Youth IRS Expats: Tax Perks in Portugal

What is IRS Jovem?

The IRS Jovem, a specialized tax regime, aims to reduce the income tax burden for young workers. Its primary objective is to increase the net income of young professionals in the initial years of their careers, allowing them to achieve greater financial independence and stability.

This program offers partial or total tax exemptions on earned income for a maximum period of 10 years. It applies to both employees (Category A income) and self-employed individuals (Category B income). The tax exemption allows young workers to keep a larger portion of their earnings, making Portugal an appealing destination for young professionals, including expats.

Initially limited to young people with higher education qualifications, the program is now open to all workers under the age of 35, regardless of their education level.

Why was IRS Jovem introduced?

Portugal has been actively working to retain its young workforce while attracting qualified international professionals. The IRS Jovem program was introduced as part of this strategy to:

1. Support Early-Career Professionals: By reducing taxes in the critical early years of a career, the program increases disposable income.
2. Encourage Financial Independence: The program incentivizes young adults to leave their parents’ households and file independent tax returns.
3. Attract and Retain Talent: Especially post-2025, the program is designed to attract not only local workers but also immigrant expats who can contribute to Portugal’s economy.

If you’re moving to Portugal as an expat, IRS Jovem could be an excellent opportunity to ease your financial transition and enjoy lower taxes.

Who can apply for the Youth IRS?

The IRS Jovem program is open to a broad range of individuals, provided they meet specific eligibility criteria.

Eligibility Criteria

1. Age:
   1. You must be 35 years old or younger by December 31 of the tax year.
2. Tax Status:
   1. For tax purposes, you must no longer be considered a dependent.
   2. This means you must file an independent tax return (declaração de IRS), even if you continue living with your parents.
3. Income Sources:

The program applies to earnings from:

• Category A income: Salaries from traditional employment.
• Category B income: Self-employment income, including freelance or independent work (recibos verdes).

Self-employed workers must, however, wait to claim the benefit during their annual tax return rather than receiving it monthly.

• Regularized Tax Situation:

Your tax obligations must be in excellent standing with the Portuguese Tax Authority (Autoridade Tributária e Aduaneira).

Exclusions:

• Benefit (or have benefited) from the Non-Habitual Residency (NHR) regime.
• Participate in the Programa Regressar (Return Program for Portuguese nationals).
• Benefit from tax incentives for scientific research or innovation.

What are the benefits of IRS Jovem?

Tax Exemption Rates

Under the IRS Jovem (Youth IRS) regime, you’ll receive progressive tax exemptions on your income over a 10-year period:

• Year 1: 100% tax exemption on eligible income.
• Years 2–4: 75% tax exemption.
• Years 5–7: 50% tax exemption.
• Years 8–10: 25% tax exemption.

This means that in your first year of work in Portugal, you could potentially pay zero income tax, significantly increasing your take-home pay. Over time, the percentage of exemption decreases, but the program still offers substantial savings.

Income Limit

The exemption applies to income up to 55 times the Indexante dos Apoios Sociais (IAS). For 2025, the IAS is €522.50, meaning the maximum annual income eligible for exemption is €28,737.50.

⚠️ If your annual earnings exceed this limit, the portion above €28,737.50 will be taxed at standard rates.

Example Savings

To illustrate the potential savings, let’s consider an example:

• Gross Monthly Salary: €1,250
• Annual Salary: €17,500 (14 months, including holiday and Christmas bonuses)
• Without IRS Jovem: Approx. €1,050 in annual income tax.
• With IRS Jovem (Year 1): 100% exemption → €1,050 saved.

Over 10 years, this would amount to significant savings, even as the exemption rate decreases, as it follows:

• Gross Monthly Salary: €1,000 gross income.
• IRS Rate Without IRS Jovem: €58/month in taxes.

Savings over 10 years:

• Year 1: 100% exemption → €58 x 14 months = €812 saved.
• Years 2–4: 75% exemption → €43.5/month x 14 months x 3 years = €1,827 saved.
• Years 5–7: 50% exemption → €29/month x 14 months x 3 years = €1,218 saved.
• Years 8–10: 25% exemption → €14.5/month x 14 months x 3 years = €609 saved.

Total Savings Over 10 Years: €4,466 on a €1,000/month salary.

⚠️ Portuguese companies provide their employees with a salary of 14 months annually. 12 for each month, and 1 extra for vacations (paid between June or July) and another extra for Christmas (paid in December). There are exceptions where employees may receive 12 salaries per year; however, the extra two salaries will be divided and paid with the official 12 salaries per month.

How to apply for IRS Jovem

There are two main ways to apply for IRS Jovem, depending on your preference for receiving the tax benefit:

1. Monthly benefits via employer

If you want to see the tax benefit reflected in your monthly paycheck, you can request your Portuguese employer to apply a reduced withholding tax rate (retenção na fonte).

Steps to Apply:

1. Inform your employer that you’re eligible for IRS Jovem.
2. Provide your employer with the following details:
   1. Year you started earning income as an independent taxpayer.
   2. Your NIF (tax identification number).

Advantages:

• Immediate financial relief with higher monthly earnings.

Disadvantages:

• You will receive a smaller tax refund, or none at all, when you file your annual return.

2. Annual tax return benefit

If you prefer to receive a larger tax refund at the end of the year, you can claim IRS Jovem during the annual tax filing process (Modelo 3).

Steps to Apply:

File your annual tax return between April and June, and complete the relevant annexes:

a. Annex A: For Category A income (dependent work).

b. Annex B: For Category B income (self-employment).

Advantages:

• There will be a larger lump sum refund at the end of the year.

Disadvantages:

• You’ll have higher monthly tax deductions throughout the year.

What must I know about Youth IRS as an expat?

• Start Date:

The 10-year benefit starts from the first tax year you file an independent tax return in Portugal.

Interruptions:

• If you stop earning income (due to unemployment, for example), you can pause the benefit and resume it later, provided you are still under 35.
• Self-Employed Workers:
  • Freelancers and independent contractors (recibos verdes) can only claim the benefit in their annual tax filing and won’t see monthly relief.
• Tax Compliance:
  • Ensure your tax situation is fully compliant to avoid delays or complications.

Why IRS Jovem matters for Expats

For expats relocating to Portugal, IRS Jovem offers a significant financial advantage, especially if you’re starting your career or looking for opportunities in a new country. The program’s flexible eligibility criteria and substantial tax savings make it an attractive option for young professionals.

Additionally, Portugal’s growing economy and quality of life make it an ideal destination for expats. Programs like IRS Jovem further enhance the appeal by providing real, measurable financial benefits.

If you’re a young worker planning to move to Portugal, IRS Jovem is a valuable tool to help you start your new life with financial stability. By understanding the program’s eligibility requirements and application process, you can maximize your savings and make your transition smoother.