NHR 2.0 vs IRS Jovem: Which Is Better for Young People?

Introduction

Portugal offers two attractive tax regimes for newcomers: NHR 2.0 (International Fiscal and Investment Center - IFICI) and IRS Jovem. While NHR 2.0 is designed for professionals in high-value industries, IRS Jovem helps young workers by reducing their tax burden.

The question is: Which one is better for young people? Let’s break it down with specific numbers, tax savings, and a comparison table to help you decide.

How IRS Jovem Works

IRS Jovem is a progressive tax reduction program for workers aged 18 to 35. It applies to both employment (Category A) and self-employment (Category B) income and offers exemptions for the first five years of declared income.

IRS Jovem Tax Reduction Breakdown

For the first five years of employment, young workers benefit from:

• Year 1: 50% tax exemption (up to €6,000)
• Year 2: 40% tax exemption (up to €5,000)
• Year 3: 30% tax exemption (up to €4,000)
• Year 4: 20% tax exemption (up to €3,000)
• Year 5: 10% tax exemption (up to €2,000)

💡 Maximum savings over five years: €20,000

Income Cap for IRS Jovem

To qualify, your annual taxable income must not exceed €29,179 (2024 threshold), which corresponds to the third income bracket in Portugal’s progressive tax system.

How NHR 2.0 Works

The NHR 2.0 program is not age-restricted and is aimed at professionals in specific industries, such as technology, science, research, and innovation.

Key Benefits

• 20% flat tax rate on qualifying employment or self-employment income earned in Portugal
• Exemptions on foreign-sourced income, including:
• Business profits
• Dividends
• Interest
• Royalties
• Capital gains (subject to double taxation agreements)

Unlike IRS Jovem, NHR 2.0 does not have an income cap, making it more attractive for high earners in eligible sectors.

Tax Comparison: IRS Jovem vs. NHR 2.0

To illustrate how each regime impacts taxes, let’s compare how much an individual would pay under both programs at different income levels.

Annual Income (€)

Standard Tax (€)

Tax under IRS Jovem (€)

Tax under NHR 2.0 (€)

Which is better?

€15,000

€1,303

€652 (Year 1, 50% exemption)

€3,000

IRS Jovem

€20,000

€2,853

€1,711 (Year 1, 50% exemption)

€4,000

IRS Jovem

€30,000

€5,895

€4,095 (Year 1, 50% exemption)

€6,000

IRS Jovem

€40,000

€9,340

Not eligible (exceeds cap)

€8,000

NHR 2.0

€50,000

€13,340

Not eligible (exceeds cap)

€10,000

NHR 2.0

IRS Jovem provides better tax savings for lower to mid-income young workers (below €29,179), while NHR 2.0 is better for high earners in eligible professions.

Which One Is Better for Young People?

Choose IRS Jovem if:

You are between 18 and 35 years old

Your annual income is below €29,179

You are starting your career or a business in Portugal

You do not qualify for NHR 2.0 sectors

Choose NHR 2.0 if:

You work in technology, science, research, or innovation

You have high foreign-sourced income

You earn above €30,000 and want a 20% flat tax rate

You plan to stay in Portugal long-term

Final Verdict

• If you are earning under €29,179, IRS Jovem is the better option, offering up to €20,000 in tax savings over five years.
• If you are a high-earning professional in an NHR 2.0-eligible sector, the 20% flat tax rate makes NHR a better long-term choice.

For most young people in Portugal, IRS Jovem provides the best short-term tax savings, while NHR 2.0 benefits professionals in high-value sectors.