End of tax exemption for foreign pensioners in Portugal : Portuguese government will change the NHR status
Some will still say "fake news" but it is something that is approaching: the end of NHR status as we know it. Indeed, the Portuguese government has decided to go ahead and propose changes to the NHR tax regime which grants total tax exemption for 10 years to foreign retirees. It’s the Jornal de Negocios that headlines it today. They say the government is preparing a minimum tax rate on foreign pension income, but will not change the conditions for current beneficiaries. Lisbob, the expatriate assistant in Portugal, offers you the translation of this article from Jornal de Negocios.
End of tax exemption for foreign pensioners in Portugal : Portuguese government will change the NHR status
The regime for non-habitual residents will evolve with the 2020 state budget: the exemption is maintained for those who already have it, but it is reduced for those who come in the future.
The ruling Portuguese Socialist Party is preparing to move forward with a proposal to modify the state budget (OE) for 2020 in order to modify the regime for non-habitual residents, Business learned from government sources. The idea is to maintain the rules that exist for foreign retirees already established in the country and benefiting from the scheme, but to go ahead with the imposition of a minimum tax rate for those who now come and who will lose the total exemption. No changes are planned for non-residents carrying out activities with high added value who also benefit from the scheme.
The amendment was prepared by the Ministry of Finance and is also in line with the demands of the left, which is very critical of this regime, in particular the leftist bloc. Basically, foreign retirees benefit from a double taxation exemption because, thanks to double taxation agreements, no IRS is required of them here or in their country of origin.
The objective now is to maintain the regime for those who are already there, so that the initial expectations are not dashed, but that they are so friendly to the retirees that they will choose in the future to move to Portugal. They will have to pay an IRS tax which, while beneficial, will result in the loss of the current total exemption for these individuals.
All the good things have an end
"Brains" already pay 20% IRS
This will in practice be a rule in accordance with what already exists under the same regime for non-habitual residents with high added value activities, the so-called "brains", who settle in the country for a period of ten years. They are guaranteed at a rate of only 20% on dependent work income or business and professional income, but represent only 8% of the total beneficiaries of RNH status.
It is not now that the Department of Finance is considering such a change. Already in 2017, as part of the preparation of the 2018 state budget, Mário Centeno confirmed that a change was being evaluated. At the time, several countries criticized national legislation, such as Sweden or Finland, from which came the accusations of unfair tax competition. That year, nothing happened and in 2018, in the OE of 2019, no proposal with legs to walk also appeared, proving that the question was far from being consensual in the government itself.
In the meantime, the country has already been forced to renegotiate double taxation agreements with countries like Sweden or Finland and, as such, advancing with a minimum rate is also a way for Portugal to signal to other countries preparing to move forward with similar demands. Since its launch in 2009, the plan for non-habitual residents has exceeded 27,000 beneficiaries.