A practical question is now becoming increasingly relevant under the new IRS Jovem rules in Portugal:
If a young taxpayer was already tax resident in Portugal, but in an earlier year earned only employment income abroad, does that year still count toward the 10-year IRS Jovem period?
Based on the current wording of article 12.º-B of the Portuguese Personal Income Tax Code and the Portuguese Tax Authority’s 2025 binding interpretation, the answer is yes: foreign-source employment or self-employment income can count toward the 10-year clock, provided the person was tax resident in Portugal and legally required to report that income for Portuguese IRS purposes.
This point is particularly important for internationally mobile young professionals, remote workers, returnees, and expatriates who may have spent one or more years earning salary abroad while still remaining Portuguese tax residents.
The 2025 IRS Jovem rules in brief
Under the 2025 version of article 12.º-B, IRS Jovem grants a partial IRS exemption on category A and category B income for eligible taxpayers up to age 35, provided they are not treated as dependants and they opt into the regime in their annual Portuguese tax return. The exemption applies over the first 10 years of obtaining employment or self-employment income, with the following percentages: 100% in the first year, 75% in years 2 to 4, 50% in years 5 to 7, and 25% in years 8 to 10. The exemption is capped at 55 times the IAS; for 2025, with the IAS set at €522.50, the cap is €28,737.50.
The same provision also confirms that the regime does not apply to taxpayers who benefit or have benefited from the former Non-Habitual Resident regime, the scientific research and innovation incentive, or the ex-resident regime, and it also requires the taxpayer’s tax position to be regularised.
What the law says about counting the 10 years
The key rule is that IRS Jovem applies during the first 10 years of obtaining category A or category B income. The law also says that the benefit does not apply in years when no category A or B income is earned, and in those cases the regime resumes later for the remaining eligible years. This means the count is based on actual years of earning relevant work income, not simply calendar years passing by.
The transitional rule introduced by the 2025 State Budget is equally important. It states that, when placing a taxpayer into the correct exemption bracket in 2025 and later years, one must look at the number of prior years in which category A or B income had already been earned, excluding only years in which the person was treated as a dependant.
In other words, the law is focused on prior income years, not on whether the income was earned in Portugal or abroad.
Do foreign income years count? Yes, if the taxpayer was resident in Portugal
For Portuguese tax residents, IRS is charged on worldwide income. The Portuguese Tax Authority’s own guidance states that residents in Portugal must declare income obtained both in Portugal and abroad, and that foreign-source employment income is reportable in Portugal through the annual return, typically with Annex J where relevant.
That matters because the 10-year IRS Jovem count is tied to years in which the taxpayer obtained category A or B income that was relevant for Portuguese IRS purposes. So if a young person was resident in Portugal in 2020 and earned salary abroad that had to be declared in Portugal, that year can still count as a qualifying income year for IRS Jovem, even though the salary was not paid by a Portuguese employer and was not earned in Portuguese territory.
The practical importance of the 2025 binding ruling
In the binding ruling you shared, the taxpayer argued that 2020 should not count because, although she was tax resident in Portugal, she only earned foreign employment income in that year and did not file a Portuguese Model 3 return. The Tax Authority rejected that view.
The reasoning is highly relevant for practice:
- the law does not distinguish between Portuguese-source and foreign-source employment income for purposes of the 10-year IRS Jovem count;
- if the individual was tax resident in Portugal, foreign-source work income fell within Portuguese IRS and should have been reported;
- failure to file the return does not suspend or reset the IRS Jovem clock, because otherwise the non-compliant taxpayer would be placed in a better position than a compliant one.
That is a strong compliance-oriented interpretation, and it is fully consistent with the worldwide-income principle applicable to Portuguese tax residents.
Example: how the counting works
Take this example:
- 2020: tax resident in Portugal, salary earned abroad
- 2021: no employment or self-employment income
- 2022: employment income in Portugal
- 2023: employment income in Portugal
- 2024: self-employment income in Portugal
- 2025: wants to apply IRS Jovem
Under the interpretation reflected in the ruling you shared, the relevant income years are 2020, 2022, 2023, and 2024. That makes 2025 the fifth year of obtaining category A/B income, not the first year and not the fourth. Accordingly, the taxpayer would fall into the 50% exemption bracket applicable to years 5 to 7, assuming all other eligibility conditions are met.
A missed filing does not erase the year
This is one of the most important takeaways for young taxpayers with foreign income.
If you were tax resident in Portugal and legally required to file a Portuguese return including foreign employment income, the fact that you did not file does not mean that year disappears for IRS Jovem purposes. The Tax Authority’s position is that such a year still counts. In practical terms, non-filing is a compliance issue, not a mechanism for preserving the more generous IRS Jovem percentages for later years.
For advisers, this means the IRS Jovem analysis should always include a residency review and a year-by-year mapping of prior category A and B income, including foreign income that may not have been correctly reported at the time.
What this means for expatriates and internationally mobile young professionals
This issue is especially relevant in cases such as:
- young professionals who moved to Portugal but kept working remotely for a foreign employer;
- taxpayers who were still registered as resident in Portugal while working abroad;
- individuals with cross-border employment history before formally regularising their Portuguese filings;
- young freelancers with foreign clients who assumed foreign-source income would not affect IRS Jovem counting.
For these taxpayers, the key question is not where the income was paid from, but whether they were Portuguese tax residents in that year and whether the income was reportable in Portugal as category A or B income. If yes, that year is likely to count toward the 10-year IRS Jovem period.
Key compliance points before claiming IRS Jovem
Before applying IRS Jovem, a taxpayer should verify:
1. Tax residency status year by year
Portuguese residents are taxed on worldwide income, so residency is the starting point for the analysis.
2. Whether prior foreign income was category A or B income
Only category A and category B years count for the 10-year regime.
3. Whether there were any non-income years
Years without category A or B income do not consume a year of the benefit.
4. Whether the taxpayer was a dependant in any of those years
The transitional rule excludes years in which the person was treated as a dependant from the counting exercise.
5. Whether the taxpayer has ever benefited from excluded regimes
This includes the former NHR regime, the scientific research and innovation incentive, and the ex-resident regime.
6. Whether the tax situation is regularised
A regularised tax status is expressly required under article 12.º-B.
Final conclusion
The 2025 Portuguese IRS Jovem framework should not be read narrowly by reference only to Portuguese-source income.
Where a young taxpayer was already tax resident in Portugal, a prior year in which they earned employment or self-employment income abroad can still count toward the 10-year IRS Jovem period, because Portuguese residents are taxed on worldwide income and are required to report foreign-source work income in Portugal. The Portuguese Tax Authority’s 2025 binding interpretation reinforces exactly that point: foreign income years are not ignored, and a missed filing does not stop the clock.
For many taxpayers, this can materially change the applicable exemption percentage in 2025 and later years. A person who assumes they are in year 1 may in fact already be in year 5 or beyond.
FAQ
Does foreign employment income count for IRS Jovem?
Yes, it can. If the taxpayer was resident in Portugal and the foreign employment income was reportable in Portugal, that year may count toward the 10-year limit.
If I did not file my Portuguese tax return for that foreign-income year, can I ignore it?
No. The Tax Authority’s position is that a year that should have been declared still counts for IRS Jovem purposes.
Do years with no category A or B income count?
No. The regime pauses in years without category A or B income and resumes later for the remaining years.
Is IRS Jovem available if I have or had NHR?
No. Taxpayers who benefit or have benefited from NHR are excluded from article 12.º-B.
What is the IRS Jovem cap in 2025?
The exemption is capped at 55 times the IAS. With the IAS at €522.50 in 2025, the cap is €28,737.50.
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