The brain drain and aging population turned the Portuguese government to offer low tax in Portugal for expats and its citizens to bring home skilled youth. This is the era when countries like the USA, the UK, and Canada have enforced strict immigration policies and closed their doors to immigrants. Meanwhile, Portugal is trying to welcome skilled minds through various programs, including the Golden Visa, digital nomad visas, passive income stream, and many more.
Background of Low Tax in Portugal for Expats
During the first decade of the 21st century, Portugal experienced a brain drain as skilled Portuguese youth left home to earn high salaries. This wasn’t a good indication, especially for a country like Portugal, where people over 65 account for over 20% of the Portuguese population in the country.
Government authorities introduced the first tax regime for young professionals by luring them with tax exemptions for 5 years. All this leads to offering low tax in Portugal for expats and providing grounds to grab the attention of qualified and skilled people.
Tax in Portugal for Expacts and for Portuguese Citizens Working Abroad
In addition to offering benefits to non-citizens, Portuguese government introduced a policy for Portuguese citizens returning home after living abroad for 5 years or more. Though this policy attracted some people, but not enough to have a big impact.
Portugal New Tax Incentive 2025 to Attract Young People in 2025
As per The Guardian, Portugal government and opposition agreed to offer a 10 year tax benefits for youngsters with age of 35 or less. The tax incentives are likely to include employment and freelance earnings and there is no restriction in terms of citizenship status or profession of beneficiaries. Government authorities says the new tax incentives could help 400,000 people.
2025 New Tax Incentives Details
| Tax Exemption Year | Tax Exemption in Percentage |
| 1st Year | 100% |
| 2nd – 4th Year | 75% |
| 5th – 7th Year | 50% |
| 8th – 10th Year | 25% |
The proposed 2025 new tax incentives will benefit every individual for 10 years. Under this scheme, youngsters earning €28,000 a year are exempt from any tax for the first year. This is indeed very attractive as you can save on your entire income. From second to fourth year earnings, the tax incentives are 75% annually. So, it means beneficiaries will have to pay only 25% of their tax liability and still save a whopping 75% for 2nd to 4thyear of earnings.
People fall under this category have to pay only 50% of their tax liability for 5th, 6th and 7th year, while for 8th, 9th and 10th year, 25% tax exemption is available. It is to ne noted that the amount of exempt income is subject to limitation of an amount equals to 55 times the value of the Social Support Index which is 28,000. Beneficiaries of NHR 1.0 or NHR 2.0 will not benefit from the 2025 tax incentives by Portugal government.
Portuguese Government Motives Behind 10 Years Tax Incentives
The minority government of Luís Montenegro is trying to get rid of the proposed 15% income tax cap for youngsters fall under 18-35 category. The new progressive scheme resembles with the one supported by the opposition Socialists. Considering the average annual salary in Portugal as of €20,000 and a tax rate of 13-48%, the government estimates shows that the tax incentives would cost €645m while the cap would have cost €1bn.
Portuguese PM on Housing and Diversifying Golden Visa Schemes
The Portuguese PM pointed that his team is making policies to help youngsters buy their first home by relaxing some municipal taxes, stamp duty and fees. He said that the new tax policies will ensure personal income tax a “touchstone”. Critics blame Golden Visa investments only in real estate as crisis for locals.
The government has banned real estate, and instead, more sustainable Golden Visa options are now available including Equity Funds, investment in Sustainable Energy and other sectors. This way, the government will continue to receive foreign direct investment, investors will still qualify for Portugal residency leading to citizenship and public can buy affordable homes.
Impact of Low Taxes and Immigration to Portugal
With lowest tax rates in Europe, Portugal has emerged as a best choice especially among young people from US and the UK. Statistics shows that more Americans are migrating to Portugal than British people. Though the new UK government has slapped its citizens with heavy taxes and its impact is yet to come, Americans have made Portugal their second home.