Expats and pensioners in Europe facing loss of valuable tax breaks

Expats living and working in the Netherlands and Portugal have been enjoying valuable tax breaks on their earnings, but tax system shake-ups in both countries may mean the end of the perks.

At present, expats working in the Netherlands and Dutch expats overseas are able to earn at least 33 per cent of their salaries tax free, provided they are able to comply with a strict set of regulations. However, a recent review undertaken by the Dutch government concluded the tax breaks were far too generous and were costing the country some €903 million every year. As a result, a recommendation cutting the benefit by means of capping the amount expats are able to claim to 20 per cent of earnings was made.

However, rather than capping the break itself, the government is now considering slashing the number of years for which the benefit is available from eight years down to five years. In order to claim the tax break, expats need to be earning over €37,000 a year, and live a distance of 150 kilometres or more outside the Dutch borders. The new proposals, if adopted, are expected to take effect in 2019.

Meanwhile, Portugal’s plan for an expat tax grab seems to have been put on hold for the time being. Changes to the popular Non-Habitual Residency programme included a tax on newly-arrived expats’ pension income at a flat fee of either five per cent or 10 per cent. Retirees already settled in the country were to be exempt from the charge.

However, the measure hasn’t been included in the Portuguese government’s draft budget. Experts on international tax law believe the introduction of the tax would need the renegotiation of several current double taxation treaties before it could be passed into Portuguese tax law. The government seems to be in trouble on this due to several EU member states' pressure for the bill to be introduced as the present situation gives pensioners in Portugal special financial treatment.