Eight thousand foreigners have moved to Portugal to take advantage of a special 20% income tax rate but countries such as Finland already are studying measures to end the scheme.
Portugal has welcomed 5,653 foreigners granting them Non Habitual Residency status which allows an exemption from income tax if they have retired or payment of income tax at a flat rate of 20%, the same as the tax on an annual income of €7,035 in Portugal.
Portugal’s tax authorities currently are examining a further 1,754 applications under the Non Habitual Residency scheme’s rules.
The overwhelming majority so far have been retirees from France, Sweden and Finland but certain countries are moving to end the scheme by insisting their nationals pay tax as if they were still resident in their countries of origin.
Created in 2009, the tax Non Habitual Residency regime was updated in 2013 to remove doubts as to whether pension income would qualify for full exemption from Portugal’s income tax bands.
Between 2009 and 2012 there were about 100 annual applicants but in 2013 around 1,000 applied and the number rose to 2,416 in 2014, and to 3,474 last year.
Data provided by Dinheiro Vivo and the Ministry of Finance show that "so far 7,921 applications have been received for the allocation of non-habitual residency." Of this figure, 5,653 have been approved and 514 have been rejected with a further 1,754 currently being assessed.
In 2014, a total of 801 foreign retirees became Non Habitually Residency, the majority from France (327), followed by Sweden (128) and Finland (87), but the scheme also attracted British, Germans, Brazilians and some Tunisians.
The tax breaks also are available to high earning professions but few have applied, apart from a handful of managers, engineers and computer scientists.
Dennis Swing Green from Eurofinesco, quoted widely in today's Portuguese press, has no doubt that the interest from foreign retirees has risen sharply. Some have come for the weather, the beaches and the low cost of living, but most have chosen Portugal for ten years of tax breaks.
"There are many who come just because of the tax system. We jokingly call them 'tax refugees,'" says Dennis Swing Green who warns that the Netherlands and Finland already are studying the possibility of changing the tax treaty to allow for taxation in the country of origin, something that currently is not allowed.
Finland already has stopped the scheme for its citizens who moved to Spain where a tax similar scheme existed, giving Finnish expats a period of grace to relocate or even return home and suffer the temperature shock.
Portugal's tax authorities are pressing ahead with a computerised request process which will "significantly reduce" the response time for Non Habitual Residency applicants showing that the Socialist government is keen to keep the scheme going despite opposition comments that the scheme favours foreigners over locals and hence is hardly fair.
The two basic rules are that any pension income must not be of Portuguese origin and income must be taxed in accordance with a double taxation agreement.
Proponents of the scheme say that attracting retirees to Portugal using the Non Habitual Residency scheme boosts the local economy as foreigners buy property and spend money on goods and services.
Opposition to the scheme centres on the inherent unfairness that tax rates are not applicable equally to all residents in Portugal no matter where they come from.
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It is impossible fully to explain the Non Habitual Residency scheme in these few parapgraphs.
For detailed information, contact Dennis Swing Green at
Comments
"If you move to sunny Portugal for example, it could be possible to take your UK pension and pay absolutely no tax on it for the first 10 years. This applies even if you withdraw large sums, a move which in the UK could attract crippling tax charges, as such withdrawals are treated and taxed as ordinary income." Telegraph
"The new regime allows an exemption of a foreign occupational pension so long as its beneficiary qualifies for a special tax regime for non-habitual residents. A recent publication by Deloitte in Lisbon explained that one of the requirements is that the pensioner be a non-habitual resident for Portuguese income tax purposes while the second is that the pension is an occupational pension, paid from a foreign source.
Should these requirements be met, the pension will not be taxed in Portugal and depending on the provisions of the applicable tax treaty, it is also usually non-taxable in the source country for the duration of residence in Portugal." Portugal News
Not many retirees have Portuguese income to be taxed.
Anyway, Ed is right and ingwephil's knee jerk reaction is based on an incomplete analysis of the rules.
The point is that the “one section of society” are precisely those attracted here by the tax breaks. They wouldn’t be here otherwise. Surely the fact that they are attracted to come and spend their (mostly retirement) money here is unequivocally beneficial to an Algarve economy that is 95% dependent upon the largesse of visitors.
The argument that reducing taxes across the board will stimulate the economy by putting more money into people’s pockets has nothing to do with tax breaks for new residents. The question is whether the extra consumption and consequent economic growth will pay for the tax cuts. Probably not. The Bush tax cuts mainly succeeded in increasing the deficit and widening income inequality.