Portugal is making significant tax policy changes to support young professionals, aiming to curb emigration and provide financial incentives for early career stability. The updated Young IRS tax regime offers an expanded, long-term tax benefit, reflecting a decade of reductions aimed at those under 35.
What’s New in 2024?
- Age and Duration Expansion: Previously, the Young IRS regime applied to taxpayers up to age 30, limited to a five-year window after completing studies. Now, benefits extend to individuals up to 35, with tax exemptions available for up to ten years from the start of their employment. This change is a response to the government’s recognition that longer-term tax relief is necessary to retain young talent in Portugal.
- Incremental Tax Exemptions:
- In the first year, taxpayers receive a full (100%) exemption from income tax.
- Years two to four see a 75% exemption, a significant increase from the former single-year 75% allowance.
- For years five to seven, the exemption drops to 50%.
- In the final three years (eight to ten), the exemption reaches 25%.
- The new cap on exemptions is now set uniformly at 55 times the IAS (Social Support Index), totaling around €28,009 in 2024. Previously, limits varied by year, making this a more predictable and generous model.
- Streamlined Application Process: The process for accessing Young IRS benefits has become simpler. Individuals now need only inform their employer of the year they began earning eligible income, removing prior requirements to show proof of completed study cycles.
- Ineligibility for Other Incentives: The Young IRS benefit cannot be combined with other popular tax regimes, such as the Non-Habitual Resident (NHR) regime or the ex-residents program, to prevent overlapping tax reliefs.
Why These Changes?
Portugal’s high emigration rates, especially among educated young adults, have prompted a series of legislative responses aimed at making the country more financially attractive. Between 2008 and 2023, about 361,000 young Portuguese citizens left the country, constituting two-thirds of all emigrants during that period. With the Young IRS regime, policymakers hope to reverse this trend by making it financially viable for young professionals to build their careers within Portugal. The government estimates these changes will impact around 350,000–400,000 individuals annually, contributing approximately €650 million in annual tax revenue costs to the state budget.
These tax breaks are seen as essential, yet some debate remains regarding their long-term economic impact. While many in Portugal support these measures, organizations like the IMF have raised concerns about potential challenges in maintaining government revenue in the face of such expansive tax relief.
Additional Benefits to Consider
In addition to these tax breaks, the Portuguese government is introducing programs aimed at young students and graduates, such as free transport passes for students under 23 and one-off bonuses for recent graduates, particularly those in STEM fields. These measures are intended to offset some of the high living costs and financial strain faced by young adults today.
What This Means for Young Expatriates
For expatriates interested in moving to Portugal, the Young IRS regime offers substantial savings on income tax over a decade, provided they meet residency requirements and file taxes locally. The tax incentive is available to both Portuguese nationals and foreign residents, making Portugal increasingly attractive to younger global talent.
These changes underscore Portugal’s strategic investment in human capital, and for young professionals contemplating a move, they represent a meaningful opportunity for financial stability within a rapidly modernizing economy.
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