Expats in Portugal get reprieve on 10 per cent pensions tax

Speculation about Portugal’s proposed 10 per cent tax on expat pensions has come to nothing for now.

Expat pensioners living in Portugal can’t help but be relieved the controversial 10 per cent tax on overseas pension transfers won’t be introduced in the country’s 2018 budget, but many believe the relief may only be temporary. The Portuguese government’s warning about the possible tax change in incoming pensions came in September with confirmation a review of the non-habitual residency tax regime (NHR) was underway. However, the recent budget proposal contained nothing connected with NHR changes. The proposed budget will be approved on 28 November, with the NHR regime seemingly remaining unchanged, although there’s no guarantee about its long-term future.

A proposed key change was the introduction of a flat rate tax at between five and 10 per cent on pension income for newly registered NHRs, but the new tax would not apply to those already registered. Apparently, the reason behind the proposed changes was avoidance of the renegotiation of double-tax agreements on personal income. At the present time, the programme allows new residents in Portugal to receive qualifying pension income on a tax free basis. In addition to pension payments, it also allows non-resident dividends, investment income and royalties, all of which are free from tax.

Key components of the scheme include no minimum level of investment as well as pension income whether periodic or as a lump sum irrespective of the source and interest. Royalties and dividends may be subject to withholding tax, dependent on whether the source is white-listed. Once gained, NHR status can remain unchanged for 10 years.

International tax experts serving expat pensioners in Portugal believe the lack of reference to NHR changes in the draft budget is a positive sign indicating it will remain unchanged for the foreseeable future. However, the Portuguese government is at present undergoing immense pressure from other EU countries to impose taxation on resident retired expats. In November last year it gave in to Finland and introduced a scheme whereby Finnish NHR status expats will be taxed on their pensions from the beginning of next year.