In the last decades, Portugal has suffered large-scale emigration of highly skilled individuals seeking higher salaries and career opportunities. This unfortunate trend was particularly harmful to a country with one of the world’s fastest-ageing populations, where more than 20% of the population is over 65.

There are several reasons for this phenomenon: lower comparative salaries, rising housing costs, and the strain from the public debt crisis, but also the fact that Portuguese talent is valued for its commitment, academic background, proficiency in several languages and ability to adapt to an international environment.

The so-called brain drain led to a consensus: Portugal needed to create conditions to lure back the talent lost over the years.

For this reason, the former government introduced a first regime intended for those in the early days of their career, allowing exemptions for up to five years. In addition, there was the introduction of a program specifically targeted to those returning to Portugal after at least 5 years living abroad, which, together with the non-habitual resident regime, certainly led to some recovery. But this was still not enough.

So, what will we have as of 2025?

As of January 2025, the new tax incentive for young people is expected to apply to income from employment and freelance work obtained by taxpayers who are up to 35 years old—for the avoidance of doubt, there is no restriction in terms of the beneficiary's nationality or profession.

Each individual will be able to benefit from the regime for up to ten years, and the exemption will be as follows:

§ 100% in the first year;

§ 75% in the second, third, and fourth years;

§ 50% in the fifth, sixth, and seventh years;

§ 25% in the eighth, ninth, and tenth years.

However, the amount of exempt income is limited to an amount corresponding to 55 times the value of the Social Support Index/IAS (currently, the equivalent to € 28,009.30).

A transitional regime also provides that taxpayers start to qualify for this exemption in the year following the number of years of income generation from dependent or independent income that already elapsed, not considering, for this purpose, the years in which they were considered dependents.

It should also be noted that beneficiaries of the NHR 1.0 or NHR 2.0 will not be able to benefit from this program, similarly to those who benefit from the “Return program”. Some decisions must then be made upon accessing one program or the other.

The bottom line: is it time to settle in Portugal?

It’s hard to tell whether this new regime will efficiently combat the brain drain, particularly in a scenario where the average salaries are not expected to increase sharply. In any case, the program looks promising and ambitious.

Of course, there will always be questions about whether the answer to these issues should be on the tax side and whether the regime is fair by implementing tax advantages simply because of the taxpayer's age. However, the fact is that it has already sparked interest in several other countries going through similar issues.

Time will tell whether this is just the beginning of an era or a failed tax policy. Regardless of the outcome, Portugal is on the map and looking for your talent!

Interested in learning more?

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