Portugal’s Left Bloc wants to see an end to the special zero tax band for foreigners and the 20% flat rate on certain categories of their earnings.
In 2016, the gross tax expense associated with the non-Habitual Residents (NHR) scheme was €350 million, rising to €413 million last year.
The Left Bloc formally is proposing an end to the NHR programme, a scheme that makes it possible for foreign citizens residing in Portugal to pay an income tax flat rate of 20% on qualifying earnings with others paying 0% on their pension income.
The Left Bloc initiative to scrap these deals for foreigners was proposed by the Bloquista MP, Mariana Mortágua and will be discussed with other tax change proposals in the 2019 State Budget debate.
Mortágua said her party objects to any programme that, "gives someone the right not to pay the taxes that the rest of the population pays."
"We have to measure, as a society, whether it makes sense for people to pay a 20% income tax rate when the rest of the workers pay their income tax according to the general tax rate table.
“We have grave doubts about the effectiveness of this regime and, so far, the government has not been able to clarify them," explained Mortágua.
There’s pressure from other EU member countries as Finland has scrapped the dual taxation agreement that allows its nationals to pay low rates in Portugal, the Swedes look likely to follow and the French government is working on a devious and highly effective solution to tax its overseas citizens living in Portugal, often now referred to as, ‘a tax haven within Europe.’
“When you don’t tax one group of people you end up having to increase the tax burden on another group. That’s unfair,” according to Ricardo Cabral, a professor of economics at the University of Madeira, a view that is gaining adherents.
The unanswered questions include, would these NHR retirees have come to Portugal had there been no tax breaks, will they leave if the tax treatment is scrapped, will any changes include those already on the NHR scheme for ten years, how much of their untaxed income is spent in Portugal and how much of this is collected as VAT and other taxes?
For as long as the government fails properly to analyse the net benefit or cost of the NHR influx, it can continue only to "claim "it's a good thing" while EU partner nations tear up the relevant bilateral legislation to the distress of retirees.
See also, 'Swedes in Portugal face end of tax-free living'
and, 'Finnish pensioners in Portugal lose tax free status'
