Portugal is aiming to establish itself as a low-tax haven for young individuals, including foreign workers, as part of an initiative by the Portuguese government to retain more young people within the country and attract skilled workers from abroad. The proposed tax breaks would specifically target individuals under the age of 35.
The current centre-right government under Luís Montenegro is planning to replace the previously suggested 15 per cent income tax cap for individuals aged 18 to 35 with a progressive tax scheme. Under this new proposal, young people earning up to €28,000 (£23,500) annually would be fully exempt from income tax in their first year of employment. Over a span of ten years, the tax burden would gradually increase, with individuals being exempt from 75 per cent of the tax in the second to fourth years, 50 per cent in the fifth to seventh years, and 25 per cent in the eighth to tenth years.
These tax relief measures are expected to benefit up to 400,000 young people who are facing escalating living costs and discourage them from seeking opportunities in other countries. The plan is part of a broader effort by Prime Minister Luís Montenegro to provide young people with the prospects they deserve and encourage them to contribute to the country’s growth.
Notably, the tax advantages would also extend to foreign workers who have increasingly been drawn to Portugal in recent years due to factors such as high living expenses and harsh climatic conditions in their home countries. While Portugal has implemented schemes like “golden visas” and a “non-habitual residency scheme” to attract foreign investment, the influx of foreigners, especially in cities like Lisbon, has led to a surge in property prices, sparking concerns about housing affordability.
Despite the commendable intentions behind the tax incentives, the proposed budget may face challenges in the legislative process. Opposition from the main political party could potentially hinder the approval of the budget in parliament. Nonetheless, Prime Minister Montenegro remains confident in the passage of the budget and is resolute in his belief that it will receive parliamentary approval.
The government estimates that the proposed measures would incur a cost of €645 million in 2025. Youth Minister Margarida Balseiro Lopes has emphasised that the cost of losing a highly skilled generation to emigration far outweighs the financial implications of the tax relief plan. As the government navigates through potential obstacles, the significance of retaining young talent and attracting foreign expertise remains a top priority for Portugal’s economic and social development.