2020 NHR changes in Portugal

Foreign pensioners in Portugal are about to lose their tax-free status under new plans being brought in by the left-wing government

Income tax news for retired expats in Portugal / Suad Kamardeen on Unsplash
Income tax news for retired expats in Portugal / Suad Kamardeen on Unsplash
5 March 2020, Redaction

Besides plans to end golden visas in Lisbon and Porto, the ruling Socialist Party in Portugal has introduced an amendment to this year's state budget which will levy a 10% income tax (known in Portuguese as IRS) on the foreign revenue of foreign pensioners who move to Portugal. Here's what you need to know if you're a pensioner planning to retire in Portugal or if you're already living there.

"Non-habitual residents (NHR) arriving to live in Portugal from this year will be taxed up to 10% on their income", states the proposal. The initiative is clear that these amendments will only cover non-habitual residents who are not yet registered and benefiting from this tax regime, nor are they within the time limit that allows them to do so.

In the amendment, the Portuguese Socialist Party also states that "the total exemption of foreign pension income from taxation by a non-habitual resident is eliminated, requiring the application of a 10% rate, without prejudice to the option for aggregation and the elimination of international double taxation".

"On the other hand, the ammendment readjusts the exemption requirements for income from employment (dependent and independent) obtained abroad by pensioners, requiring effective taxation in the source state of the income. Finally, in compliance with taxpayers' guarantees and with a view to avoiding litigation, the document details the possibility of NHR who are already enrolled (or who are still within the deadline to do so), on the date this amendment takes effect, to choose between the current scheme or the new regime".

The NHR scheme was created in 2009 and gives workers with professions considered of high added value the possibility to benefit from a special IRS rate of 20% and retirees with pensions paid by another country the possibility of taking advantage of exemption from the payment of IRS (income tax) – if there is a double taxation agreement, then this gives the country of residence (Portugal) the right to tax it.

It should be noted that each non-habitual resident may benefit from this tax regime for a maximum period of 10 years and that 27,367 people have benefited from this regime, 9,589 of whom are retired.

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