Portugal Ends Tax Haven for Retired Foreign Pensioners

RIO DE JANEIRO, BRAZIL – The Portuguese socialist government will end this year with the “tax haven” for foreign retirees. Once the annual budget has been approved, new foreign residents will pay income tax of ten percent of their pension.

Portugal has been implementing a tax incentive program since 2009, aimed at attracting foreigners to take up residence in the country. The program consists of pensioners not paying taxes on their pensions either in the country of origin or destination, while important professionals – from scientists to company executives and soccer players – must pay 20 percent of their income. The exemption applies for a maximum period of 10 years.

Although the law was drafted and implemented a decade ago by a socialist government, now another socialist government seeks to ease the protests of its left-wing members, the Left Block and the Communist Party, which it needs in order to obtain parliamentary majorities and, specifically, the final approval of the annual accounts.

The current 10-year law on Non-habitual Residents (RNH) has had no dramatic impact on the influx of foreigners. Fewer than 30,000 in a decade – most of them in the past four years – have taken up residence in the country.

A third of retired foreigners coming to Portugal – professionals in active employment representing only eight percent of the RNH – come from France, not so much to avoid paying taxes on their pensions, but rather to escape the wealth tax on high net worth individuals applied in their home country.

The origin of the golden retirement for foreigners was created to offset the opposite effect, that of double taxation. Through bilateral agreements between countries in recent years, the payment of taxes in both the country of origin and the country in which one lived has been ended, so that it is ultimately the country of destination deciding on payment of taxes by foreign residents. Portugal, as some other countries, decided to exempt foreigners from taxes in 2009.

Despite criticism from the left-wing opposition and some countries with which Portugal has agreements, such as Finland, Sweden, and France, the law was maintained throughout the previous socialist legislature. António Costa’s government had always rejected parliamentary initiatives from his left-wing, but in the first year of the new legislature, with the backing of his finance minister, Mário Centeno, he gave in to a slight increase in tax revenue.

The exemption, in any event, was never total, but only applied to pension income. Foreign residents pay on their dividend income, in addition, to all indirect taxes.

Finland and Sweden have already terminated the Portuguese system, even though only 2,000 Nordic citizens live in Portugal. The parliaments of these countries have already approved a new bilateral agreement, but it has not yet been sanctioned. In the case of France, the protests for this system came with the yellow vest uprising.

In order to become an RNH, a foreigner does not need to buy a house – as in the case of the so-called golden visas, which ensure a European residence visa – it is sufficient to rent a property and live there – or intend to do so – for at least 180 days of the year, and with no previous tax residence in Portugal.

The tax change, charging ten percent from each pension, will be included in a budget amendment introduced by the ruling party. The amendment will come into force with the approval of the Budget in mid-February. The change has no retroactive effect.

Source: El País