by Article 115 of the State Budget Law for 2025 (currently Article 96 of the State Budget Law for 2026) to Article 19-B of the EBF is limited to the requirements relating to salary increases, namely points a) and b) of paragraph 1 of Article 19-B of the EBF (Tax Benefits Statute), which must be met for the said exemption to apply.”

Meanwhile, “the criteria for labour costs corresponding to salary increases to be considered at 100% of their amount (in the current version of the law, 200%) are broader and include the need for collective bargaining,” the lawyer stresses.

“For this uplift to apply, Article 19-B(3) of the EBF is relevant, meaning employers may only benefit from the increase in relation to employees with permanent employment contracts who are covered by a collective bargaining instrument concluded or updated within the last three years,” he explains.

The regime, introduced by the State Budget for 2025, establishes that IRS exemptions apply, “up to 6% of the employee’s annual base salary”, to amounts paid or made available in 2025 as productivity bonuses, performance bonuses, profit-sharing, and balance sheet bonuses, according to the AT.

Although collective bargaining instruments are not mandatory, other requirements must be met. The central element of the regime is compliance with salary increase criteria. The AT stresses that “paragraph 2 of Article 115 […] makes the right to exemption conditional on the verification of that eligible salary increase”, directly referring to Article 19-B of the EBF.

This reference, the tax authority clarifies, has a limited scope: it refers only to the criteria for determining salary increases and not to other requirements provided for in that regime, such as the possible existence of an IRCT.

Despite the exemption, the AT determines that bonuses must still be subject to withholding tax at source at the time of payment, at the rate applicable to the employee’s monthly salary. The justification is that at that stage it is not yet possible to guarantee compliance with the requirements at the end of the fiscal year: “The entity does not yet know whether the eligible increase requirements will be met at year-end.” Subsequently, the amounts must be separately reported in the annual income declaration.

The AT also highlights the importance of formal obligations. Employers must issue the annual income statement with an “explicit mention of compliance” with the salary increase requirements. In addition, bonuses covered by the exemption must be identified separately from other employment income. Compliance with these requirements is essential for the recognition of the tax benefit.

The clarification now issued has a direct impact on the number of companies covered. “By removing the IRCT requirement, the AT eliminates a potential barrier to the application of the regime, allowing companies without collective bargaining agreements to also benefit from the exemption,” considers Madalena Caldeira.

The binding information also emphasizes that the legislator’s focus is on encouraging wage increases, this being the determining criterion for granting the benefit. This interpretation reinforces the usefulness of bonuses as a remuneration policy tool, while ensuring greater legal certainty in a recent regime still subject to interpretative doubts.