IRS Jovem: Tax Benefits for Young Residents Will Be Extended

 Vasco Apolinário Rodrigues | Lawyer

Foreign young taxpayers who relocate to Portugal may directly benefit from the IRS Jovem, a personal income tax benefit, just like young Portuguese citizens. This programme may be available to both young Portuguese emigrants returning to their home country and foreign nationals who choose Portugal as their new place of residence.

The IRS Jovem regime is already in place, but the new government seeks to introduce revised regulations to make it more inclusive for young taxpayers. It is also important to highlight that this new regulation for IRS Jovem is part of the State Budget proposal, which will be voted on in general terms on the 31st of October, with the final vote scheduled for the 29th of November.

To help you fully understand this tax incentive, as well as the potential changes if the new regulation is enacted, we will explore the key aspects of the IRS Jovem in detail.

IRS Jovem is a tax incentive introduced by the Portuguese government to reduce the tax burden on young taxpayers. Beyond this primary objective, it also aims to attract foreign talent and investment to Portugal while retaining Portuguese talent, ultimately stimulating the country’s economy and enhancing its attractiveness. However, it is still not possible to determine which kind of conditions will be required to prove the eligibility for IRS Jovem for foreign people. 

In its current form, IRS Jovem is a tax benefit available to Portuguese citizens and residents in Portugal for a period of five years. Throughout this period, young taxpayers are entitled to the following income tax exemptions:

• 1st year: 100% exemption on income tax, with a maximum limit of 40 times the Indexante dos Apoios Sociais (IAS), which is €509.26 in 2024. Any income exceeding this limit is taxed normally.
• 2nd year: 75% tax exemption, with a maximum exemption of 30 times the IAS.
• 3rd and 4th years: 50% tax exemption, with a maximum exemption of 20 times the IAS.
• 5th year: 25% tax exemption, with a maximum exemption of 10 times the IAS.

To qualify for IRS Jovem, taxpayers must meet the following criteria:

• Have completed secondary education or higher between the ages of 18 and 26.
• Hold a PhD, with eligibility extending up to the age of 30.
• File separate tax returns from their parents, even if they share the same tax residence.

Though there is an age limit, taxpayers can benefit from IRS Jovem until the age of 35, as the ten years of eligibility do not need to be consecutive, provided they meet the requirements mentioned above.

The government aims to introduce three significant changes to IRS Jovem:

1. Extended Benefit Period: The duration of the benefit will increase from 5 to 10 years.
2. Wider Eligibility: The age limit for eligibility will be raised to 35 years, regardless of educational qualifications, making the benefit available to a broader range of young taxpayers.
3. Increased Income Threshold: The maximum income exempt from taxation will rise, increasing the current thresholds of 40 IAS to 55 IAS.

These benefits are applicable to both dependent workers (Category A in the Income Tax declaration) and independent workers (Category B in the Income Tax declaration).

Dependent workers are individuals employed under formal contracts, receiving wages from their employers. In contrast, independent workers conduct their professional activities without such contracts, operating as self-employed individuals.

The proposed changes to IRS Jovem include the following income tax exemptions:

• 1st year: 100% exemption.
• 2nd to 4th year: 75% exemption.
• 5th to 7th year: 50% exemption.
• 8th to 10th year: 25% exemption.

The proposed IRS Jovem introduce the following eligibility criteria:

• Be 35 years old or younger, irrespective of the level of studies completed.
• Become a resident of Portugal.
• Have an annual income of up to 28,000 EUR, or a monthly income of up to 2,000 EUR.
• Not being considered family “dependent” for tax purposes.