As part of the 2025 State Budget, the Portuguese Government recently approved specific IRS tax cuts for young people up to 35, which will come into effect next year.
Who is eligible for this IRS tax cut?
The “IRS Jovem” initiative is designed to encourage young Portuguese people to stay and work in their home country, but it also applies to young foreigners who live and work in Portugal.
Portuguese emigrants up to 35 years old returning to Portugal can also benefit, as long as they have never declared income here.
Additionally, having an academic degree is no longer required to access this tax benefit.
Key Changes to the “IRS Jovem” programme
Young people who start earning employment income in 2025 will be fully exempt from IRS tax on their initial salaries.
The “IRS Jovem” rules will also be extended from five to ten years, and apply up to a maximum of 35 years of age.
This means that from the moment a young person ceases to be part of their parent's household for tax purposes, and starts declaring IRS independently, they can benefit from a reduced tax rate for ten years.
Although this benefit already exists, the 2025 State Budget aims to extend the partial exemption period. The incentive includes partial IRS exemptions that decrease over time, starting at 100% in the first year and reducing to 25% by the tenth year, for both dependent and independent work income.
If the State Budget is approved by the specialised committee as proposed by the Government, a young person’s first-year income will be 100% exempt from IRS tax. In years two to four, 75% of their income will be exempt (with 25% taxed). In years five to seven, the exemption is 50% (half of the income is taxed). In years eight to ten, 25% will be exempt (with 75% taxed). However, there will continue to be a cap on the amount of income eligible for exemption.
There is also a transitional regime for young people already working in Portugal, up to 35 years old, allowing proportional access to the benefit based on the number of years they have already filed income declarations.
Those who have already used the non-habitual resident regime, tax incentives for scientific research and innovation, the “Regressar Program”, or have tax debts in Portugal do not qualify for this exemption.
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