Northern European pensioners are laughing all the way to the bank after figures show that Portugal's generous tax-free Non-Habitual Residents scheme has cost Treasuries over €1 billion in the last four years.
Following Finland’s lead in tearing up the tax agreement, that allowed its pensioners to live in Portugal tax-free, Sweden is dragging the Portuguese government to the negotiating table to do likewise.
The generous Non-Habitual Residents scheme run by Portugal, last year waiving €413 million in potential tax income from foreigners, has triggered the ire of northern European countries and it’s Sweden’s turn to put an end to the scheme that allows many pensioners to live in Portugal 'without paying tax in either country.' (*see Per Andersson comment below).
September sees the start of a technical consultations between the respective Tax Authorities to review the convention signed in 2002, which avoids international double taxation.
This agreement, combined with the Non-Habitual Residents Scheme, has allowed Swedish pensioners to live in Portugal without paying taxes on private pensions, a situation that Swedish Finance Minister Magdalena Andersson wants to end.
The first formal step has been taken with the consultations starting on Saturday. The minister already has congratulate herself for having "dragged Portugal to the negotiating table," calling the achievement "a great success" when interviewed by news service, Dagens Industri.
Andersson estimates that about 1,000 Swedish pensioners have come to Portugal as non-habitual residents. The Finance Minister earlier said that, "if Portugal does not tax Swedish pensions, a Swedish tax will be created. The current situation can not continue."
The Ministry of Finance in Lisbon has confirmed that meetings are to take place in September.
Portugal’s role as a ‘tax haven within Europe’ is being chipped away by influential northern governments which cite the inherent unfairness in this two-tier tax system that the European Commission can do nothing about under current legislation as each member nation controls its domestic tax rates.
Finland’s way of ending the scheme was to tear up the dual taxation agreement signed in 1970 and in force since 1971. Sweden is creating the conditions to take the same action.
Portugal’s Communist Party and Left Bloc hate the NHR scheme as it cost the Treasury €111 million in 2014, rising to €150 million the following year and €350 million in 2016.
Add this to the 2017 figure of €433 million and well-off northern pensioners have had a bonus of over €1.044 billion in the past four years.
Readers Comments (below) make it clear that Swedish State pensions are taxed 25% at source and it is only private pensions that qualify for tax breaks - not that the Swedish Minister mentions this fact. Similarly, UK pensions to former State employees, teachers, nurses etc, are taxed at source