Key takeaways

  • Parliament approved an IRS exemption for compensation paid to Church abuse victims
  • The law merges a government bill with proposals from Chega, Livre and BE
  • It was approved in general on 12 June and now heads to the President for signing
  • Once promulgated, victims will not pay income tax on compensation received

Portugal’s Parliament has approved a law exempting compensation payments made to victims of abuse within the Catholic Church from personal income tax (IRS). The measure now goes to the President of the Republic for promulgation before it can take effect.

How the bill came together

The approved diploma is the result of merging a proposal from the Government with separate bills tabled by the right-wing Chega party, the left-wing Livre, and the Left Bloc (BE). All of these were approved in a general vote on 12 June, showing rare cross-party agreement on the issue.

Combining bills from across the political spectrum into a single unified law is a common step in the Portuguese legislative process when different parties propose similar measures. It allows lawmakers to avoid duplicate or conflicting rules while still crediting the original proposals.

Why abuse compensation became a tax question

In recent years, Portugal has confronted a wave of revelations about historical sexual abuse within the Catholic Church, following an independent inquiry that documented allegations spanning decades. As dioceses and Church-linked institutions have moved toward offering financial redress to survivors, questions arose over how those payments would be treated under tax law.

Without a specific exemption, compensation of this kind could in principle be treated as taxable income, reducing the amount victims actually receive. Lawmakers from across the spectrum argued that taxing such payments would be unjust, given their purpose as redress for harm suffered rather than earned income.

What foreign residents should know about IRS exemptions

For foreign residents unfamiliar with the Portuguese tax system, IRS is the personal income tax that applies to residents on their worldwide income and to non-residents on Portuguese-sourced income. Specific exemptions, like this one, are periodically created by Parliament to remove certain payments—such as some social benefits, damages, or compensation—from the standard tax calculation.

While this particular exemption applies to a narrow category of victims, it is a reminder that Portugal’s tax code includes numerous carve-outs that can affect how different types of income or compensation are treated. Anyone receiving a settlement, damages award, or similar payment in Portugal should check whether it qualifies for a specific IRS exemption before assuming it will be taxed as ordinary income.

The law now awaits the President’s signature to be formally promulgated and published, a step generally considered a formality once Parliament has approved a measure with broad support.