Portugal

Youth Personal Income Tax ("IRS Jovem")

With the 2025 State Budget, the Youth Personal Income Tax (PIT) tax regime is extended, making it applicable to income from employment and self-employed work earned by taxpayers (not dependents) who are up to 35 years old, while also eliminating the condition related to the completion of a cycle of studies.

In summary and in accordance with the current regime, income from Category A (employment income) and Category B (self-employment/business income) earned by taxpayers who are up to 35 years old who are not dependents is partially exempt from PIT in the first ten years earning employment or self-employment income.

The exemption applicable corresponds to 100% of the income earned in the first year, 75% in the second, third and fourth years, 50% in the fifth, sixth and seventh years and 25% in the eighth, ninth and tenth years, capped at 55x Social Support Index (IAS).

A transitional regime has been created which establishes that, for purposes of exemption, taxpayers are included in the percentage corresponding to the year following the number of years of income generation from categories A and B already elapsed, not considering, for this purpose, the years in which they were considered dependents.

The exemption does not apply in the years in which income from categories A and B is not earned, resuming its application for the remaining years income is obtained by the taxpayer, until a total of ten years of exemption or the age limit of 35 years is reached.

Former tax residents regime

In the 2019 State Budget, a new tax regime was introduced to encourage the return of emigrants to Portugal. The regime consists of a 50% relief from taxation of employment or self-employment income received after their return to Portugal.

With the 2024 State Budget, this tax relief is extended to taxpayers who become tax residents in the years 2024, 2025, and 2026, provided that they: 

• did not qualify as tax residents in Portuguese territory in any of the five years prior to their return
• qualified as tax residents in Portugal in any period prior to those five years
• have their tax situation regularised, and 
• did not apply for the register in the non-habitual residents (NHR) regime. 

This tax relief (capped at EUR 250,000 for those returning in 2024, 2025, and 2026) is applicable to income earned in the first year of residency after the return to Portugal and in the following four years, expiring after this period.

While the regime applies, entities required to withhold tax on the income covered by this regime shall apply the withholding tax (WHT) rates determined based on half of the income paid or made available (keeping in mind the EUR 250,000 cap). 

Tax Incentive Scheme for Scientific Research and Innovation (IFICI) 

With the 2024 State Budget, a tax incentive for research and innovation is created. 

The regime applies to individuals who (i) become Portuguese tax residents, under Portuguese domestic law, in a specific year, (ii) have not qualified as tax residents in Portugal in any of the previous five years, (iii) do not benefit or have benefited from the NHR regime or the former resident regime, and (iv) carry out activities provided for in the applicable legislation.

Different procedures should be enacted in order to apply for the regime, depending on the activity performed / on the criteria of eligibility.

In general terms, the regime shall provide for:  

• A special 20% rate on net employment income (category A) and business and professional income (category B) from the activities identified in the applicable legislation.  

• An exemption on foreign-sourced employment income, business and professional income, investment income, rental income, and capital gains (as a rule, foreign-sourced income is exempt with the exception of pension income and income sourced in “blacklisted” countries). 

Gains from share plans

In May 2023, Portugal introduced a special tax regime applicable to income/gains arising from share plans granted for the benefit of employees or board members (in the last case with some limitations for 2023). This regime establishes a deferral from taxation to one of the first moments foreseen in the legislation (e.g. sale of the shares/rights) and also states that gains derived from said share plans shall be taxable only on 50% of the respective amount at a flat rate of 28%, provided certain requirements and conditions are met (both by the employer and the employee).

The application of this special tax regime depends on the maintenance of the rights underlying the assets generating the gains or of the equivalent rights, for a minimum period of one year. 

Finally, this special tax regime does not apply to individuals who directly or indirectly hold a stake equal to or higher than 20% of the share capital or voting rights of the entity granting the plan.