The Portuguese government has announced a comprehensive tax reduction plan aimed at young people under the age of 35. This initiative, part of the broader "You Have a Future in Portugal" plan, seeks to alleviate the financial burden on young professionals and incentivize their economic participation.

Reduction of income tax (IRS)

The plan is due to start in 2025 and is subject to parliamentary approval and the survival of the government, but should these happen, the income tax rates for employees and self employed individuals under 35 will be reduce by 66% (two thirds) in all but the last bracket (€81,199 and more). The maximum tax rate therefore paid by young people making less than €81,199 would be 15%. 

This is an exciting outcome and combined with the social security exemption for the first year of self-employment and the digital nomad VISA, could make Portugal even more competitive to this particular demographic than under NHR. 

Interestingly, this benefit could also introduce exciting tax planning opportunities to expat families with children in working age coming to Portugal. For example, family companies could pay self-employed children up to €81,199 a year, thus benefiting from low tax rates on said amount. 

First time buyers benefit

Like in some other countries, young people purchasing their first home could be exempt from the Municipal Property Transfer Tax (IMT), as well as stamp duty, for houses valued up to €316,272. For properties valued between €316,272 and €633,453, the maximum exemption of the previous bracket is maintained, but there is no exemption for properties exceeding this value. 

As above, expat families could benefit from the tax break by purchasing a home for their children. 

First time buyers government guarantee

The government has approved a public guarantee covering up to 15% of the property value for first-time home purchases by young people. This guarantee applies to properties valued up to €450,000. To qualify, young people must have an annual taxable income up to the 8th IRS bracket (i.e., €81,199) and must not already own property or have benefited from public guarantees previously​.

As above, expat families could benefit from the tax break by purchasing a home for their children. 

Frequently Asked Questions

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What is the proposed tax reduction for young people in Portugal?
The proposed tax reduction plan aims to reduce income tax rates by 66% for individuals under 35, except for the highest income bracket (€81,199 and more), with a maximum tax rate of 15% for those earning less than €81,199.
When will the tax reduction plan for young people start in Portugal?
The tax reduction plan is set to start in 2025, pending parliamentary approval and the continuation of the current government.
Are there any benefits for first-time home buyers under the new plan?
Yes, young first-time home buyers could be exempt from the Municipal Property Transfer Tax and stamp duty for homes valued up to €316,272, with partial exemptions for homes up to €633,453.
What is the government guarantee for first-time home buyers?
The government offers a public guarantee covering up to 15% of the property value for first-time home purchases by young people, applicable to properties valued up to €450,000.
Can expat families benefit from the new tax plan?
Yes, expat families can benefit by paying self-employed children up to €81,199 to take advantage of the low tax rates, and by purchasing homes for their children to benefit from the first-time buyer tax exemptions.