Edition 1291
18 October 2014
Edition: 1291

Read this week's issue online exactly as it appears in print.

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Hundreds of expat pensioners take up tax-free residence

by Brendan de Beer, in News · 27-03-2013 10:30:00 · 8 Comments

Press reports this week have revealed that more than two hundred millionaire expat pensioners have opted to move to Portugal and make it their permanent residence since the beginning of the year. This development stems from a government tax exemption granted to foreign pensioners who fulfil a handful of requirements.

Hundreds of expat pensioners take up tax-free residence

According to figures released this week by Correio da Manhã, the total tax exemption has cost the state coffers an estimated 30 million in revenue.
Portuguese pensioners who receive between 135 and 1,800 euros a month have to make an extraordinary payment this year of 3.5 percent on their earnings. The percentage rises in accordance with the pension received, and can be as high as 40 percent for those earning more than €7,500.
The law decree reform came into effect at the end of last year and immediately resulted in an outcry from Portuguese pensioners who feel they are at the end of an unfair rule.
The revised legislation made a series of alterations to the existing IRS Code, including a stipulation which allows retired expats who spend part of the year in Portugal, to be free of any income tax.
The move was born from an apparent and urgent need to provide clarity on the functionality of previous legislation, while observers also expressed the view that the reform will further highlight Portugal, and especially the Algarve.
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.
The idea behind this exemption was reportedly conceived following pressure from interest groups in Sweden, and following Portugal’s agreement to waive income tax on pension, the legislation effectively spread to cover all EU member states and any other nations with which Portugal shares tax agreements.
But despite the existence of legislation to a similar effect having been introduced in 2009, tax officials have since assumed a position whereby they continued to demand the payment of taxes from pensioners, even those who fulfilled the above obligations.
Clarity was provided at the end of 2012 as the majority coalition government altered Article number 81 of the IRS Code, a change which is contained in the 2013 state budget.
Several tax advisors told The Portugal News in recent months that they have numerous clients who are currently locked in battles with the taxman over this restrictive interpretation of the law since its initial introduction three years ago.
In effect, this latest reform will entitle pensioners to be exempt of taxes both in their home nation and in Portugal, which could serve to boost the country’s appeal, especially amongst citizens from northern Europe.
Late last year, Portugal was ranked amongst the top countries in the world for Britons to seek retirement.
Castle Cover, insurance specialists for over-fifties, surveyed a total of 23 countries based on a number of criteria including rainfall, hours of sunshine, temperature, property price, petrol costs, murder rate and healthcare availability and costs, among others.
The expat community as well as the distance from home and grocery index were also used to decide on the best countries for retirement.
From their research, they identified the top ten countries that are best for Britons to retire overseas.
In top spot came Malta, which was found to have more than 3,100 hours of sunshine a year and an average temperature of 19 ºC, as well as having English as a first language.
Portugal came in second place, with the insurance company describing it as sharing 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.
Other nations in the top ten included Spain, Barbados, the US, Australia, Thailand, Jamaica, Morocco and Greece.

Comments

I received a lump sum for my private pension this year as I was 60 this year and will not receive my state pension until 65?
However, will I have to pay tax in Portugal on my lump sum?
by Pam from Algarve on 30-04-2014 05:51:00
"I like the idea of Cyprus sunshine"...
It says "Malta" & 3,100 you doughnut.

"Malta, which was found to have more than 3,100 hours of sunshine a year"
by G from UK on 05-01-2014 10:14:00
To James Scarfe: Can you clarify your comment. Double the amount of tax compared to what?
by B Andersson from Other on 03-04-2013 10:47:00
it is no longer cheaper to live in portugal the cost of living here has more than doubled since the euro
by simon from Lisbon on 30-03-2013 09:37:00
The last paragraph does not highlight the fact that a retired couple with full state pension and €30,000 company pension and £2,000 bank interest would pay double the amount of tax in Portugal and would only get 10% relief on medical expenses as against no cost NHS .
by James Scarfe from Algarve on 29-03-2013 10:29:00
I like the idea of Cyprus sunshine, 31,000 hours, per year. By my calcs even if it never gets dark, that's nearly 1,300 days in a year. No wonder the banks are in a muddle.
by M Hawkins from UK on 29-03-2013 02:12:00
Interest
by A from Algarve on 29-03-2013 08:51:00
Tax free retirement
by David from USA on 28-03-2013 08:05:00

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Edition 1291
18 October 2014
Edition: 1291

Read this week's issue online exactly as it appears in print.

Twitter