“Citizens who move to Portugal should do so for reasons such as the climate, green wine or Fado, and not to avoid paying taxes.” – this opinion of the Swedish Finance Minister Magdalena Andersson apparently represents what many EU members think of Portugal’s lenient expat pension tax policy towards retirees from other countries.

Currently Portugal is one of the most generous countries in the EU tax-wise and for this reason it keeps attracting professional expats and pensioners from all over the world.

In the attempt to make Portugal, and especially the Algarve, the “Florida of Europe”, the government introduced a tax exemption of a foreign occupational pension. As long as a pensioner qualifies for a special expat pension tax regime for non-habitual residents, and the pension is an occupational pension, paid from a foreign source, the pension is not taxed in Portugal. Also depending on the provisions of the applicable tax treaty, it is usually non-taxable in the source country for the duration of residence in Portugal – thus making it tax-free living for qualifying retirees.

Retirement Paradise Under Pressure

Portugal is the second best country to retire for Brits after Malta, according to Castle Cover survey. It shares time zones with the UK, retirees will find it remarkably cheap to live in Portugal – its three times cheaper to buy property here than in France. It also has the third largest European British expat community.

However, pressure is building from the EU for Portugal to change its expat tax policy, with some countries getting positively angry at Portugal’s taxation system. Last year the Netherlands, for example, was quite unreserved in its criticism of the tax regime in Portugal, accusing it of effectively creating a tax haven within the EU’s borders.

Finland went as far as reaching a tax deal with Lisbon which allows it to come after expat pensioners, who are residing in Portugal, for income tax payments from which they were previously exempt.

Other EU states who voiced their unhappiness with Portugal are Sweden and France, whose nationals were particularly swift in taking Portugal up on its offer of tax exemption. Both countries are trying to pressure Portugal to revise expat pension tax benefits for retirees residing in the country.

From the Portugal News