Changes to Portugal tax rate will ‘strengthen’ its expat appeal

Wed 5 Feb 2020

Still opportunities and benefits despite uplift of pension tax to 10% from zero

The story of the Portuguese non-habitual resident (NHR) tax scheme is one of success; which has, unlike some others, benefited virtually everyone involved, writes Lisbon-based Gonçalo Figueira, a senior associate at Edge International Lawyers.
Not least the Portuguese economy and society; where an influx of high net worth, highly qualified, cosmopolitan new tax residents have helped bring a new dynamic to the real estate market, new employment, new restaurants, cafés, bookshops, art galleries and to the streets in general.

All without becoming a burden, in terms of expense, to the Portuguese budget; as most non-habitual residents have private health insurance and enrol their children in international private schools.
Even in terms of tax revenue generated, the impact has been quite positive; as non-habitual residents have contributed to indirect taxes such as VAT, real estate and vehicles; while landlords have been forced to declare their rental income for tax purposes.

Realistically there has not been a loss of personal income taxes, as non-habitual residents weren’t paying any tax before they relocated to Portugal and, most certainly, without the tax incentive the majority of existing non-habitual residents would not have moved to Portugal at all.

As appealing as the safety, weather, wine and gastronomy are; they wouldn’t, in isolation, have made thousands of people move to the country.

The ruling party in Portugal, together with a highly-qualified team at the Ministry of Finance (led by the head of the Eurogroup, who steered Portugal to its first budget surplus since 1973), realised that the full exemption on pension income was starting to become a thorny issue.

Formal requests were made by Finland and Sweden to change the treatment of pensions in their double taxation treaties with Portugal, which would make retirement income taxable in the country of the source instead of the country of residence.

As a result, it was imperative to prevent other countries from following the same route.

Ultimately, after some years of brainstorming, internal and external debate and all sorts of rumours; a clever draft amendment was presented to parliament.

The proposals should manage to stop (or reduce) the criticism from other parties in Portugal and other countries, as all qualifying income will now be subject to some tax, (even if very low) either at source or in Portugal.

The vote will take place on 6 February, so the final text could still be adjusted.

They will also consolidate the NHR’s international reputation as the best program of its type when looking to other white list jurisdictions while attracting an even larger number of high net worth individuals, qualified professionals, and retirees to Portugal.

Read the original article here.

Photo by Glauco Zuccaccia on Unsplash

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