The Portuguese Tax Authority has issued Official Circular No. 20291 (17 March 2026), introducing significant updates to the IRS Model 3 tax return, applicable from 2026 onwards.

These changes reflect recent legislative updates, particularly the State Budget 2025 (Law 45-A/2024) and other tax reforms affecting individuals, freelancers, and investors in Portugal.

This guide breaks down the key changes, practical implications, and compliance considerations.

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Phase 1 – What Has Changed in the IRS Model 3 (2026)

The updated Model 3 applies to income from 2015 onwards, but is primarily relevant for 2025 tax filings submitted in 2026.

Key structural updates:

• Revised forms for Annexes A, B, C, D, H, and J

• Updated instructions for Annexes E (capital income) and G (capital gains)

• New digital interface available on the Portuguese Tax Portal

• Filing deadline remains: 30 June 2026

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Phase 2 – IRS Jovem: Major Reform (Critical for Young Professionals)

One of the most impactful changes is the redesign of the IRS Jovem regime (Article 12.º-B CIRS).

New eligibility criteria (from 2025 onwards):

• Age limit increased to 35 years

• No longer linked to completion of a degree

• Applies for 10 years (previously 5)

• Maximum exemption cap increased to €28,737.50

• Higher exemption percentages over time

New reporting structure:

• Creation of new fields across all annexes:

  • Annex A → New Box 4F.1

  • Annex B → New Box 3E.1

  • Annex C → New Box 3D.1

  • Annex D → New Box 3C.1

  • Annex J → New Box 4E.1

Important restriction:

• IRS Jovem cannot be combined with:

  • Non-Habitual Resident (NHR)

  • IFICI (scientific innovation incentive)

  • Ex-resident regime

Practical insight:

This change significantly expands eligibility but introduces strict incompatibility rules, requiring careful planning—especially for expatriates.

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Phase 3 – Changes for Freelancers and Business Income

Annex B and C (Freelancers & Self-Employed)

• New IRS Jovem reporting structure introduced

• Clear separation between:

  • Pre-2025 regime

  • Post-2025 regime

Autonomous taxation (vehicles)

• Threshold increased from €20,000 → €30,000

• Applies to:

  • Passenger vehicles

  • Mixed-use vehicles

• Electric vehicles remain excluded

Key implication:

Freelancers using vehicles in their activity must reassess tax efficiency and cost allocation strategies.

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Phase 4 – Capital Income and Capital Gains Updates

Annex E (Capital Income)

Updates reflect:

• Changes to Article 43.º-B EBF (recapitalization incentives)

• Removal of references to:

  • Article 35.º Companies Code (post-2024)

• Adjustments to codes:

  • E32 and E33

Annex G (Capital Gains)

• Updated Code G23

• Revised treatment of:

  • Real estate funds

  • Investment funds

• Alignment with repeal of urban rehabilitation incentives

Annex J (Foreign Income – critical for expats)

New requirement:

• Taxpayers must now indicate whether assets are:

  • Listed securities

  • Units in collective investment schemes

This directly impacts:

• Cross-border investors

• Individuals with brokerage accounts abroad

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Phase 5 – New Tax Exemptions and Benefits

Annex H (Deductions and Benefits)

New exempt income categories introduced:

• Code 430

  • Employer-provided housing (2024–2026)

• Code 431

  • Productivity bonuses, profit-sharing, and performance rewards (2025–2026)

Additional update:

• Pension deduction table now requires identification of:

  • Which taxpayer incurred the expense

Practical impact:

Employers and employees must ensure correct classification of benefits, particularly in compensation structures.

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Key Deadlines and Compliance Risks

Filing deadline:

• 30 June 2026

Main risk areas:

• Incorrect application of IRS Jovem (especially overlap with NHR)

• Misclassification of:

  • Foreign income

  • Capital gains

  • Exempt benefits

• Errors in new reporting fields across annexes

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Strategic Takeaways for Expats and Freelancers

For expatriates:

• Review interaction between:

  • IRS Jovem

  • NHR / IFICI

• Pay attention to foreign income reporting in Annex J

For freelancers:

• Evaluate:

  • Vehicle taxation changes

  • Eligibility for IRS Jovem

• Ensure proper classification under simplified vs organized accounting

For investors:

• Increased scrutiny on:

  • Capital gains reporting

  • Investment structures

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Expert Support (GoalSeek)

The 2026 IRS Model 3 introduces structural and strategic changes, not just technical updates.

In practice, the main challenge is not completing the form—but choosing the correct tax position.

At GoalSeek, we support:

• IRS filings for expatriates and freelancers

• Cross-border income structuring

• IRS Jovem vs NHR optimization

• Capital gains and foreign income reporting

If you are unsure how these changes affect your situation, a structured review is strongly recommended.

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Disclaimer

This article is based on Official Circular No. 20291/2026 and applicable Portuguese tax legislation, including the State Budget 2025. It does not constitute binding tax advice. Each situation should be assessed individually and, where necessary, confirmed with the Portuguese Tax Authority.