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.
