Portugal is an attractive destination for young professionals and entrepreneurs. In 2023 alone, an estimated 189,400 permanent immigrants entered the country, many of which were from the US, Canada, the UK and the wider EU.

Whilst Portugal has many favourable attributes which draw new settlers, none hold such gravity as Portugal’s powerful tax regimes which have created an established orbit of workers and founders who are able to keep a much larger proportion of working income in a country where cost of living is generally much lower.

Currently, Portugal is at a turning point for tax benefits. Whilst the well-known Non-Habitual Resident (NHR) scheme has just been renewed, a new tax regime, IRS Jovem, is emerging. This new framework could be even more beneficial for you, especially if you’re aged under 35. 

Many of our customers find this scheme to be a solid alternative to the NHR as it requires less setup, no additional requirements on top of your age and a more familiar way of handling taxes. This is particularly true for freelancers.

What is “IRS Jovem”? 

This new regime offers substantial tax exemptions for income from employment and self-employment. Here’s how it works:

• 1st Year: 100% exemption.

• 2nd to 4th Year: 75% exemption.

• 5th to 7th Year: 50% exemption.

• 8th to 10th Year: 25% exemption.

The exemption limit is capped at €28,009.30. If your net income exceeds this amount, you will still benefit from the exemption, but only on the first €28,009.30.

How Much Tax Would I Pay?

IRS Jovem can be unlocked in different ways to reduce taxable income depending on your individual circumstances: 

For self-employed workers, you can use the simplified accounting regime to significantly reduce your taxable income. Additional benefits include reduced taxable income for the first two years and a social security exemption in the first year. Here are some predictions for self-employed individuals:

If you earn €50,000 per year:

• 1st Year: €0.00 taxes (effective tax rate: 0%).

• 2nd Year: €2,250.00 (effective tax rate: 4.5%).

• 3rd Year: €3,369.20 (effective tax rate: 6.74%).

If you earn €75,000 per year:

• 1st Year: €37.00 taxes (basically the cost of dinner).

• 2nd Year: €6,167.52 (effective tax rate: 8.22%).

• 3rd Year: €12,708.32 (effective tax rate: 17%).

If you earn €100,000 per year:

• 1st Year: €3,369.30 (effective tax rate: 3.4%).

• 2nd Year: €12,595.95 (effective tax rate: 12.6%).

• 3rd Year: €21,145.95 (effective tax rate: 21.15%).

For the €100,000 scenario, the applicable tax rate would remain 21.15% for the duration of the regime, provided you maintain the same earnings and remain under 35.

For dependent workers, you can benefit from income deductions, including a minimum social security deduction of €4,104. Below are the projections:

If your annual income is €50,000:

• Taxes for the first 4 years: €7,780.71.

• Effective tax rate: 15.56%.

If your annual income is €75,000:

• Taxes for the first 4 years: €19,299.

• Effective tax rate: 25.73%.

If your annual income is €100,000:

• Taxes for the first 4 years: €32,983.02.

• Effective tax rate: 32.98%.

How do I know if I qualify?

You qualify for IRS Jovem if:

• You are an employee or self-employed.

• You are under 35 years old.

• You are a tax resident in Portugal. 

This regime is open to all nationalities. The aim is to attract and retain young talent, supporting Portugal’s growing technology-based economy.

Buying a Home

Portugal also offers incentives for young people buying their first home as a primary residence:

1. Tax Exemptions:

1. Properties valued up to €324,000 are exempt from transaction taxes (IMT and Stamp Duty).

2. For properties valued above €324,000, the exemption applies to the first €324,000.

2. State Loan Guarantee:

1. For properties priced at €450,000 or less, the state will soon guarantee 15% of your loan. Specific terms are yet to be defined, but this may eliminate the need for an upfront down payment.

Getting started with U35 Jovem

IRS Jovem requires you to have an eligible work status, such as ‘Employed’ or ‘Freelancer’ within Portugal. The scheme is then applied to eligible tax returns upon a successful filing. However, navigating local tax schemes and filing can be fiddly, particularly for non-native speakers. 

We developed Touchdown to support young workers and ensure that they take full advantage of this powerful scheme when filing their taxes and navigating their liability for all types of employment.

We have already helped hundreds make the most of their life in Portugal, book a tax consultation to learn more about how to set up the best possible tax structure in Portugal, tailored to your circumstances.

Conclusion

IRS Jovem is one of many opportunities offered by Portugal’s tax-friendly environment. Added housing incentives alongside other tax schemes make the country a compelling destination for young professionals looking to build a low-tax, low-cost base in the sun where savings and investments can be fully realised.

The IRS Jovem is a tax scheme that can be rolled out alongside a number of different working setups. For the majority of our eligible customers, they find a Freelancer Setup works best by providing a structure familiar to their established ways of working whilst exposing them to the full tax benefits of the Jovem scheme.

Find out more about our Freelancer Setup product or read on about Europe’s Strongest tax scheme, Portugal’s new NHR 2.0, which you may also be eligible for.

We built Touchdown as your companion for life after you land in Portugal, from Tax, Visas, banking, accounting and more, we’ve got you covered. 

Use the free 🔗 Touchdown Advisor to find out more about what you qualify for.