370,000 could be eligible for under 35s tax regime policy

 In News, Tax

The government estimates that around 370,000 people could benefit from new rules for IRS Jovem, a flagship policy that will reduce taxes for young people up to 35 years if the policy is passed by the Portuguese parliament.

On Thursday, the government approved the new IRS Jovem tax regime for the under 35s at a meeting of the Council of Ministers.

According to the programme, taxes would be reduced by two-thirds compared to the overall tax regime with a maximum of 15% to be applied to all under-35s for all tax scales with the exception of the last scale which would enjoy no tax benefit whatsoever.

The IRS tax code would have one additional tax bracket with a tax of 4.42% for the first scale, 6% for the second, 7.67% for the third, 8.67% for the fourth, 10.92% for the fifth, 12.33% for the sixth, 14.5% for the seventh, 15% for the eighth, and 48% for the ninth (the last case for the highest tax bracket levied at normal rates).

And since IRS is a progressive tax, in practice the effective tax will depend on incomes and deductions.

Under the current tax regime, IRS is 100% exempt for the first year of work up to a limit of 40 times the IAS Social Support Index, which in 2024 stands at €509.26. The exemption falls over subsequent years to 75% in the second year, 50% in the third and fourth years, and 25% in the fifth year when the support ends.

The policy has the objective to help stem the tide of young professionals going to live and work overseas and retain talent at home.

If passed by parliament the policy will cost the Portuguese State €1Bn and would come into force at the beginning of 2025.