Tax benefits for foreign pensioners in Portugal - changes in 2020

Launched in 2009, the regime for non-habitual residents in Portugal adds up to more than 27,000 beneficiaries and has been a strong driver of property investment in Portugal, especially in recent years. But there are changes in sight regarding tax in Portugal in this programme that grants tax benefits to foreign retirees who decide to settle in the country. The idea is to maintain the benefits for those who already have them, but to reduce them for future requests from pensioners who want to retire in Portugal.

The Portuguese socialist party (PS) is preparing to move forward with a proposal to amend the State Budget (OE) for 2020 to change the legislation for non-habitual residents, information stated in the Portuguese newspaper, Negócios, quoting government sources and detailing that the goal is to introduce the imposition of a minimum tax rate for retirees who arrive in Portugal in the meantime and therefore end up losing the total tax exemption which has applied until now.

Foreign retirees who join the regime of non-habitual residents (RRNH) in the future will lose the double exemption from paying income tax (imposto sobre o rendimento das pessoas singulares - IRS) and will be called to pay a rate of 10%, with a minimum tax of 7,500 euros per year, details the newspaper, Expresso.

Currently, foreign retirees benefit from a double tax exemption since, through the agreements to avoid double taxation, no income tax is required from them, neither in Portugal, nor in their countries of origin. 

The amendment, according to Negócios, has been prepared by the Ministry of Finance and meets the demands of the left in general, which is very critical of this regime, in particular the Left Block.

The proposal will be presented by the Portuguese Socialist Party (PS) MPs during a special debate on the State Budget for 2020 (OE-2020). And, according to the newspaper, Expresso, they will attempt to achieve a sort of squaring of the circle: "to address the growing criticism from both inside and outside of the country that has been expressed regarding these tax benefits and, at the same time, not drive wealthy foreigners away from a regime that has yielded many millions in real estate and tax consultancy in Portugal".

According to estimates made by the Office of Studies of the Association of Real Estate Professionals and Companies in Portugal (Gabinete de Estudos da Associação dos Profissionais e Empresas de Mediação Imobiliária de Portugal - APEMIP), quoted in the Portuguese magazine, Visão, between January and June 2019 the French were the foreigners who invested the most in Portuguese real estate, with a representation of 21% in the share corresponding to foreign investment in housing (about 16% in the period under review).

New rules equivalent to benefits for "masterminds"

This is not the first time that the Ministry of Finance has considered such a change, as Negócios reminds us. In 2017, as part of the preparation of the 2018 State Budget, the Minister of Finance, Mário Centeno, confirmed that a change was being assessed and, in the meantime, the country has already had to renegotiate double taxation agreements with countries such as Sweden or Finland and, to that extent, advancing with a minimum rate is also a way for Portugal to give a signal to other countries that are preparing to advance with similar requirements.

The new model, if confirmed, will be in line with the rules applied, under the same regime, to non-residents with high value-added activities, the so-called "masterminds". "Masterminds" settle in the country and for a period of ten years are guaranteed a tax rate of only 20% on income from dependent work or business and professional income.